Episode 8: 1099 and 1042-S Year-in-Review

As 2025 comes to a close, this special year-end episode of Information Return Intelligence looks back at the most important developments in information return reporting—especially those affecting accounts payable and compliance teams.

We walk chronologically through the year, highlighting regulatory changes, IRS guidance, legislation, and draft forms that will shape reporting obligations in 2025 and beyond.

Key topics covered include:

• January regulations on digital and cloud transactions
  Final regulations clarified how digital transactions are classified (royalty, sale, lease, services, or know-how), while new rules on cloud computing—such as SaaS—generally treat these arrangements as services, with major implications for 1099-NEC and 1042 reporting.
• Sourcing challenges for cloud transactions
  Proposed sourcing rules introduced a three-factor formula for U.S. vs. foreign sourcing—an approach widely criticized as impractical for information return filers.
• IRS ruling on tribal payments
  A private letter ruling confirmed that Native American tribes are subject to Section 6041 reporting, including issuing Forms 1099 for prize winnings such as powwow contest awards.
• The FIRE system sunset timeline
  The IRS stated—in writing—that the FIRE system is expected to shut down in December 2026, leaving IRIS as the sole electronic filing platform.
• The “Big Beautiful Bill” and information reporting
  Major highlights include:
  • The long-awaited increase of the $600 reporting threshold to $2,000, effective in 2026 and indexed for inflation thereafter
  • Rollback of prior changes to Form 1099-K thresholds
  • New deductions for tips and overtime, with downstream reporting implications
• Sports gambling and Form 1042-S
  IRS guidance confirmed that sports gambling winnings paid to nonresident aliens are subject to Form 1042-S reporting and 30% withholding, absent treaty relief.
• Draft Form W-9 changes
  Draft versions released in September and December propose eliminating the ability for sole proprietors to provide an EIN instead of an SSN—a change still pending as of year-end.
• New reporting boxes for tips and overtime
  Draft 2026 versions of Forms 1099-NEC, 1099-MISC, and 1099-K include new boxes for tips and overtime, reflecting coordination challenges between IRS tax rules and Department of Labor standards.

This episode ties together the biggest themes of 2025 and sets the stage for what filers need to watch heading into 2026—particularly threshold changes, IRIS adoption, and evolving worker classification issues.

🎧 Listen now to get fully caught up before the new reporting year begins.