Tax forms rarely grab headlines, but small changes can create big headaches if you’re caught unprepared. The IRS has rolled out several targeted updates to 1099 forms for the 2025 tax year, and if you’re still using last year’s approach, you could face compliance issues when filing season arrives.
This guide breaks down exactly what changed, why it matters, and how to adjust your processes before the 2026 filing deadlines
What Actually Changed? A Quick Overview
Here’s a snapshot of all the 1099 changes for Tax Year 2025:
| Form | What Changed | Old Location | New Location |
|---|---|---|---|
| 1099-MISC | Excess golden parachute payments removed | Box 14 | Now on 1099-NEC Box 3 |
| 1099-NEC | Excess golden parachute payments added | N/A | Box 3 (new) |
| 1099-Q | Transfer type reporting expanded | Box 4 (single) | Box 4a & 4b (split) |
| 1099-Q | Distribution source clarified | Box 5 (single) | Box 5a, 5b, 5c (split) |
| 1099-R | Qualified Charitable Distribution codes added | N/A | Box 7 (3 new codes) |
Filing Deadline Reminder: These changes apply to forms reporting tax year 2025 (payments made in 2025), which will be filed in early 2026. Because January 31, 2026 falls on Saturday, most recipient deadlines move to February 2, 2026. Paper forms are generally due March 2, 2026 (February 28 is Saturday), and electronic filings are due March 31, 2026.
The 4 Key Changes You Need to Know
1. Golden Parachute Payments Moved to a Different Form
What Changed: Large executive severance payments (excess golden parachute payments) are no longer reported on Form 1099-MISC.
The Details:
- Old process (Tax Year 2024): Reported in Box 14 of Form 1099-MISC
- New process (Tax Year 2025): Report in Box 3 of Form 1099-NEC
- Why it matters: Form 1099-MISC Box 14 is now marked “Reserved for future use”
Who This Affects: If your company makes severance payments to executives or key employees that exceed three times their average annual compensation, these qualify as excess golden parachute payments and must now be reported on Form 1099-NEC instead.
Action Required:
- Review any executive compensation agreements or severance packages
- If you filed golden parachute payments on 1099-MISC in 2024, switch to 1099-NEC for 2025
- Update your payroll software or templates to reflect the new box assignment
- Leave Box 14 on Form 1099-MISC blank—do not use it for any purpose
Common Mistake to Avoid: Don’t report these payments on both forms or continue using Box 14 on 1099-MISC out of habit.
2. Form 1099-Q Now Distinguishes Between Transfer Types
The Details:
- Old process (Tax Year 2024): Box 4 was a single checkbox for any trustee-to-trustee transfer
- New process (Tax Year 2025): Split into two distinct boxes:
- Box 4a: Traditional transfers (between 529 plans, to Coverdell ESAs, or to ABLE accounts)
- Box 4b: Rollovers from a 529 plan directly to a Roth IRA for the beneficiary
Why This Change Happened: The SECURE 2.0 Act now allows 529-to-Roth IRA rollovers. The IRS needs to track this new transfer type separately for tax compliance.
Action Required:
- Determine which type of transfer occurred before checking a box
- For Roth IRA rollovers, use Box 4b (this is new reporting territory)
- If you’re unsure whether a Coverdell ESA distribution was trustee-to-trustee, leave Box 4a blank—don’t guess
Important Note: Only check one box (4a OR 4b), not both. These are mutually exclusive categories.
3. Form 1099-Q Requires Clearer Source Documentation
What Changed: You must now specify which type of education account the distribution came from.
The Details:
- Old process (Tax Year 2024): Box 5 was general and often left unclear
- New process (Tax Year 2025): Split into three specific source types:
- Box 5a: Private 529 plan (established by eligible private educational institutions)
- Box 5b: State-sponsored 529 plan
- Box 5c: Coverdell Education Savings Account (ESA)
Who This Affects: Anyone distributing funds from 529 plans or Coverdell ESAs—this includes plan administrators, financial institutions, and educational institutions.
Action Required:
- Verify the account type in your records before completing the form
- Check only one box that matches the distribution source
- Update your internal processes to capture this information at the time of distribution
Why Accuracy Matters: The IRS uses this data to verify that distributions align with the correct tax treatment rules, which differ between account types.
4. New Codes for Charitable IRA Distributions (Form 1099-R)
What Changed: Qualified Charitable Distributions (QCDs) from IRAs now have dedicated reporting codes.
IMPORTANT UPDATE (October 16, 2025): The IRS has made Code Y optional for 2025 tax year reporting. Financial institutions may choose to use it but are not required to for distributions made in 2025.
The Details: Three new code combinations have been added to Box 7 on Form 1099-R:
| Code | When to Use |
|---|---|
| Code Y + Code 7 | QCD from a non-inherited (regular) IRA |
| Code Y + Code 4 | QCD from an inherited IRA |
| Code Y + Code K | QCD of assets without readily available fair market value (FMV) from any IRA |
Background: A QCD is a tax-free donation sent directly from an IRA to a qualified charity by the IRA trustee. Previously, these distributions weren’t clearly marked, making it harder for taxpayers to demonstrate they met QCD requirements.
Who This Affects:
- Financial institutions holding IRAs
- IRA custodians and trustees
- Plan administrators processing charitable distributions
Action Required:
- For 2025, using Code Y is optional—you may choose to implement it or wait until it becomes mandatory
- If you do use Code Y, when processing a charitable distribution from an IRA, determine which code combination applies
- Use Code Y along with the appropriate secondary code (7, 4, or K)
- Do not use these codes for distributions to non-qualified organizations
- Train your team on identifying QCDs versus standard distributions if you choose to adopt the new codes
Why This Helps: These codes make it easier for IRA owners age 70½ or older to prove they made qualifying charitable distributions and can exclude them from taxable income.
How to Adapt Your Process for Tax Year 2025
Making these changes doesn’t require overhauling your entire system—just targeted adjustments. Here’s your action plan:
Step 1: Update Your Forms and Software
- Download the latest 2025 versions of all 1099 forms from IRS.gov or your tax software provider (NOTE: If you have a full service vendor like Tab Service Company, you do not have to worry about this step. Tab updates everything for you automatically.)
- Verify that your accounting or payroll software has been updated for 2025
- If using pre-printed forms, ensure they reflect the 2025 revisions
Step 2: Audit Your Current Processes
Ask yourself:
- Do we currently file any forms affected by these changes?
- Which internal systems or templates need updates?
- Who on our team needs to know about these changes?
Step 3: Create a Change Log
Document each change relevant to your business if your vendor does not do it for you:
- Form name
- Old vs. new reporting requirement
- Impact on your workflow
- Updated procedure
Step 4: Review Past Filings
Look at your 2024 1099s:
- Did you report golden parachute payments on 1099-MISC? → Switch to 1099-NEC for 2025
- Did you file 1099-Q forms? → Review which new boxes apply
- Did you file 1099-R for IRA distributions? → Identify any QCDs that need new codes
Step 5: Train Your Team
Share this information with:
- Accounting and finance staff
- Payroll processors
- Anyone who prepares or reviews 1099 forms
- External CPAs or tax preparers you work with
Critical Dates and Penalties
Key Deadlines for 2025 Tax Year (Filed in 2026):
- February 2, 2026: Deadline to furnish copies to recipients (most forms)
- February 2, 2026: Form 1099-NEC filing deadline with the IRS (paper AND electronic)
- March 2, 2026: Paper filing deadline with the IRS (most other 1099 forms)
- March 31, 2026: Electronic filing deadline with the IRS (most other 1099 forms)
Note: January 31, 2026 falls on Saturday, so the deadline moves to Monday, February 2, 2026.
E-filing Requirement: If you file 10 or more information returns in total (aggregating all types including 1099s, W-2s, etc.), you must file electronically. This threshold was lowered from 250 to 10 effective January 1, 2024.
Penalties for Incorrect Filing:
- Filing with incorrect information: Up to $340 per form
- Failure to file within 30 days: $60 per form
- Failure to file more than 30 days but before August 1: $130 per form
- Failure to file after August 1 or not at all: $340 per form
- Intentional disregard: At least $680 per form (or 10% of amounts required to be reported, whichever is greater) with no maximum
Small Business Note: Lower maximum penalties apply if your average annual gross receipts are $5 million or less for the past 3 years.
The IRS may waive penalties if you can show reasonable cause, but catching errors early is far easier than requesting penalty relief.
Common Questions About the 2025 Changes
Q: Do I need to amend my 2024 filings because of these changes? No. These changes only apply to forms filed for the 2025 tax year (covering payments made in 2025). Your 2024 filings should follow 2024 rules.
Q: What if I already printed 2024 versions of the forms? Don’t use them. The IRS requires you to use the version of the form that matches the tax year you’re reporting. Using outdated forms may result in rejection or penalties.
Q: Can I still mail paper forms if I file fewer than 10? Yes, but electronic filing is faster and reduces errors. Many businesses voluntarily e-file even below the threshold. Note that the threshold is 10 total information returns (all types aggregated), not 10 of each type.
Q: What happens if I report golden parachute payments in the wrong place? The IRS may send you a correction notice, which delays processing and could result in penalties. File correctly the first time to avoid this.
Q: Where can I get the official 2025 forms? Download them directly from IRS.gov or through your tax software provider. Most providers automatically update to the latest versions.
Q: Is the new QCD Code Y mandatory for 2025? No. As of October 16, 2025, the IRS announced that Code Y is optional for 2025 tax year reporting. Financial institutions may use it but are not required to. However, it’s expected to become mandatory in future years, so consider implementing it now to stay ahead.
Why These Changes Matter
These updates aren’t arbitrary—they reflect evolving tax policy and the IRS’s need for more precise data. Here’s what’s at stake:
For Your Business:
- Accurate reporting protects you from penalties and audits
- Correct codes ensure smooth processing and faster refunds for recipients
- Staying current demonstrates professionalism and compliance
For Recipients:
- Proper codes help them file their own returns correctly
- Clear documentation supports their tax positions
- Reduces their risk of IRS inquiries
For Tax Policy:
- The IRS uses this data to track new retirement savings vehicles (like 529-to-Roth rollovers)
- Better reporting improves tax administration and enforcement
- Clearer codes reduce confusion and disputes
Your Next Steps
The 2025 changes are focused and manageable—if you act now. Here’s what to do today:
- Review this list and identify which forms your business files
- Check your software or forms to confirm they’re updated for 2025
- Create a checklist of which changes affect your reporting
- Brief your team on the specific updates relevant to your operations
- Mark your calendar for the January 31, 2026 and March 31, 2026 deadlines
The businesses that struggle during tax season are the ones that wait until January 2026 to figure out what changed. The businesses that thrive are the ones that prepare in advance.
Need Help Navigating These Changes?
At Tab Service Company, we stay on top of every IRS update so you don’t have to. Whether you need help transitioning to the new forms, verifying your compliance, or streamlining your entire 1099 filing process, we’re here to make tax season painless.
Contact us today to ensure your 2025 filings are accurate, timely, and penalty-free.
Last updated: November 2025 | For the most current IRS guidance, visit IRS.gov