Hot off the press! Our latest newsletter covering the 2026 Annual Information Returns (Forms 1099, W-2s, and more) is now available here.
Key Updates for 2025: 1099s, Worker Classification, and New Tax Deductions
Staying compliant with tax regulations is more important than ever—especially with evolving rules around Forms 1099, worker classifications, and new deductions for tips and overtime. Here’s what you need to know for the 2025 tax year.
California Worker Classification: Independent Contractor vs. Employee
California law (A.B. 5) makes it tougher for businesses to classify workers as independent contractors. Most workers are now presumed to be employees unless your business satisfies all parts of the ABC test:
- A: Worker is free from employer control
- B: Work is outside your usual business activities
- C: Worker has an independent trade/business
There are exceptions—see a full list here. Incorrect classifications can result in steep penalties, so consult us with any questions.
New Deductions for Cash Tips & Overtime
- Cash Tips: Starting in 2025, individuals in typical tipped professions can deduct up to $25,000 in qualified cash tips (phased out at higher incomes). Read all requirements and limitations in our newsletter.
- Overtime: Taxpayers can also deduct up to $12,500 ($25,000 if married filing jointly) of overtime pay over regular rates, with similar income-based phaseouts.
Note: These deductions do not apply for California state tax.
1099 & W-2 Reminders
- Form 1099 thresholds: Most payments to non-employees must be reported if they total $600+ (increasing to $2,000 in 2026).
- Form W-2 requirements: All employee compensation—including bonuses and certain benefits—must be reported and subject to tax withholding.
- Deadlines: 1099s must be issued to recipients by January 31, 2026, and submitted to the IRS by February 28 (mail) or March 31 (e-file).
- Backup withholding: Strict rules apply if payees fail to provide Tax ID information.
Other Key Topics
- Household Employee (Nanny Tax): Paying household help over $2,800/year triggers tax and filing responsibilities.
- Expense Reimbursements: Only those made under an accountable plan are non-taxable.
- S-Corp Owners: Health insurance premiums for >2% shareholders must be reported as wages (with a corresponding deduction).
Stay Informed
Penalties for non-compliance are significant, and both federal and state rules are evolving.
Read our full 2026 Annual Information Returns Newsletter for in-depth details and links to resources.
Questions or concerns? Contact us for personalized guidance.