IRS Issues Proposed Regs on 1099 Reporting Thresholds, Wagering Loss Limitation

(Parker Tax Publishing April 2026)

The IRS issued proposed regulations under Code Secs. 6041 and 6041A relating to the increased threshold for reporting payments made in the course of a trade or business under the One Big Beautiful Bill Act (OBBBA) (Pub. L. 119-21) and the corresponding backup withholding regulations under Code Sec. 3406. The proposed regulations also update the regulations under Code Sec. 165 to reflect the 90 percent limitation on wagering losses enacted by the OBBBA. REG-113229-25.

Background

Code Sec. 165(a) provides an itemized deduction for losses sustained during the tax year that are not otherwise compensated for by insurance or otherwise. Code Sec. 165(d) limits the deduction available for losses from wagering transactions, including any deduction otherwise allowable that is incurred in carrying on wagering transactions. Prior to the changes made by the One Big Beautiful Bill Act (OBBBA) (Pub. L. 119-21), Code Sec. 165(d) limited losses from wagering transactions to the extent of the gains from such transactions. Current Reg. Sec. 1.165-10 restates this limitation and provides a rule for the treatment of wagering losses on a joint return. The OBBBA amended Code Sec. 165(d) to limit this deduction to 90 percent of the amount of wagering losses during a tax year and only to the extent of gains from wagering transactions during a tax year.

Code Sec. 6041(a) requires persons engaged in a trade or business to file information returns reporting payments of fixed or determinable gains, profits, and income equal to, or in excess of, a particular dollar threshold made to another person in the course of that trade or business. Prior to the enactment of the OBBBA, this dollar threshold was $600. The OBBBA increased the $600 threshold in Code Sec. 6041 to a base threshold of $2,000 for payments made after December 31, 2025. Additionally, the OBBBA added Code Sec. 6041(h), which provides that, for calendar years after 2026, this base threshold will be indexed to inflation. Lastly, the OBBBA amended Code Sec. 6041 by amending the section heading from "$600 or More" to "Exceeding Threshold" and changing the phrase "taxable year" to "calendar year." These changes are effective for payments made after December 31, 2025. Several existing regulations promulgated under Code Sec. 6041 reference the prior $600 threshold amount in their text. However, Reg. Sec. 1.6041-10, which was published in 2016, contains a $1,200 reporting threshold for winnings from bingo and slot machine play and a $1,500 reporting threshold for winnings from keno.

Code Sec. 6041A(a) requires persons engaged in a trade or business to file information returns reporting payments of remuneration for services made in the course of that trade or business that equal or exceed a dollar threshold. Prior to the enactment of the OBBBA, this dollar threshold was $600. The OBBBA amended the $600 threshold in Code Sec. 6041A(a)(2) to cross-reference "the dollar amount in effect for such calendar year under section 6041(a)." This change is effective for payments made after December 31, 2025.

Code Sec. 3406(a)(1) requires backup withholding for reportable payments if certain conditions are met. Code Sec. 3406(b)(1)(B), (b)(3)(A), and (b)(3)(B) provide that payments required to be shown on a return under Code Secs. 6041 and 6041A are reportable payments. Code Sec. 3406(b)(4) provides that, generally, whether a payment is reportable is determined without regard to the minimum amount that must be paid before a return is required. However, under Code Sec. 3406(b)(6)(A) payments described in Code Secs. 6041 and 6041A were only treated as reportable payments for backup withholding if the aggregate amount of payments to a payee in the calendar year equaled or exceeded $600. The OBBBA amended the $600 threshold in Code Sec. 3406(b)(6)(A) to cross reference "the dollar amount in effect for such calendar year under section 6041(a)." In addition, the OBBBA amended the reference to "$600 or More" in the heading of Code Sec. 3406(b)(6) to say "Only Where in Excess of Threshold." These changes are effective for payments made after December 31, 2025.

REG-113229-25

Following the enactment of the OBBBA, the first sentence of Reg. Sec. 1.165-10, providing that losses from wagering transactions are limited to the extent of gains from such transactions, no longer accurately describes the limitations on wagering losses in Code Sec. 165(d). The proposed regulations would amend this sentence to limit the deduction to 90 percent of the amount of wagering losses during a tax year and only to the extent of gains from wagering transactions during a tax year. The proposed regulations would also make corresponding changes to the treatment of combined losses of spouses from wagering transactions to reflect the changes made by the OBBBA.

The proposed regulations would also update the regulations under Code Secs. 6041, 6041A, and 3406 to change the references to the pre-OBBBA $600 threshold. Consistent with the wording of the OBBBA, these references (specifically, in Reg. Secs. 1.6041-1, 1.6041-2, 1.6041-7, 1.6041A-1, 31.3406(b)(3)-1, and 31.3406(g)-2) would be replaced with a reference to an amount equaling or exceeding the dollar threshold in effect for the calendar year under Code Sec. 6041(a) and (h).

Prop. Reg. Sec. 1.6041-1(a)(3) would define the dollar amount in effect for the calendar year under Code Sec. 6041(a) as $2,000 for calendar year 2026, adjusted for inflation in subsequent calendar years as provided in Code Sec. 6041(h).

Because the dollar thresholds for reporting winnings from bingo, keno, and slot machine play provided in current Reg. Sec. 1.6041-10(b)(2)(i) are below the threshold established in the OBBBA, the proposed regulations would update those thresholds to match the new statutory threshold in Code Sec. 6041(a) as revised by Congress. Accordingly, the proposed regulations would modify Reg. Sec. 1.6041-10 to provide that the threshold for reporting payments of winnings from bingo, keno, and slot machine play is $2,000 for calendar year 2026, adjusted for inflation in subsequent calendar years as provided in Code Sec. 6041(h). The existing limitations related to the amount wagered in each of the affected games would be maintained under the proposed regulations.

For a discussion of the reporting requirements under Code Secs. 6041 and 6041A, see Parker Tax ¶252,565. For a discussion of backup withholding, see Parker Tax ¶252,110. For a discussion of the 90 percent limitation on wagering losses, see Parker Tax ¶85,125.

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