1099-NEC for Attorney Payments: 2026 Rules After OBBBA

For tax year 2026, 1099-NEC reporting for attorney payments follows the new $2,000 threshold the One Big Beautiful Bill Act (OBBBA) introduced, not the legacy $600 floor. OBBBA section 70433(a) raised the general 1099-NEC reporting threshold from $600 to $2,000 for payments made after December 31, 2025. Section 70433(c) also amended IRC section 6041A — the Code section under which payments for legal services are reported on 1099-NEC Box 1 — to align with the new $2,000 threshold. In plain AP terms: a payment of $2,000 or more for legal services performed by an attorney or law firm during 2026 is reportable on a 1099-NEC; a payment below $2,000 is not.

The corporate-exemption carve-out for legal services has not changed. Law firms organized as C-corporations, S-corporations, or LLCs taxed as corporations are still reportable when the threshold is met, while most other corporate vendors are not. That carve-out is an entity-type rule — it determines whether a payment is reportable at all. The dollar amount that triggers reporting is a separate, threshold-rule question, and OBBBA changed only the second one.

Gross proceeds paid to an attorney — the 1099-MISC Box 10 reporting that captures settlement payments routed through plaintiff's counsel — sit under IRC section 6045(f), which OBBBA section 70433 did not directly amend. The $600 floor that has historically governed Box 10 reporting lives in the IRS Instructions for Forms 1099-MISC and 1099-NEC and the proposed regulations, not in section 6045(f) itself. Until the IRS publishes the next instruction revision before the January 2027 filing season, the conservative AP position is to keep the Box 10 threshold at $600.

Several tax-press articles read the corporate-exemption carve-out as if it preserved a separate $600 threshold for legal services. It does not. The carve-out preserves reportability for corporate law firms; the dollar threshold for Box 1 attorney fees is now $2,000, the same as for any other section 6041A-reported service. Treating the carve-out as a hidden $600 attorney threshold is the most common error in OBBBA coverage, and it is the central correction this article makes.

The Statutory Architecture: §6041, §6041A, and §6045(f)

Three Internal Revenue Code sections govern attorney and law-firm payment reporting, and OBBBA's threshold change touches them differently.

IRC §6041 is the general information-reporting statute. It requires payors to report payments of $600 or more for services rendered in the course of a trade or business. OBBBA section 70433(a) raised the §6041 threshold from $600 to $2,000 for payments made after December 31, 2025. Section 70433(b) added a new §6041(h) that indexes the threshold for inflation annually after 2026, so the figure will drift upward each subsequent year.

IRC §6041A governs reporting of remuneration for services performed by non-employees, including attorneys for legal services. The current IRS Instructions for Forms 1099-MISC and 1099-NEC state explicitly that attorney fees for legal services are reported "under section 6041A(a)(1)." OBBBA section 70433(c) amended §6041A's threshold to align with §6041(a). The mechanical consequence: 1099-NEC Box 1 attorney fees follow the new $2,000 threshold for tax year 2026 payments, the same as any other §6041A-reported service. There is no separate $600 attorney threshold anywhere in the post-OBBBA statute.

IRS Notice 2025-62 confirms this directly: OBBBA section 70433(c) amended the reporting threshold under section 6041A — the section under which attorney fees for legal services are reported — to align with the new $2,000 threshold under section 6041(a) for payments made after December 31, 2025. Notice 2025-62 also provides transition penalty relief for the OBBBA reporting changes, and it is the IRS-issued document the AP team can cite while the form instructions catch up.

IRC §6045(f) sits on its own footing. It governs gross proceeds paid to an attorney — the 1099-MISC Box 10 reporting that captures payments where the attorney acts as a conduit for funds owed to a third party. Section 6045(f) was not directly amended by OBBBA section 70433. The $600 floor that has historically applied to Box 10 reporting comes from the IRS Instructions for Forms 1099-MISC and 1099-NEC and from the long-standing proposed regulations under §6045(f), not from a statutory threshold in §6045(f) itself. The IRS has not yet revised the Box 10 instruction threshold post-OBBBA; the next form-instruction release is where that question gets answered.

The Entity Rule vs the Threshold Rule: Where AP Teams Get Caught

Two separate rules govern whether AP issues a 1099-NEC to a law firm, and OBBBA changed exactly one of them. Confusing the two produces both of the wrong answers AP teams are landing on in 2026.

The entity rule is the corporate-exemption carve-out for legal services. For most vendor classes, a payor does not issue a 1099-NEC to a payee organized as a C-corporation, because the corporate exemption excludes corporate payees from §6041 and §6041A reporting. Legal services are explicitly carved out of that exemption: payments for legal services are reportable on a 1099-NEC even when the law firm is organized as a corporation, an S-corporation, or an LLC taxed as a corporation. This carve-out has not changed under OBBBA. It determines whether a payment falls inside or outside the corporate-exemption gate.

The threshold rule is the dollar amount at which a reportable payment becomes reportable. Under §6041A — the section attorney fees flow through — the threshold is now $2,000 for payments made after December 31, 2025, by virtue of OBBBA section 70433(c). The threshold sets the floor; it does not decide whether the payment was eligible for reporting in the first place.

Conflating them produces a recognizable AP error pattern. Treat the carve-out as if it preserved a separate $600 threshold and the team issues 1099-NECs to law firms at $600 in tax year 2026, generating reportable forms below the §6041A statutory floor. The carve-out is about whether the payee's entity classification kicks the payment out of scope, not about the dollar amount.

The opposite error is more dangerous. Read OBBBA as eliminating the legal-services carve-out — "the threshold went up, so corporate law firms must be exempt now like other corporate vendors" — and the team skips 1099s for corporate law firms paid above $2,000, missing reportable payments. The carve-out and the threshold rule operate independently; neither change to the threshold touches the entity rule.

The practical 2026 instruction is short. AP issues 1099-NECs to law firms at $2,000 or more for legal services, regardless of whether the firm is organized as a corporation, an S-corporation, an LLC taxed as a corporation, a partnership, or a sole proprietor. The threshold is the standard §6041A threshold of $2,000; the entity-classification override is the carve-out, which has not changed. The vendor-master logic needs to honor both rules independently — a single threshold setting cannot capture both, which is why the AP-system controls discussion later walks the flag structure that supports the right answer.

1099-NEC Box 1 vs 1099-MISC Box 10: The Decision Tree

When AP cuts a check to a law firm, the box question is separate from the threshold question. Two payment types reach attorneys, two boxes capture them, and two Code sections govern them. The Box 1 versus Box 10 decision turns on a single determinant: is the firm being paid for its services, or is the firm acting as a conduit for funds owed to a third party?

1099-NEC Box 1 captures payments for legal services rendered by the attorney or law firm to the payor. Billable hours on a matter the firm handled for the company. A flat fee for a specific engagement. A retainer earned through service performed during the year. Anything where the firm's own work is what the company is paying for. Box 1 reporting flows through §6041A, follows the legal-services carve-out (the corporate exemption does not apply), and uses the new $2,000 threshold for tax year 2026 payments.

1099-MISC Box 10 captures gross proceeds paid to an attorney — payments where the attorney serves as a conduit for funds owed to someone else. The canonical case is a settlement payment cut to plaintiff's counsel for forwarding to the plaintiff: the firm receives the check, but the underlying claim is the plaintiff's, and the firm's own services are billed separately. Box 10 reporting flows through §6045(f) and is required regardless of the attorney's entity classification. The IRS instructions are explicit that gross proceeds paid to an attorney are reportable on Box 10 even when the attorney is organized as a corporation. Both boxes ignore the corporate exemption, but for distinct statutory reasons — §6041A through the legal-services carve-out, §6045(f) through its own architecture.

The concrete payment shapes mapped to boxes:

• Invoice for billable hours from outside counsel handling a contract dispute → Box 1.
• Settlement payment cut to plaintiff's counsel for forwarding to the plaintiff → Box 10. The settlement payment attorney conduit treatment applies even when the same firm has separately invoiced the company for the legal fees that defended the matter; those defense fees are Box 1, the settlement check to the plaintiff's counsel is Box 10, and the two reports are independent.
• Combined invoice covering both legal services and a settlement-funding component → split into two reportable amounts, one on Box 1 and one on Box 10. Do not collapse the two into a single line.
• Flat fee for a specific litigation event with no separate proceeds component → Box 1.
• Joint settlement check made payable to both the claimant and counsel → Box 10. The §6045(f) reporting captures the conduit role regardless of how the check is legally payable.

Threshold treatment maps to the boxes the same way. Box 1 reporting follows the new $2,000 §6041A threshold for tax year 2026 — a Box 1 reportable amount under $2,000 to a law firm in 2026 is not reportable. Box 10 reporting under §6045(f) sits on its own footing: the current IRS instructions still show $600, the next instruction revision before the January 2027 filing season will confirm the IRS's intended treatment, and for now the conservative AP position is to keep $600 in the vendor-master rule and adjust if the revised instructions move it.

Collecting the W-9 and Handling Backup Withholding for Law Firm Vendors

The W-9 collection and backup withholding workflow turns the rules above into a defensible AP process. Outside counsel sit in the vendor master like any other reportable vendor, and the vendor-onboarding controls AP applies to them are mostly the same as for any other 1099-flagged vendor, with a few attorney-specific items that flow from the legal-services carve-out.

At onboarding, AP collects a Form W-9 from the law firm before the first reportable payment and captures four data points from it: legal name (the name the firm files under for federal tax purposes), TIN or EIN, federal tax classification from the W-9 box-3 selection, and the firm's address. Most outside-counsel firms will return a W-9 showing C-corp, S-corp, or LLC taxed as a corporation in box 3. That selection does not exempt the firm from 1099 reporting because of the legal-services carve-out — the W-9 is captured for TIN matching, vendor-master record-keeping, and audit defense, not as the determinant of reportability. The vendor-master flag (covered in the next section) is the determinant; the W-9 supplies the underlying record.

TIN matching is the underlying control. The IRS TIN Matching program lets payors verify that the legal name and TIN combination on the W-9 match IRS records before the first reportable payment goes out. AP teams that run TIN matching at vendor onboarding catch mismatches early — a typo in the EIN, a legal name that does not match the firm's IRS-on-file name, a recent name change that has not yet been registered — before those mismatches trigger CP2100 notices or B-notice processes at year-end. Treat W-9 collection from a law firm as a required vendor-onboarding gate; payment goes out only after the W-9 is on file and the TIN matches.

When a W-9 is missing, when the TIN/legal-name combination fails matching, or when the IRS issues a B-notice for the vendor, the payor must withhold 24% from each reportable payment and remit the withheld amount on Form 945. The same backup withholding rule applies to law firm vendors as to any other reportable vendor; there is no attorney-specific override. The withholding stops when the firm submits a corrected W-9, the TIN matches on a re-run, or the second-notice-and-certification process resolves a B-notice; until one of those is in hand, the 24% withholding continues on each reportable payment.

The W-9 control earns its place at year-end. AP runs a reconciliation that compares the vendor master's 1099-flagged vendors against the W-9 file and the year's payment register, identifies any vendors paid above the threshold without a current W-9 on file, and either obtains the W-9 retroactively or applies the backup-withholding correction. Most teams fold this into a broader post-1099 vendor master cleanup project that runs once filing season closes — refreshing stale W-9s, re-running TIN matching against current IRS records, and bridging any CP2100 notices into the next year's vendor record before the corrections compound. This sits inside the broader AP-side 1099 vendor invoice tracking workflow that handles the same reconciliation for the rest of the 1099-flagged vendor population. The firm-side counterpart — how outside counsel issue clean W-9s, keep their legal name and tax classification consistent with IRS records, and respond to B-notice and re-certification requests — is covered in the law firm accounts payable vendor invoice workflow.

Vendor-Master Flags and Year-End 1099 Threshold Rules

The rules above survive contact with the AP system only if the vendor master and the year-end 1099 process are configured to honor them. The OBBBA update is a natural moment for ERP threshold logic to drift in the wrong direction, and the fix is concrete enough to specify as a vendor-master flag structure and a set of threshold-rule branches.

A working vendor-master configuration for the OBBBA attorney rule distinguishes at least four flag values. attorney_legal_services marks the firm for Box 1 reporting under §6041A, applies the new $2,000 threshold for tax year 2026 payments, and ignores the corporate-exemption logic — the legal-services carve-out is what the flag encodes. gross_proceeds_attorney marks the firm for Box 10 reporting under §6045(f), applies the §6045(f) threshold (currently $600 in the IRS instructions, watching for the next revision), and also ignores the corporate-exemption logic. standard_NEC marks any other §6041A non-employee compensation vendor, applies the new $2,000 threshold, and runs the corporate-exemption logic against the W-9 federal tax classification — corporate vendors fall out of scope at this flag. corporate_exempt marks the corporate vendors that do not get a 1099 at all under the standard rules; the legal-services flag overrides this when both are present, which is the path a corporate law firm runs.

Year-end logic uses the flag to drive the right threshold-rule branch. For each vendor, the aggregation totals reportable payments by box, applies the threshold rule keyed to the flag, and produces the 1099 form when the threshold is met. Two threshold-rule branches are required, because §6041A and §6045(f) are now on different floors: the §6041 / §6041A branch (now $2,000 for tax year 2026 payments) for Box 1 attorney fees and any other §6041A-flagged vendor, and the §6045(f) branch (currently $600) for Box 10 gross proceeds. A single global threshold setting cannot capture both. Hold the $600 threshold for Box 10 in the vendor-master rule until the next i1099mec revision either confirms or changes that treatment.

The data flow that feeds the flag and the threshold-rule branch starts at invoice processing. AP captures the firm legal name (matching the W-9), the invoice total, and any expense components from each law firm invoice as it is processed; year-end, the vendor-master aggregation totals these payments by vendor and box, applies the relevant threshold-rule branch, and emits the 1099 file. Heterogeneous law-firm invoice formats — LEDES files for litigation matters, PDF invoices for general engagements, and hybrid formats — all need to feed the same aggregation cleanly. If the firm legal name on the captured invoice does not match the W-9, the year-end reconciliation flags the vendor as a W-9 mismatch and the 1099 file lands with the wrong payee name, regardless of how clean the threshold logic is.

Prompt-driven automated extraction of law-firm invoice data handles PDF law-firm invoices across varied firm-specific layouts without per-firm template configuration: AP describes the fields it needs (firm legal name, invoice total, expense components, matter reference) in a single natural-language prompt and receives the structured output as a spreadsheet that feeds the year-end aggregation. The product is the data-capture step for PDF invoices, not a 1099 compliance answer; the threshold rules and box determinations remain the AP team's responsibility, and LEDES e-billing files come in through their own ingestion path. For AP teams that handle multiple vendor classes under the same OBBBA threshold regime, preparing 1099-NEC workpapers from contractor invoices walks the year-end aggregation flow for vendor classes that follow the standard §6041A path without the legal-services carve-out.

Edge Cases for Law Firm Payments

Most attorney 1099 reporting fits cleanly inside the Box 1 versus Box 10 mainline. A handful of recurring shapes do not.

Referral fees from one law firm to another. When a referring firm pays a referral fee out of its own funds — a fixed sum or a contractual share of the firm's revenue, with no underlying recovered proceeds — the payment is consideration for the referral relationship and is reportable as 1099-NEC Box 1 under §6041A when the threshold is met. When the referral fee is paid out of recovered proceeds, such as a contingency-recovery percentage routed from one firm to another after a settlement, the conduit framing applies and the analysis runs through Box 10 instead. Most referral fees are paid firm-to-firm rather than client-to-firm, so the company's AP role is usually narrow; when the company is the source of the funds, the determinant is whether the firm is being paid for something it did or is acting as a conduit for proceeds the company is releasing.

Retainer prepayments not yet earned. A retainer paid to a law firm and held in the firm's trust account until earned is not yet a payment for services performed — it is a deposit. The reportable event is when the retainer is drawn down against billed fees, not when the company sends the check. AP teams that account on a payment basis at year-end should aggregate against the actual draw-down dates reflected on the firm's invoices rather than the retainer-deposit date, and the vendor master should track the retainer prepayment and the periodic draw-downs as separate amounts.

Attorney trust-account refunds. When a law firm refunds an unused retainer balance to the company, the refunded funds are the company's own money returned. This is not a payment for services and is not reportable on a 1099. The vendor-master record should classify the refund accurately so the year-end 1099 figure is the net of earned fees, not contaminated by trust-account movements.

Attorney expense reimbursements separately invoiced. When the firm advances filing fees, expert-witness costs, court reporter fees, or other litigation expenses on the company's behalf and invoices them separately from its own service charges, the treatment depends on the substance. If the firm is acting as a paying agent — passing through expenses the company would otherwise pay directly, with no markup or service charge — the reimbursement is not for the firm's own services and may not be reportable. If the expenses are billed as part of the firm's own service charges or with a markup that captures the firm's handling of the expense, they fold into the Box 1 service-payment total. The line is fact-specific; AP teams that see ambiguous expense reimbursements should escalate to the tax-compliance officer or the firm's billing partner for clarification.

Joint-payee settlement checks. When a settlement check is made payable jointly to the claimant and counsel, the gross-proceeds reporting under §6045(f) still applies on Box 10. The joint-payee structure is a check-issuance mechanic that protects the claimant's interest in the funds; it does not change the reporting analysis.

What to Watch in 2027 and Beyond

Two pieces of the OBBBA threshold picture for attorney payments are still moving. AP teams should anchor their 2026 process on what is known and adjust on a known timetable as the rest clarifies.

The §6041(a) general threshold inflation-indexes annually after 2026 under §6041(h), the new subsection added by OBBBA section 70433(b). §6041A is aligned to §6041(a) under section 70433(c), so 1099-NEC Box 1 attorney-fee reporting will follow the same indexed threshold each year. The $2,000 figure in this article is the tax year 2026 threshold; readers landing on the article for tax year 2027 or later should check the most recently published IRS Instructions for Forms 1099-MISC and 1099-NEC for the indexed figure that applies to their reporting year, and adjust the §6041A vendor-master threshold-rule branch accordingly.

The next revision of the IRS Instructions for Forms 1099-MISC and 1099-NEC is the document to watch for any change in the §6045(f) Box 10 treatment. The current April 2025 revision pre-dates OBBBA's effective date and still shows $600 throughout. The IRS will publish the post-OBBBA revision before the January 2027 filing season, and that release is where the AP team will get the IRS's confirmed Box 10 threshold for tax year 2026 payments. Until then: keep the Box 10 vendor-master threshold at $600, watch for the i1099mec update, and adjust the gross_proceeds_attorney threshold-rule branch when the IRS confirms the §6045(f) treatment. The §6041 / §6041A branch is settled at $2,000.