When are payments to your law firm reported on Form 1099?

Payments to a law firm are reported in two different ways. Fees a business pays for legal services go on Form 1099-NEC, box 1a, once they reach $2,000 for payments made in 2026, while settlement money and other gross proceeds paid to a lawyer go on Form 1099-MISC, box 10, once they reach $600. The usual exemption for payments to corporations does not apply to legal services, so a professional corporation receives these forms too.

Because box 10 reports money that mostly belongs to clients, the forms a firm receives rarely match its fee income line for line, and the difference has to be explainable. Getting the reconciliation right is part of Kathryn Meyer's work on tax planning for law firms.

How 1099 reporting to a law firm works, step by step

1. The payer asks for the firm's taxpayer identification number, usually on Form W-9. The Instructions for Forms 1099-MISC and 1099-NEC say an attorney must promptly supply its TIN whether it is a corporation or other entity, but does not have to certify it; if the TIN is not provided, the payer must backup withhold.
2. The payer decides what the payment is. A fee for the firm's own services is "attorneys' fees" under section 6041A(a)(1). A payment made to the firm in connection with legal services but not for its services, such as a settlement check, is "gross proceeds" under section 6045(f).
3. The payer checks the threshold for that kind of payment and year, as shown in the table below.
4. The payer files and furnishes the forms. Form 1099-NEC is due to the IRS by January 31. Form 1099-MISC is due February 28 on paper or March 31 electronically, and Treas. Reg. 1.6045-5 requires the statement to the attorney for gross proceeds by February 15.
5. The firm reconciles each form it receives to its fee income and its trust account records.
6. The IRS matches the forms to the firm's return. Differences it cannot explain can lead to a notice proposing more tax.

Which form, which box, which threshold

Fees versus gross proceeds

The distinction matters because the boxes mean different things. Box 1a of Form 1099-NEC reports what a business paid the firm for its work. Box 10 of Form 1099-MISC reports the full amount a payer handed to the firm in a matter, whether or not the firm keeps any of it. The instructions give the example of an insurance company that pays a claimant's attorney $100,000 to settle a claim: the insurer reports $100,000 in box 10, and it has no reporting duty for the attorney's fee later paid out of those funds.

Treas. Reg. 1.6045-5 fills in the details. The rules apply whether or not the attorney is the only payee on the check. A check written to the firm's client trust account names the attorney as payee, but a check to "client c/o attorney" does not, nor does any check that does not give the attorney the right to negotiate it. When more than one attorney is named and the check is delivered to one of them, the return goes to that attorney, and under paragraph (b)(2) that "tier-one" attorney must in turn file a return for any payment it makes to the other payee attorneys from that check. Interest earned on client funds is a separate reporting question, covered in who pays tax on interest in a lawyer's trust account.

What the 2026 threshold change does, and does not, do

The general reporting threshold went up for 2026. Publication 334 (2025) says that for reportable payments made after 2025 the threshold increases to $2,000 for information reporting and backup withholding, and the December 2026 instructions say the amount may be adjusted for inflation beginning in 2027. That change reaches attorneys' fees in box 1a and most other boxes. It does not change box 10: the instructions and the regulation still use $600 for gross proceeds paid to an attorney. So in 2026 a business client paying $1,500 in fees owes the firm no Form 1099-NEC, but an insurer paying a $1,500 settlement through the firm still reports it in box 10. Either way, Publication 334 says a business must report all of its income, including income not reported on a Form 1099.

What changes the answer

• Whether the payer is in a trade or business. The instructions say personal payments are not reportable, so an individual paying for a divorce or estate plan does not issue a 1099.
• Your entity. The corporate exemption does not apply to payments for legal services, so a law corporation is treated like any other firm.
• How the payment is made. Card and platform payments are reported on Form 1099-K by the processor instead, which can create a second, different total to reconcile.
• Special roles. Treas. Reg. 1.6045-5(c) excludes payments to an attorney acting as the person responsible for closing a real estate transaction, or as a bankruptcy trustee, from section 6045(f) reporting.
• Whether the lawyer is an employee or a contractor. Contract attorneys paid as nonemployees get a 1099-NEC; if the relationship looks like employment, the issues are those in what happens in an IRS worker classification audit.
• Cash. A large cash fee raises a different filing duty for the firm; see whether your law firm has to report cash payments over $10,000.

For example: one settlement, three forms

For example, imagine an auto insurer that settles a client's personal physical injury claim in 2026 for $90,000, with one check payable to the client and the firm, delivered to the firm and deposited into its trust account. Following the example in Treas. Reg. 1.6045-5, the insurer files a Form 1099-MISC reporting $90,000 in box 10 to the firm, and none to the client, because damages for personal physical injuries are excludable. From the trust account the firm takes a $30,000 fee, repays $4,000 of case costs it advanced, and sends the client $56,000. Earlier in the year the firm paid an accident reconstruction expert $6,000, so the firm itself files a Form 1099-NEC for the expert. A business client also paid the firm $12,000 in hourly fees and sends a Form 1099-NEC for that amount. The firm's workpaper ties the $90,000 box 10 figure to the client payment, the cost repayment and the $30,000 fee, and shows the $12,000 as fee income. How the $4,000 cost repayment is treated depends on the fee agreement, a question covered in Don't Neuberger Your IOLTA Account. This is a hypothetical, not a real case.

Common mistakes with attorney 1099s

• Reporting box 10 as fee income. Gross proceeds include client money; the return should show the fee, with records that explain the rest.
• Ignoring box 10 altogether. The IRS receives the form, so the difference needs a clear paper trail.
• Assuming a corporation gets no 1099. The exemption does not apply to legal services.
• Missing the firm's own filing duties. Payments to experts, witnesses and co-counsel can require 1099s from the firm, with penalties under sections 6721 and 6722 for late or incorrect forms.
• Using the old $600 threshold for 2026 fees. It still applies to box 10, but not to box 1a fees paid in 2026.
• Leaving a W-9 unanswered. A missing TIN obliges the payer to backup withhold from your payment.

What to do this week

1. Check that every regular payer, insurer and opposing counsel has a current Form W-9 for the firm.
2. Set up a log of settlement checks deposited to the trust account in 2026, showing the payer and how each was disbursed.
3. List the experts, contract lawyers and co-counsel the firm has paid this year, with their TINs, ready for January filings.
4. Confirm whether the firm must file electronically: the instructions set the e-file threshold at 10 information returns in the aggregate.
5. When forms arrive in early 2027, tie each one to your books before the return is filed.
6. Keep the reconciliation with the return, as it is the answer to any mismatch notice later.

Frequently asked questions

Is a Form 1099-MISC with box 10 filled in taxable income?

Not by itself. Box 10 reports the gross amount paid to the firm in connection with legal services, and part of it usually belongs to the client; the firm's taxable income is its fee and any other amounts it is entitled to keep.

Why did the firm get a 1099 from opposing counsel's client?

Section 6045(f) applies to payments to an attorney in connection with legal services whether or not the services are performed for the payer. A defendant or its insurer paying a settlement to the plaintiff's lawyer is a typical example.

What if a 1099 is wrong?

Ask the payer for a corrected form, and keep your own records showing the right amount. If the IRS sends a notice first, the steps are in whether a CP2000 notice is an audit and how to respond.

Do clients who pay by credit card send a 1099-NEC?

No. The instructions say payments made by credit card or through third-party networks are reported on Form 1099-K by the payment settlement entity and are not subject to reporting on Form 1099-MISC or 1099-NEC.

Does the firm have to issue a 1099 when it pays a client's share of a settlement?

That depends on the facts, including who the payer is for reporting purposes and the nature of the payment; the regulations treat the obligor or its insurer as the payor of a settlement. It is worth reviewing case by case rather than by habit.

What are the penalties for the firm's own late 1099s?

For returns required to be filed in 2027, Rev. Proc. 2025-32 sets the general penalty at $340 per return, reduced to $60 if corrected within 30 days, with higher amounts for intentional disregard. Relief for reasonable cause is discussed in whether IRS penalties can be removed.

Getting the forms and the books to agree

A firm that can tie every 1099 to its records turns a mismatch notice into a short letter. Kathryn Meyer spent more than two decades in the IRS Office of Chief Counsel and can review how your firm receives, issues and reconciles information returns. A once-a-year compliance review is part of the Annual Tax Health Checkup. Contact the firm or call (571) 560-8674.

Sources

• 26 U.S.C. 6045, Returns of brokers (subsection (f), payments to attorneys)
• 26 CFR 1.6045-5, Information reporting on payments to attorneys
• IRS, Instructions for Forms 1099-MISC and 1099-NEC (12/2026)
• IRS Publication 334 (2025), Tax Guide for Small Business
• Rev. Proc. 2025-32 (penalty amounts for returns due in 2027)
• IRS, Understanding your CP2000 series notice