Settlement Administration

A key aspect of successful settlement administration is delivering payments to class members. Complications arise when payments are taxable and exceed the IRS reporting threshold, requiring collection of Tax Identification Numbers (TINs) and issuance of Forms 1099-MISC.

For decades, that threshold was $600, providing predictability for planning. Beginning January 1, 2026, that threshold will increase to $2,000 under Section 70433 of the One Big Beautiful Bill Act, signed July 4, 2025—the first increase since 1954.

The collection of TINs and issuance of Forms 1099-MISC is often uncertain at the outset, particularly in common fund settlements which (after deduction of approved attorneys’ fees, expenses and any class representative awards) will typically be divided  among valid claimants via a pro rata allocation.

 

Key Impacts

This change will have a number of impacts on settlement administration, including:

• Not all settlements will require the collection of TINs
• Reduce the need for W-9 solicitation during the claims process
• Lower administration costs for tax information statement reporting (1099-MISC)

 

Best Practices

Impact on Notice and Claims Process Planning

• Administrators should review notice language and claims workflows to determine whether recipient tax information will be collected upfront or later in the process. The higher threshold reduces the need for early collection, but planning remains critical.

Collection of TINs

• Where appropriate, administrators should continue collecting TINs to ensure compliance with IRS reporting obligations. TIN collection also helps verify payee identities by screening their data through the IRS TIN matching system and applying backup withholding when necessary.

Solicitation of Forms W-9

• Forms W-9 remain essential for documenting taxpayer information. They provide legal support for names, addresses and TINs used on Forms 1099 as recipients’ W-9 signatures attest to the supplied personally identifiable information. Administrators may consider a tiered approach—collect W-9s from claimants expected to receive $2,000 or more, while retaining flexibility for smaller payments to minimize unnecessary data collection.

Timing Considerations

Administrators should weigh the pros and cons of collecting tax information during claims submission versus after distributions are calculated:

• Upfront collection: Ensures readiness for IRS reporting and minimizes delays but may discourage claims due to sensitive data requests.
• Post-distribution collection: Focuses on payees who exceed the threshold, reducing initial burden but potentially requiring additional outreach later. Avoids the possibility of chilling claims by solicitation of sensitive information during the claim process.
• Hybrid approach: Collect W-9s from high-value claimants upfront while deferring others until final payment amounts are known.

 

Residual / Secondary Distributions

Redistribution of uncashed settlement funds is increasingly common. In that regard, settlement administrators must continue to track cumulative payments carefully to monitor whether additional distributions in the same calendar year could push claimants over the $2,000 threshold, triggering 1099 reporting obligations.

 

Key Takeaways

The higher $2,000 threshold is likely to reduce the number of 1099s issued, lowering printing, mailing, processing and tax reporting costs. Administrators should update procedures now, prepare for the 2026 effective date and monitor IRS guidance for implementation details.

To learn more, contact Kroll’s Settlement Administration Team.