Picture a surgeon who gets a letter saying the IRS has information showing $380,000 in medical payments that do not appear on his personal return. He has never seen that money. Neither has his bank account. It went to his group practice, which reported it, paid tax on it and paid him a salary. But one insurer had his personal Social Security number on file instead of the group's EIN.
That kind of mismatch can happen without anyone doing anything wrong. It is also easy to make worse by ignoring it. Here is how medical payment reporting works and how to untangle a mismatch.
What gets reported in box 6
The 2026 Instructions for Forms 1099-MISC and 1099-NEC direct a business to report in box 6 of Form 1099-MISC payments of $2,000 or more made in the course of its trade or business to each physician or other supplier or provider of medical or health care services. They specifically include payments by medical and health care insurers under health, accident and sickness insurance programs.
Three rules in the instructions matter most to practices:
- Corporations get forms too. The general exemption from issuing Forms 1099-MISC to corporations does not apply to payments for medical or health care services provided by corporations, including professional corporations. That tracks Treas. Reg. 1.6041-3(p)(1), which excepts corporations from reporting but carves out corporations engaged in providing medical and health care services or in billing and collecting for them. When the payment goes to a corporation, the corporation is listed as the recipient.
- Some payees are excluded. Payments to tax-exempt hospitals or extended care facilities, and to hospitals or facilities owned by a government, are not reported. Payments to pharmacies for prescription drugs are not required to be reported.
- The threshold changed. The $2,000 threshold applies for 2026. The instructions say that for tax years beginning after 2025, the minimum threshold for certain payments rose to $2,000 and may be adjusted for inflation beginning in 2027. Notice 2025-62 ties that change to section 70433 of Public Law 119-21.
How the IRS matches it
The IRS compares information returns against tax returns by TIN. For business returns, the Business Underreporter program in IRM 4.119.4 describes building cases from information payers submit and matching it against the business return to verify that all income is reported. The program sends Letter 2030 or Letter 2531 to the business when there is a potential discrepancy, and the IRM notes a statutory notice of deficiency may follow a Letter 2030.
For individuals, the IRM's medical payments analysis tells examiners to compare medical payments with Schedule C if it appears to be a medical practice, or Schedule E if it appears to be related to the medical profession. In other words, the IRS looks for the money where a physician would normally report it. If it is not there, a letter follows.
Why mismatches happen in practices
- Wrong TIN on the payer's file. A physician credentialed with an insurer years ago under his SSN, then joined a group. The insurer still reports under the SSN.
- Entity changes. The practice converted from a sole proprietorship to a professional corporation, or merged into a new group with a new EIN. Some payers updated; some did not.
- Group billing. The group receives the money under its EIN but the payer's records tie the payment to the rendering physician.
- Timing. The payer reports in the year it paid; a cash-method practice reports when received. Year-end differences can create apparent shortfalls.
- Gross versus net. Payers report gross payments. If your books record net deposits after recoupments, offsets or fees, the totals will not tie unless you reconcile.
Fixing it: nominee income
When income was reported to you but belonged to someone else, you are a nominee recipient. IRM 4.119.4.4.7 describes how underreporter staff handle a taxpayer who received income on behalf of another entity or person as an intermediary or agent. The IRM directs them to check whether the taxpayer issued Forms 1099 to the intended recipients, and notes that those forms should be the same type as the Form 1099 the taxpayer received. If the nominee forms cover the amount, the discrepancy can be considered resolved. If not, staff try to verify that the income was reported on the recipient's return, and if they cannot, the discrepancy is pursued in full.
In practical terms, a physician whose SSN received a 1099 for group income should be able to show that the group reported the income under its EIN. A practice that received payments belonging to another provider and passed them through should issue its own 1099s to that provider. Documentation wins these cases. Explanations without numbers do not.
Responding to a letter
- Read the letter for the payer name, TIN, amount and form type. That tells you which payer file is wrong.
- Pull the payer's remittance reports for the year and tie them to the practice's deposits.
- Show where the income was reported, on which return and under which TIN, with the page and line.
- If you were a nominee, show the 1099s you issued or the return on which the real owner reported the income.
- Respond by the deadline in the letter. A missed deadline turns a paperwork mismatch into an assessment you then have to undo.
What not to do
Do not amend a return to add income that was already reported on another return just to make a letter go away. If the group reported the income under its EIN, adding it to the physician's personal return taxes the same dollars twice. Show where the income was reported instead.
Fixing it at the source
Responding to letters every year is a symptom. The cure is clean payee data. Send every payer a current Form W-9 for the entity that should receive the payments, update credentialing and enrollment records when the practice changes entities, and reconcile 1099s received to the books every January.
A wrong TIN has another cost. Medical payments reported under IRC 6041 are reportable payments for backup withholding under IRC 3406(b)(3). If a payer is notified that the TIN you gave it is incorrect, it can be required to backup withhold from your payments at the rate the IRS currently states as 24 percent. We explain the B-notice process in our guide to 1099 penalties and backup withholding; the rules are the same for a practice as for a contractor.
When your practice is the payer
Practices also issue forms. If you pay other physicians or providers for medical services in the course of your business, box 6 can apply to you too, at $2,000 or more for 2026 payments. Wages paid to employees go on Form W-2, not Form 1099-MISC. Payments to independent contractors for services are generally reported on Form 1099-NEC. If you are not sure which box applies to a particular arrangement, ask before January, not after the penalty notice. Whether a provider is an employee in the first place is its own question, covered in our guide to provider classification.
Mismatches often surface in a broader examination; see our guide to medical practice audits. If a letter has already turned into a proposed assessment, read how the firm approaches IRS audits.
A medical 1099 mismatch is usually a filing cabinet problem, not a tax problem. Treat it like a tax problem anyway, and answer the letter.