What's the threshold for issuing a 1099 form?
The threshold for the 1099-NEC is $600. If you paid a non-employee $600 or more during the calendar year for services, you’re required to file a 1099-NEC with the IRS and send a copy to the person or business you paid. This is the form that matters most for construction and contractor businesses because it covers subcontractor payments.
The $600 threshold applies per payee, per year. If you paid a sub $400 on one job and $300 on another, that’s $700 total for the year and a 1099-NEC is required. It doesn’t matter how many separate payments made up that total.
Payments to C-corporations and S-corporations are generally exempt. You don’t need to send a 1099 to an incorporated company or to a vendor like a supply house. The main exception is payments to attorneys, which require a 1099 regardless of the attorney’s business entity type.
The 1099-MISC still exists but covers different types of payments. Rent payments of $600 or more get reported on a 1099-MISC. Royalties of $10 or more do as well. For most service-based businesses, though, the 1099-NEC for subcontractor payments is the one that comes up repeatedly.
Both the IRS filing and the recipient copy are due by January 31st. There is no automatic extension for the 1099-NEC the way there is for some other forms. Miss that deadline and penalties range from $60 to $310 per form depending on how late you file. Intentional disregard of the filing requirement jumps to $630 per form with no annual cap.
The single best thing you can do is collect a W-9 from every subcontractor before you make the first payment. Get it upfront when you’re negotiating the work, not in January when you’re trying to track down a guy who did one job for you back in April. The W-9 gives you the legal name, address, tax ID number, and entity type you need to determine whether a 1099 is required and to fill it out correctly.
California also requires 1099 reporting, and the Franchise Tax Board cross-references filings to make sure subcontractors are reporting that income on their state returns. If you’re not issuing 1099s, it can also create problems for your own deductions. An IRS examiner looking at large subcontractor expenses with no corresponding 1099 filings is going to ask questions.
If you’re behind on 1099 filings from prior years or unsure who needs one, a Long Beach bookkeeper familiar with trades businesses can sort through your records and get you current. It’s much cheaper to file them correctly than to deal with penalties and lost deductions later.
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More Questions
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