Do I need to send 1099 forms to my subcontractors?
Yes. If you paid a subcontractor $600 or more in a calendar year, you’re required to file a 1099-NEC reporting that payment. This applies to individuals, partnerships, and most LLCs. You send one copy to the subcontractor and file another with the IRS. The deadline for both is January 31 of the following year.
The form you need is the 1099-NEC, which stands for Nonemployee Compensation. This replaced the old 1099-MISC box 7 starting in 2020. If you see outdated advice about using a 1099-MISC for subcontractors, ignore it. The NEC is the correct form now.
The most important thing you can do is collect a W-9 from every subcontractor before you pay them. The W-9 gives you their legal name, business name, tax ID or Social Security number, and entity type. Without it, you can’t file a 1099 accurately. Chasing down W-9s in January when you’re trying to file is frustrating and avoidable. Make it part of your onboarding process. No W-9, no first check.
There’s one major exception that trips people up. Payments made by credit card, debit card, or through third-party processors like PayPal, Venmo (business), or Zelle (through a payment network) are not reported on a 1099-NEC. The payment processor handles the reporting on a 1099-K instead. So if you paid a sub $8,000 during the year but all of it went through a credit card, you don’t send them a 1099-NEC. If you paid $5,000 by check and $3,000 by credit card, you send a 1099-NEC for the $5,000.
You also don’t need to send a 1099 to corporations in most cases. If a subcontractor’s W-9 shows they’re an S-corp or C-corp, they’re generally exempt. The exceptions are attorneys and certain medical payments, but for construction and contractor work, corporations are typically off the hook.
Penalties for not filing are real. If you miss the January 31 deadline, the IRS charges $60 per form if you file within 30 days late. After that it goes up to $130, then $330 per form if you file after August 1 or not at all. Intentional disregard bumps it to $660 per form with no cap. For a GC working with 15 or 20 subs, those numbers add up fast.
Beyond penalties, there’s a practical reason to stay on top of this. If you don’t file 1099s, the IRS may disallow the deduction for those subcontractor payments on your business return. That means you could end up paying income tax on money you already paid out to someone else.
If your books are a mess and you’re not sure who you paid or how much, that’s a sign you need help getting organized before year end. A Long Beach bookkeeper who works with trades businesses can pull your records together, identify who needs a 1099, and make sure everything gets filed on time. The cost of getting it right is always less than the penalties for getting it wrong.
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More Questions
Can QuickBooks handle progress billing for contractors?
Yes. QuickBooks Online has a built-in Progress Invoicing feature that lets you bill against an estimate in stages. It works well for most small to mid-size contractors, though it has some limitations compared to construction-specific software.
Read answerHow far back can the IRS audit my business?
The standard window is three years from when you filed the return. But it extends to six years if you underreported income by more than 25%, and there's no limit at all for fraud or unfiled returns.
Read answerCan I deduct gas and maintenance for my work vehicle?
Yes, but you need to choose between the actual expense method and the standard mileage rate. Contractors with trucks often save more using actual expenses, though both methods require tracking your business miles.
Read answerWhat payment terms should I put on my invoices?
For most service-based and trade businesses, Net 15 or Net 30 are standard. The right choice depends on your cash flow needs, the size of the job, and whether you're billing residential or commercial clients.
Read answerHow does my business structure affect my taxes?
Your business structure determines how your income is taxed, how much self-employment tax you owe, and what filing requirements you face. For most trades businesses, the biggest decision is whether and when to elect S-Corp status.
Read answerWhat's a reasonable monthly fee for bookkeeping services?
Most small service businesses pay between $200 and $600 per month for professional bookkeeping. The actual number depends on transaction volume, how many accounts you have, and whether your industry requires specialized tracking.
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