Under current IRS guidance, a construction business may be required to file Form 1099-NEC for a 1099 subcontractor when it makes payments in the course of its trade or business for services performed by someone who is not an employee, the payee is not exempt from reporting, and total payments for the year reach the reporting threshold. For payments made in 2026, that threshold is $2,000, and the IRS states it may be adjusted for inflation beginning in 2027.

Not every payment to every subcontractor is reportable. The payee's classification and entity type, the payment method, and the nature of the payment all affect the answer. This article covers federal rules only and does not address California reporting requirements.

What Form 1099-NEC Is?

Form 1099-NEC is the information return used to report nonemployee compensation, and Form 1099-NEC subcontractor reporting is limited to payments that meet the IRS requirements. The IRS Instructions for Forms 1099-MISC and 1099-NEC state that payments are reported on these forms only when they are made in the course of the payer's trade or business.

The forms have different roles, and they should not be confused:

• Form 1099-NEC reports nonemployee compensation, which can include payments to a subcontractor for services.

• Form 1099-MISC reports other types of payments, and the IRS instructions direct certain payments, such as gross proceeds paid to an attorney, to that form.

• Form W-9 is not an information return. A person uses it to provide a correct taxpayer identification number (TIN) to the person required to file an information return.

• Form W-2 is the wage statement used for employees, not for independent contractors.

IRS Sources: Instructions for Forms 1099-MISC and 1099-NEC; About Form W-9

Do Subcontractors Get a 1099? When Payments May Be Reportable?

Do subcontractors get a 1099? Sometimes. According to the IRS instructions, Form 1099-NEC is generally required for each person a payer paid at least the threshold amount for services during the year when four conditions are met:

• The payee is not an employee of the payer

• The payment was for services in the course of the payer's trade or business

• The payee is an individual, a partnership, an estate, or, in some cases, a corporation

• Total payments to the payee during the year were at least the threshold amount

These are the core 1099 subcontractor requirements. If any condition is not met, or an exception applies, a Form 1099-NEC may not be required. Paying through a business account does not by itself create a reporting requirement.

IRS Source: Instructions for Forms 1099-MISC and 1099-NEC

How the Federal Reporting Threshold Works?

The IRS instructions state that, for tax years beginning after 2025, the Form 1099-NEC threshold is $2,000. The threshold applies to total payments to a payee during the year, not to each individual payment. The instructions state the amount may be adjusted for inflation beginning in 2027.

These subcontractor 1099 rules depend on the IRS instructions for the year of payment. Payments made before 2026 were subject to a different threshold under prior IRS instructions. Use the instructions for the year in which the payment was made.

IRS Source: Instructions for Forms 1099-MISC and 1099-NEC

Review Your Subcontractor Payment Records With a Tax Professional

Tax Wealth Consultant provides bookkeeping and tax-planning services for construction businesses in Irvine and Orange County. Schedule a consultation to review how your subcontractor payments are recorded and organized.

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Why Worker Classification Matters?

Form 1099-NEC applies to nonemployees. Employees are treated differently: an employer has employment tax responsibilities described in IRS Publication 15, and wages are reported on Form W-2. A construction business therefore needs to determine whether a worker is an employee or an independent contractor before deciding how payments are reported.

Subcontractor 1099 rules start with classification. The IRS explains that the classification depends on the business relationship between the payer and the person performing the services, and that it is necessary to look at the entire relationship and the extent of the right to direct and control the worker.

IRS Sources: IRS — Independent Contractor (Self-Employed) or Employee?; IRS Publication 15

Independent Contractor vs. Employee Classification

According to the IRS, the facts that provide evidence of the degree of control and independence fall into three categories:

• Behavioral control: whether the business controls, or has the right to control, what the worker does and how the worker does the job

• Financial control: whether the business aspects of the worker's job are controlled by the payer

• Type of relationship: whether there are written contracts or employee-type benefits such as a pension plan, insurance, or vacation pay

If it is unclear whether a worker is an employee or an independent contractor, the IRS identifies Form SS-8, which either the business or the worker may file, and the Voluntary Classification Settlement Program, an optional program for reclassifying workers as employees for future tax periods.

IRS Source: IRS — Independent Contractor (Self-Employed) or Employee?

Why Calling Someone a Subcontractor Does Not Determine Federal Worker Status?

The label used in a contract or in conversation does not decide the question. Federal worker status is determined by the facts of the relationship under the IRS common-law rules described above. A worker described as a subcontractor may be treated as an employee if the facts of the relationship indicate employee status. A construction subcontractor 1099 reporting decision should therefore follow the classification analysis, not the other way around.

IRS Source: IRS — Independent Contractor (Self-Employed) or Employee?

Form W-9 and Taxpayer Identification Information

Form W-9 is used to provide a correct TIN to the person who is required to file an information return. A construction business that expects to pay a subcontractor for services may request a completed Form W-9 before making payments, so the payer has the information needed to prepare the 1099 subcontractor form if one is required. How to 1099 a subcontractor therefore starts before the first payment, with a Form W-9 and a payment record.

The IRS instructions state that persons who have not furnished their TINs are subject to backup withholding on payments required to be reported in box 1a of Form 1099-NEC. The withholding rules and rate are described in IRS Publication 1099, Part N, and should be confirmed there before any withholding is applied.

IRS Sources: About Form W-9; Instructions for Forms 1099-MISC and 1099-NEC; IRS Publication 1099

Which Payments Should Be Tracked Throughout the Year?

Because the threshold applies to total payments during the year, a construction business generally needs a running total by payee. Payments to track may include:

• Payments to each subcontractor or independent contractor for services

• Payment dates, amounts, and the project each payment relates to

• The payment method used

• The amount of each payment attributable to labor and any amount attributable to materials, when the contract and invoice separate them

• Whether a Form W-9 has been received

Tracking payments as they are made is more reliable than reconstructing totals at year-end, and preparing the 1099 for subcontractors who are reportable depends on that year-round record.

Construction-Specific Examples of Subcontractor Service Payments

Construction businesses commonly pay outside businesses and individuals for services such as framing, electrical work, plumbing, drywall, concrete work, roofing, painting, excavation, and landscaping. A construction subcontractor 1099 decision is made payee by payee. Whether a payment for any of these is reportable on Form 1099-NEC depends on the factors in this article, including the payee's classification and entity type, the payment method, and total payments for the year.

Payments for Labor vs. Materials

The IRS instructions list payments for merchandise, telegrams, telephone, freight, storage, and similar items among the payments that do not have to be reported on Form 1099-NEC.

The instructions also provide that box 1a includes payment for services, including payment for parts or materials used to perform the services, when supplying the parts or materials was incidental to providing the service.

The treatment of a construction payment therefore depends on its nature, such as a purchase of merchandise from a supplier compared with a payment for services that includes incidental materials. The contract and invoice terms help document which applies.

IRS Source: Instructions for Forms 1099-MISC and 1099-NEC

Payments to Different Entity Types

The IRS instructions generally exclude payments to a corporation, including an LLC that is treated as a C or S corporation, from Form 1099-NEC reporting, with exceptions. For example, the exemption does not apply to payments for legal services.

The instructions also list payments to tax-exempt organizations, and payments to the United States, a state, the District of Columbia, a U.S. territory, or a foreign government, among payments that do not have to be reported on Form 1099-NEC.

A subcontractor's entity classification for tax purposes is generally provided on Form W-9, which is one reason the form is collected before payment.

IRS Source: Instructions for Forms 1099-MISC and 1099-NEC

Payment Methods and Form 1099 Reporting

The IRS instructions state that payments made with a credit card or payment card, and certain other types of payments, are reported on Form 1099-K by the payment settlement entity and are not reported on Form 1099-NEC. If a construction business pays a subcontractor by credit card or through a third-party payment network, the payment may therefore be excluded from the payer's Form 1099-NEC reporting.

Because payment method affects reporting, the bookkeeping record for each payment should identify how it was made.

IRS Source: Instructions for Forms 1099-MISC and 1099-NEC

Filing and Recipient Deadlines

Section 6071(c) requires Form 1099-NEC to be filed with the IRS on or before January 31, and the payee statement is also due to the recipient by January 31. If a date falls on a Saturday, Sunday, or legal holiday, the due date moves to the next business day.

For payments made in 2026, January 31, 2027 falls on a Sunday, so under that rule the due date is Monday, February 1, 2027. Deadlines should be confirmed against the IRS instructions for the filing year.

IRS Source: Instructions for Forms 1099-MISC and 1099-NEC

Electronic Filing Requirements

According to the IRS instructions, the electronic filing threshold is 10 returns, calculated by aggregating all information returns the filer must submit. A construction business that files 10 or more information returns in total must generally file them electronically, subject to the applicable rules and waivers. How to 1099 a subcontractor electronically or on paper therefore depends on the filer's total number of information returns, and the 1099 subcontractor form is subject to the same threshold.

IRS Source: Instructions for Forms 1099-MISC and 1099-NEC

Corrections to Form 1099-NEC

The IRS instructs filers to correct a Form 1099-NEC as soon as possible after discovering an error. For a paper filing, the correction involves a new form with the CORRECTED box checked, Copy A with Form 1096, and a corrected statement to the recipient. For an electronic filing, the IRS refers filers to Publication 5717 for corrections through the IRIS Portal or Publication 5718 for the IRIS Application to Application.

If an error is found on a Form 1099-NEC subcontractor return, the correction steps depend on the type of error, such as an incorrect amount or an incorrect name or TIN, and on how the original was filed. The current IRS instructions and Publication 1099 should be followed. Penalties for failing to file correct information returns or furnish correct payee statements are described in IRS Publication 1099, and the amounts for the filing year should be confirmed there.

IRS Sources: IRS Publication 1099; Instructions for Forms 1099-MISC and 1099-NEC

Recordkeeping for Subcontractor Payments

IRS Publication 583 states that supporting documents include sales slips, paid bills, invoices, receipts, deposit slips, and canceled checks, and that supporting documents for an expense should show the amount paid and that it was for a business expense.

For subcontractor payments, a construction business may also keep:

• The completed Form W-9

• The written agreement or work order, if any

• Invoices showing the work performed

• Records of each payment, including date, amount, and method

• Year-to-date totals by payee

• A copy of any Form 1099-NEC filed and the recipient statement furnished

The IRS notes that employment tax records are described in IRS Publication 15. Records for employees should be kept separately from records for independent contractors.

IRS Sources: IRS Publication 583; IRS Publication 15

Why Construction Bookkeeping Should Separately Track Subcontractor Payments?

Subcontractor payments are a significant category for many construction businesses, and they receive different reporting treatment from employee payroll, supplier purchases, and equipment. If they are mixed with other categories, it becomes harder to identify which payees and payments may be reportable.

Good records of 1099 for subcontractors begin with the bookkeeping system. Setting up subcontractors as separate vendors, recording the payment method, and tracking W-9 status make year-end reporting more manageable. For the general record categories every construction business should maintain, see Construction Bookkeeping: What Contractors Need to Track. For equipment purchases, see Construction Equipment Depreciation and Section 179.

The Connection Between Bookkeeping and Year-End Information Reporting

The 1099 subcontractor requirements discussed here apply to federal reporting only. Accurate year-end information returns depend on accurate records kept during the year. A construction business that records payee, amount, date, method, and project as payments are made has the information needed to determine which payees may require a Form 1099-NEC and to prepare the forms by the due date.

Whether a particular payment is reportable depends on the facts, the payee, the payment type, and the IRS instructions for the year. This article is general educational information and not tax advice.

Tax Wealth Consultant provides bookkeeping and tax-planning services for construction businesses in Irvine and Orange County.

Schedule a Construction Bookkeeping and Tax Planning Consultation

Tax Wealth Consultant provides bookkeeping and tax-planning services for construction businesses in Irvine and Orange County. Schedule a consultation to review how your subcontractor payments are recorded and organized.

taxwealthconsultant.com  |   (949) 409-8335