Subcontractor 1099 Requirements for Contractors (What You’re Actually Responsible For)
Contractor Pain Point
You hire subs all year. Concrete, framing, electrical, finish work. You pay them, jobs get done, and nobody thinks twice about it—until January hits and suddenly you’re scrambling to figure out who needs a 1099, who doesn’t, and what the IRS actually expects.
The frustration usually sounds like this:
“My CPA says I’m missing W-9s.”
“I don’t know which payments count.”
“Why does this feel like a mess every single year?”
This isn’t a paperwork problem.
It’s a job setup and payment tracking problem that shows up at tax time.
Core Explanation: Why 1099 Issues Keep Happening
Most contractors don’t fail on 1099s because they don’t care. They fail because:
Subcontractors are set up inconsistently in the books
Payments are mixed across checks, bill pay, and credit cards
W-9 collection isn’t tied to onboarding
No one is reviewing totals during the year
1099 compliance is not an annual task.
It’s the byproduct of how subs are set up, paid, and tracked all year long.
Step-by-Step Breakdown
1. Know Which Subcontractors Require a 1099
What to do:
Issue a 1099-NEC to subcontractors you paid $600 or more during the year for services.
Why it matters:
This is the IRS reporting threshold. Miss it, and penalties can apply.
What goes wrong if skipped:
You either over-report (wasting time and money) or under-report (creating compliance risk).
Common examples that usually require a 1099:
Independent trade subcontractors
Owner-operators
Specialty installers paid directly
Common exclusions:
Corporations (most of the time)
Materials-only suppliers
Employees (W-2, not 1099)
2. Collect a W-9 Before You Pay Them (This Determines 1099 Responsibility)
What to do:
Require a completed W-9 from every subcontractor before issuing the first payment.
Why it matters:
The W-9 is where you confirm:
Legal name and tax ID
Entity type (this determines 1099 requirement)
Without this form, you cannot reliably determine whether a subcontractor needs a 1099.
Where the 1099 Decision Comes From
On the W-9, the subcontractor selects their federal tax classification.
This box tells you whether payments to that vendor are typically 1099-reportable.
Entity Types and 1099 Requirements (Common for Contractors)
1099 REQUIRED (if total payments are $600+)
Individual / Sole Proprietor
Single-Member LLC (not taxed as a corporation)
Partnership
Multi-Member LLC taxed as a partnership
These are the most common subcontractor setups in construction and should be assumed 1099-reportable unless the W-9 says otherwise.
1099 NOT REQUIRED (most of the time)
C Corporation
S Corporation
Corporations are generally exempt from 1099 reporting for services. Do not assume exemption based on “LLC” alone—LLC status does not equal corporate tax treatment.
If This Step Is Skipped
Vendors are misclassified
1099 totals are wrong or incomplete
Corrections get pushed into January
Filing becomes manual instead of review-based
This is a front-end control. When W-9s are collected at onboarding, 1099 reporting becomes routine instead of reactive.
3. Set Subcontractors Up Correctly in QuickBooks
What to do:
Each subcontractor should be set up as a vendor with:
Correct tax classification
“Track payments for 1099” enabled
Mapped to the correct expense or COGS account
Why it matters:
QuickBooks only pulls 1099 data from specific accounts and vendor settings.
What goes wrong if skipped:
Payments exist, but they don’t show up in 1099 reports—forcing manual cleanup.
This is where many contractors discover too late that their system was never configured for reporting.
See: Job Costing Basics for Trades & Contractors
4. Pay Subcontractors Through Traceable Methods
What to do:
Use checks, ACH, or bill pay whenever possible.
Why it matters:
Only certain payment types count toward 1099 totals.
What goes wrong if skipped:
Credit card payments may be excluded
Mixed payment methods distort totals
You can’t reconcile what actually qualifies
Consistency matters more than convenience.
5. Review 1099 Totals Before Year-End
What to do:
Run a 1099 detail report in Q4 and review totals by subcontractor.
Why it matters:
This gives you time to:
Fix vendor settings
Reclassify expenses
Collect missing W-9s
What goes wrong if skipped:
All fixes become rushed, manual, and error-prone in January.
Insider Notes / Contractor Gotchas
Paying a sub through multiple vendors (name variations) splits totals
Materials and labor combined on one bill can overstate 1099 income
Misspelled legal names cause rejected filings
One incorrect expense account can exclude thousands from reports
Most 1099 problems are discovered after the year is closed—when they’re hardest to fix.
Real-World Impact
When subcontractors are set up correctly and payments are tracked consistently:
Year-end reporting becomes review-only, not rebuild-only
You reduce IRS notice risk
Job cost data stays clean and reliable
You protect margins by knowing true labor costs
This isn’t admin work.
It’s profit visibility and compliance protection built into your system.
Summary Framing
Subcontractor 1099s are not a tax-season chore.
They’re a reflection of how disciplined your job costing, vendor setup, and payment workflows are.
If 1099s are painful every year, the issue isn’t the form—it’s the system behind it.
Related Contractor Resources
Frequently Asked Questions
1. Do I really need to issue 1099s to subcontractors?
Yes. If you pay qualifying subcontractors $600 or more for services, you are required to report it.
2. How does this work in QuickBooks?
QuickBooks pulls 1099 data based on vendor settings, expense account mapping, and payment methods. If any of those are wrong, reports will be inaccurate.
3. What happens if I don’t file 1099s?
You risk IRS penalties, notices, and potential audits—especially if deductions don’t match reported income.
4. Is issuing 1099s required or just best practice?
It’s a legal requirement, not optional.
5. When should I fix my 1099 setup?
As soon as you start working with subcontractors. Waiting until year-end usually creates avoidable cleanup.
If subcontractor payments, 1099 cleanup, or reporting confusion keep happening, it’s usually a setup and systems issue. Dialing in vendor setup and payment workflows early is one of the fastest ways to protect margin.
Contractor Accounting Services
Disclaimer:
This content is for general educational purposes only and does not constitute tax, legal, or accounting advice. Individual circumstances vary, and tax and reporting requirements can change. Always consult a qualified CPA, tax professional, or legal advisor for guidance specific to your business.
