If You Paid a Sub This Year, You Probably Owe Them a 1099

Most contractors find out about this in the third week of January, when their accountant asks for a list of everyone they paid and they realize they do not have one.

If you are a sole proprietor or small business and you paid an independent contractor for services during the year, you generally have to issue them a Form 1099-NEC and file a copy with the IRS. The deadline is January 31, and unlike most tax dates it does not move much.

The reason to read this in September rather than January is that almost all of the difficulty is in gathering information you could have collected the day you hired someone.

Who needs one

The general test: you issue a 1099-NEC when all of these are true.

• You paid them $600 or more during the calendar year
• The payment was for services in the course of your business
• They are not your employee
• They are not taxed as a corporation

In the trades that usually means the framing crew, the electrician you subbed a job to, the guy who does your gravel, a bookkeeper, a designer. It does not mean the supply house you bought lumber from — materials are goods, not services.

Who does not

This is where most of the over-work happens. You generally do not issue a 1099-NEC for:

• Corporations. Most C-corps and S-corps are exempt. LLCs are the trap — an LLC may be taxed as a sole proprietorship, a partnership, or a corporation, and only the W-9 tells you which.
• Payments for goods or materials. Services only.
• Anything you paid by credit card, debit card, or a third-party payment network. The card processor reports those on a 1099-K, and issuing your own 1099-NEC on top duplicates the income on their return.
• Personal payments. The deck you had built at your own house is not a business expense and needs no form.

That third one surprises people. How you paid decides whether you report it. The same $4,000 to the same sub is reportable if you paid by check or bank transfer, and not reportable if you paid by card. Attorney payments have their own separate rules — ask about those specifically.

Get the W-9 before you pay, not after

Form W-9 is how you collect a sub’s legal name, address, taxpayer ID, and — critically — their tax classification, which is what tells you whether they are exempt.

The practical rule that saves the most pain: no W-9, no check. A sub who wants to be paid will fill one out in five minutes. A sub who finished the job in June and moved on will not answer your calls in January. Every contractor who has done this a few years has a story about chasing a taxpayer ID through three phone numbers and a former girlfriend.

If you already have gaps, September is a much better time to close them than January. People still remember you.

What it costs to skip it

Penalties apply per form, scale with how late you are, and apply separately to the copy you owe the recipient and the copy you owe the IRS. Intentional disregard carries a substantially higher penalty with no cap. With a handful of subs it is an annoyance; with twenty it is real money.

There is a second cost people underrate. Payments to subs are a deduction on your return. If you never issued the forms and never tracked the payments properly, that deduction is harder to defend if anyone asks.

The October version of this job

Doing this now takes about an hour and makes January almost trivial.

1. List everyone you paid for services this year. Not materials. Pull it from your bank and check register.
2. Total each one and flag anybody at or near $600. Near matters — there is still a quarter left, and one more job pushes them over.
3. Note how you paid each of them. Card and payment-app totals come out; check, cash, and bank transfer stay in.
4. Chase the missing W-9s now, while people still take your calls.
5. Decide how you will file. Your accountant, payroll software, or the IRS filing system. Worth knowing before the last week of January.

Why this is really a records problem

Nobody finds 1099s hard in principle. The threshold is one number and the form is short. It is hard because the information needed lives in four places — the bank, the check register, a folder of W-9s, and your memory of who did what.

If every payment to a sub is captured as it happens, with the vendor on it, the January version of this job is a filter and a sum instead of an archaeology project. That is the same argument as every other records habit, and it is the same answer: capture at the moment, not at the deadline.

The subs you paid in February are the ones you will struggle to reconstruct. Start with them.