1099 for Subcontractors: What Contractors Need to File
Do you know which of your subs need a 1099 this year?
The rule changed in 2026. A lot of contractors are still working off the old one.
If you pay subcontractors, you have a filing job every January. Miss a form and the IRS can fine you for each one. File forms you didn't need and you've wasted a week of nights at the kitchen table.
Here's how to sort it out.
What a 1099-NEC Is
A 1099-NEC is a tax form that reports what you paid someone who isn't your employee. NEC stands for nonemployee compensation. That's the IRS term for pay for services from a business to someone outside its payroll.
You send one copy to the IRS. You send another copy to the sub. The sub uses it to report that money on his own return.
Why does the IRS care? Because your payment to a sub is a deduction for you. The 1099 makes sure the same money shows up as income for him.
The New $2,000 Threshold
Through 2025, you filed a 1099-NEC for any sub you paid $600 or more in a year.
For payments made in 2026, that number is $2,000. The IRS says it may be adjusted for inflation starting in 2027.
The $2,000 is the total you paid that sub for the whole year. It is not per job.
Here's what that looks like:
Tile sub, paid $1,800 in 2026. No 1099. Under the old rule, he needed one.
Drywall sub, paid $1,200 in March and $1,200 in October. That's $2,400 for the year. He gets a 1099.
One more thing. If the sub supplied parts or materials as part of the work, those count toward the total too. You report the whole payment, not just the labor.
Sort Your Subs Into Three Piles
Every person you paid this year goes into one of three piles.
Pile 1: The 1099 Pile
These subs get a 1099-NEC. All three of these have to be true:
They're not your employee. They run their own business.
They're not a corporation. Individuals, sole proprietors, single-member LLCs, and partnerships all count.
You paid them $2,000 or more in 2026 by check, cash, or bank transfer.
Pile 2: The No-1099 Pile
These people don't get a 1099 from you:
Corporations. If the sub's W-9 shows a C-corp or S-corp, you generally don't file. The main exception is attorneys. Lawyers get a 1099 even when they're incorporated.
Subs under $2,000 for the year.
Anyone you paid by credit card or through a payment network like PayPal. The card company or payment network reports those on its own form, the 1099-K. Don't report the same money twice.
Suppliers. Your supply house sells you goods, not services. No 1099.
Pile 3: The Payroll Pile
This is the pile that gets contractors in trouble. Some of the people you call subs aren't subs at all. They're employees.
In California, the test is strict for licensed work. Under Labor Code 2750.5, a worker doing work that needs a contractor's license is presumed to be your employee. To count as a real sub, he has to hold his own license.
So if your helper doesn't have a license, a 1099 doesn't make him a sub. He belongs on payroll with a W-2. If you paid him on a 1099, the state can come after you for the back payroll taxes and penalties.
Not sure which pile someone belongs in? Sort that out before January, not after.
How to File Your 1099s, Step by Step
Step 1: Get a W-9 before the first payment.
A W-9 is a one-page IRS form where the sub gives you his legal name, business type, and tax ID number. The business type tells you which pile he's in. The tax ID goes on his 1099.
Get it before you pay him the first time. Why? Because after the job is done, you have no leverage. And if a sub won't give you a tax ID, the IRS can require you to hold back 24% of what you pay him. That's called backup withholding.
Step 2: Track every payment by sub, all year.
Your books should show what each sub was paid, every month. In QuickBooks Online, you mark each sub as a 1099 vendor. At year end, it adds up the totals for you.
If you haven’t tracked it all year, this is where it hurts. You'll spend January rebuilding the year from bank statements. Or we can catch you up.
Step 3: File by February 1, 2027.
The deadline is normally January 31. In 2027, January 31 falls on a Sunday, so the deadline moves to Monday, February 1.
That date is for both copies. The IRS copy and the sub's copy are due the same day.
Step 4: E-file if you have 10 or more.
If you file 10 or more information returns in total, you have to file them electronically. Information returns include your 1099s and any W-2s, added together. The IRS has a free portal for this called IRIS. Accounting software and tax preparers can e-file too. Under 10, you can e-file or mail paper forms. If you mail them, you also need Form 1096. More on that below.
Step 5: Fix mistakes fast.
Penalties are charged per form. They go up the later you file. If you catch a missing or wrong 1099, file or correct it right away. Don't wait.
Filing on Paper? You Need Form 1096
Form 1096 is a one-page cover sheet. It goes on top of the paper 1099s you mail to the IRS. Its full name is the Annual Summary and Transmittal of U.S. Information Returns.
You only need it if you file on paper. If you e-file through IRIS, your software, or your tax preparer, skip it.
Here's how to fill it out:
Box 1: your EIN. If you're a sole proprietor with no EIN, put your Social Security number in Box 2 instead. Use the same name and number that are on your 1099s.
Box 3: how many 1099s you're sending. Don't count blank or voided forms.
Box 4: any backup withholding you held back. For most contractors, this is zero.
Box 5: the total dollars on all the 1099-NECs in the stack.
Box 6: check the box for 1099-NEC.
Sign and date it.
Four rules trip people up:
Use the official red form. You can't print a 1096 from the IRS website and mail it. The IRS scans the red version, and a home-printed copy can't be scanned. You can be penalized for that. Order free official forms at IRS.gov/orderforms. They come by mail, so order early.
One 1096 per form type. If you also file 1099-MISC forms (for example, rent you paid on a shop or yard), that stack gets its own 1096. Paper 1099-MISC forms are due later: March 1, 2027.
Mail it flat. No staples. No folding. Use a large envelope.
Send it to the right address. It depends on your state. California businesses mail to: Internal Revenue Service Center, 1973 North Rulon White Blvd., Ogden, UT 84201. Other states, check the "Where To File" list on the form.
The 1096 for your 1099-NECs is due the same day as the 1099s: February 1, 2027.
California Adds One More Report
If you're in California, there's a second report most online guides skip.
When you file a federal 1099 for an individual, sole proprietor, or single-member LLC, California also wants a DE 542. That's the Report of Independent Contractors, and it goes to the EDD, the state's payroll tax agency.
It's due within 20 days of paying the sub $600 or signing a $600 contract, whichever comes first. A late report costs $24. A false or intentionally skipped report costs $490.
It's a short form, but it's on a 20-day clock. That's very different from the once-a-year 1099.
The Rule Behind Every 1099
Your 1099s are only as good as your books.
If you have a W-9 on file for every sub, and a running total for each one, January takes an hour. If you don't, it takes a week. And the mistakes you miss can turn into penalties.
Key Takeaway: For 2026, file a 1099-NEC for each non-corporate sub you paid $2,000 or more by check, cash, or bank transfer. File by February 1, 2027. Get the W-9 before the first payment. And make sure every "sub" is really a sub. Filing on paper? Put a Form 1096 on top.
Paying subs is only half of it. Your own taxes need a plan too. Read Quarterly Estimated Taxes for Contractors: What to Pay.
Want to see what else your subs and your truck can save you? Read Contractor Tax Deductions: What You Can Write Off.
At Civita Tax Solutions, we help home service business owners save money on taxes with all-in-one accounting. We handle your bookkeeping, advisory, and tax filing. You focus on the business. We handle the finances.
We file the 1099s for your subs, and we tell you which workers are which. See how we work with contractors, or book a free consultation.
