If you hire subcontractors — and most contractors do — you have a 1099 filing obligation that many business owners either miss entirely or handle incorrectly. The rules are not complicated, but the consequences of getting them wrong can be significant.

The basic rule

If you pay a non-employee individual or unincorporated business $600 or more during the calendar year for services, you are required to file a Form 1099-NEC (Nonemployee Compensation) with the IRS and provide a copy to the recipient.

The $600 threshold applies to the total paid during the year — not per project or per payment. If you pay a subcontractor $200 in March, $250 in July, and $200 in November, the total is $650 and a 1099 is required.

Who gets a 1099

The 1099-NEC requirement applies to payments made to:

• Individuals (sole proprietors)
• Single-member LLCs taxed as sole proprietors
• Partnerships
• Multi-member LLCs taxed as partnerships

Corporations — including S-corporations and C-corporations — are generally exempt from the 1099-NEC requirement. However, there is an important exception: payments to attorneys are reportable regardless of corporate status.

The practical implication: you need to know the tax classification of every subcontractor you pay. That is what the W-9 is for.

The W-9: collect it before you pay

Form W-9 (Request for Taxpayer Identification Number and Certification) is the document you use to collect the information you need to file a 1099. It captures:

• The subcontractor's legal name
• Business name (if different)
• Tax classification (individual, LLC, corporation, partnership)
• Taxpayer Identification Number (Social Security Number or EIN)

The right time to collect a W-9 is before you make the first payment — not in January when you are trying to prepare 1099s. Many contractors discover in January that they paid a subcontractor $8,000 over the year and have no W-9 on file. At that point, you are scrambling to get information from someone who may not respond quickly.

Make W-9 collection a condition of payment. No W-9, no check.

Filing deadlines

The 1099-NEC has two deadlines:

• January 31 — deadline to provide copies to recipients (the subcontractors)
• January 31 — deadline to file with the IRS (both paper and electronic)

The 1099-NEC deadline is earlier than most other 1099 forms. January 31 is a hard deadline — there is no automatic extension.

Penalties for missing 1099s

The IRS imposes penalties for failure to file correct information returns. For 2024, the penalties are:

• $60 per form if filed within 30 days of the deadline
• $120 per form if filed more than 30 days late but before August 1
• $310 per form if filed after August 1 or not filed at all
• $630 per form for intentional disregard

For a contractor who paid 20 subcontractors and missed all 20 1099s, the penalty at the highest tier is $6,200 — before any interest. The penalties are per form, not per year.

There is also a separate penalty for failure to furnish copies to recipients, at the same rates.

Backup withholding

If a subcontractor does not provide a W-9 — or provides an incorrect TIN — you may be required to withhold 24% of payments and remit it to the IRS. This is called backup withholding.

Backup withholding is administratively burdensome and creates friction with subcontractors. The practical solution is to collect W-9s before paying, not after.

State 1099 requirements

New York requires 1099 reporting that generally follows federal rules. If you are filing 1099s with the IRS, you typically need to file with New York as well. New York participates in the Combined Federal/State Filing program, which means federal electronic filing may satisfy the state requirement — but confirm this with your CPA or tax preparer.

Practical checklist for contractors

• Collect a W-9 from every new subcontractor before the first payment
• Store W-9s in a dedicated folder — physical or digital
• In December, run a report of all subcontractor payments for the year
• Identify anyone paid $600 or more who is not a corporation
• Confirm you have a current W-9 for each of those subcontractors
• File 1099-NECs by January 31
• Keep copies of all filed 1099s for at least four years

If you use QuickBooks, the vendor record for each subcontractor should include their W-9 information and be marked as a 1099 vendor. QuickBooks can then generate a 1099 summary report at year-end that shows exactly who needs a 1099 and for how much.