How do I manage subcontractor payments and 1099s?
Get a W-9 from every subcontractor before you make the first payment. This is where most business owners fail. They pay the electrician, the drywall crew, or the consultant without collecting tax information, then spend January chasing people down for W-9s. Some subcontractors disappear or ignore your requests, and now you have a compliance problem. Make the W-9 part of your onboarding process. No W-9, no payment.
Set up each subcontractor as a vendor in your accounting software with their name, address, and tax ID from the W-9. In QuickBooks, you can mark vendors as 1099 eligible so the system tracks qualifying payments automatically. This saves hours of manual work at year-end because your books already know who needs a 1099 and how much you paid them.
Track every payment to subcontractors throughout the year. When you pay a sub, code it to the right expense category and make sure it hits their vendor record. If you pay someone in cash and forget to record it, that payment disappears from your 1099 reporting. The IRS may still find out about it if the subcontractor reports the income, and now you have a mismatch that triggers questions.
The threshold for 1099-NEC filing is $600. If you paid a subcontractor $600 or more during the calendar year for services, you must file a 1099-NEC. This applies to individuals and most LLCs. Corporations generally don’t require 1099s, with some exceptions for legal and medical payments. The W-9 tells you the entity type, which is why collecting it upfront matters.
Construction businesses and trade contractors typically have the most subcontractor relationships to manage. General contractors might issue dozens of 1099s each year for framing crews, plumbers, electricians, and specialty trades. Without good systems, this becomes a mess every January.
File 1099-NEC forms by January 31. This deadline applies to both the copies you send to subcontractors and the copies you file with the IRS. There’s no extension for this deadline. Late filing penalties start at $60 per form and increase the longer you wait. If you have 15 subcontractors and file a month late, that’s $900 in penalties for something that takes an afternoon to complete on time.
Keep your W-9s on file for at least four years. If the IRS questions your 1099 reporting, you need documentation showing you collected the correct tax information. A folder in your filing cabinet or a digital folder works fine. Just have a system so you can find what you need.
The payment method matters for 1099 purposes. Payments made through credit card or third-party networks like PayPal or Venmo for business accounts get reported on 1099-K by the payment processor, not by you. You only issue 1099-NEC for payments made by check, cash, ACH, or direct deposit. This prevents double reporting.
If you’re behind on 1099 filing from previous years, work with Macomb County bookkeepers to get caught up. The IRS receives copies of 1099s and matches them against tax returns. Missing forms create problems for both you and your subcontractors when returns don’t reconcile. Filing late is better than not filing at all.
Metro Detroit's Small Business Bookkeeper
The Next Step:
A Short Conversation
Tell us about your business and your current bookkeeping situation. We'll listen, answer your questions, and give you a clear quote.
More Questions
Can I convert from spreadsheets to QuickBooks?
Yes, you can convert from spreadsheets to QuickBooks. Customer lists, vendor lists, and opening balances import directly through CSV files. The bigger part of the conversion is properly setting up QuickBooks for your specific business.
Read answerHow do I reduce my days sales outstanding?
Invoice immediately after delivering goods or services, make payment as easy as possible, and follow up on overdue accounts within days rather than weeks. Most businesses with high DSO are slow on at least one of these.
Read answerWhat is credentialing and how does it affect medical billing?
Credentialing is the process of verifying provider qualifications and enrolling them with insurance companies. Without it, practices can't bill insurance as in-network providers. The process takes 60 to 180 days and must be completed before seeing patients to avoid revenue loss.
Read answerWhat is bank reconciliation and why is it important?
Bank reconciliation is the process of comparing your internal financial records to your bank statements to make sure they match. It catches errors, detects fraud, and gives you an accurate picture of your cash position.
Read answerWhat bookkeeping method works best for general contractors?
Accrual basis accounting with job costing works best for general contractors. Cash basis creates misleading profit and loss swings, while job costing shows which projects actually made money.
Read answerWhat is aging accounts receivable and why does it matter?
Aging accounts receivable is a report showing all outstanding invoices organized by how long they've been unpaid. It matters because older receivables are harder to collect, and the report helps you prioritize collection efforts and spot cash flow problems early.
Read answer
