Every January I get calls from contractors who just realized they have no idea what to do with 1099s. And every few years I get a call from someone who got a notice from the IRS asking about payments they made years ago that were never reported. That second call is a lot more stressful.

If you pay subcontractors, this applies to you. Let's walk through what you actually need to do and why it matters.

The Basic Rule

If you paid any individual or unincorporated business $600 or more in a calendar year for services, you're required to file a 1099-NEC with the IRS and send a copy to that person or company. That includes your regular subs, your occasional helpers, any independent contractors you bring in for specific jobs.

Corporations are generally exempt, but single-member LLCs, sole proprietors, and partnerships are not. When in doubt, collect a W-9 before you pay anyone and let that form tell you what you're dealing with.

Where Contractors Usually Go Wrong

  • Waiting until January to figure out who needs a 1099, then realizing you don't have Social Security numbers or EINs for half of them
  • Paying a sub in cash and assuming it doesn't count. It does. The method of payment doesn't change the reporting requirement.
  • Forgetting about subs you only used once or twice during the year who crossed the $600 threshold
  • Filing late and getting hit with penalties that add up fast, especially when you have a lot of subs

What to Collect and When

The best habit you can build is collecting a completed W-9 from every sub before you issue their first payment. Not after. Before. Once you've paid someone, it gets harder to get the paperwork from them, especially if they're a one-time worker. Get the W-9, file it, and you've got everything you need come January.

The W-9 gives you their legal name or business name, their EIN or Social Security number, and their business type so you know whether they're exempt from 1099 requirements. Takes two minutes to collect and saves you a lot of headaches.

Deadlines

1099-NEC forms are due to recipients by January 31st and must be filed with the IRS by January 31st as well. That's not much time after the year closes, which is why staying organized throughout the year makes such a difference. If you're scrambling to track down information in late January, you're already behind.

What Happens If You Don't File

Penalties for late or missing 1099s start at $60 per form and go up to $310 per form depending on how late you are and whether the IRS decides it was intentional. If you have 15 subs and you miss all of them, that adds up quickly. And if the IRS determines the failure was intentional, the penalties are significantly higher with no cap.

Beyond the penalties, not reporting sub payments can also raise questions about whether those subs should have been classified as employees, which opens up a whole different set of payroll tax issues.

My Recommendation

Treat 1099 collection the same way you treat getting a certificate of insurance from a sub before they step on your job. It's just part of getting started anyone new. Build the W-9 request into your intake process and you'll never be scrambling in January again.