Do I need to issue 1099s to my subcontractors?
If you paid an individual or unincorporated business $600 or more for services during the calendar year, you are required to file a 1099-NEC. This applies to subcontractors, freelancers, and any other non-employee you paid for work. The form goes to the IRS and a copy goes to the person or business you paid.
The filing deadline is January 31 of the following year. Pay a subcontractor $600 or more in 2024, and the 1099-NEC is due by January 31, 2025. There is no automatic extension for this form, so missing the deadline means penalties.
Not every payment requires a 1099. Payments to C corporations and S corporations are generally exempt. So if your electrician’s business is incorporated, you probably don’t need to send one. The exceptions are payments to attorneys and certain medical providers, which require 1099s regardless of corporate status. The problem is you won’t know someone’s entity type unless you ask, which is where the W-9 comes in.
Collect a W-9 from every subcontractor before you pay them. The W-9 gives you their legal name, address, taxpayer identification number, and entity type. If you wait until January to start collecting W-9s, you’ll be chasing people who don’t return your calls. Make it a policy to get the W-9 before the first payment goes out.
Track payments to each subcontractor throughout the year. Don’t wait until December to figure out who crossed the $600 threshold. Your accounting software should be able to pull a report showing total payments by vendor. If your books are clean, generating 1099s at year end is straightforward. If your books are a mess, it turns into a stressful scramble.
Penalties for not filing or filing late range from $60 to $310 per form depending on how late you are, and they can go higher if the IRS determines you intentionally disregarded the requirement. For a contractor with 10 or 15 subs, those penalties add up fast. Beyond penalties, not issuing 1099s can also raise questions about whether you’re properly classifying workers as independent contractors versus employees, which opens a separate can of worms.
If you’re behind on this or unsure who needs a 1099, a bookkeeper in Chandler who works with service businesses can help you sort it out. The work involved is mostly about having organized records and good habits around W-9 collection and vendor tracking.
The bottom line is this: if you’re paying people to do work for your business and they’re not on your payroll, you almost certainly have 1099 preparation obligations. Build the process into how you onboard subcontractors and you won’t be scrambling every January.
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Use it as a starting point, not a final answer. QuickBooks auto-categorization gets things wrong often enough that blindly accepting suggestions will create messy books and potentially incorrect tax filings.
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