Guide
Who needs a 1099? The subcontractor rule, in plain terms
Every January problem with 1099s traces back to the same March failure: paying a sub before collecting a W-9.
Reviewed by Darren Lim, US CPALicence CPA.742536027 min read
Contractors run into 1099s more than almost any other business, because you pay subs, and the question every January is the same: who do I actually have to send one to?
Here is the rule in plain terms. This is general information, not tax advice for your situation — the dollar threshold in particular changes, so confirm the current figure with your CPA before you file. The structure below does not change, and it is what trips people up.
The basic test
You generally send a 1099-NEC to someone when three things are all true:
- You paid them for services in the course of your business,
- You paid them at least the reporting threshold for the year (a dollar figure that has moved recently — check the current one), and
- They are not a corporation.
Miss any one and you generally do not send one. Meet all three and you do. Most of the confusion is in the third point.
Who gets one
- A sole-proprietor subcontractor you paid for labour. Yes.
- A single-member LLC — most are taxed as sole proprietors, so usually yes. The W-9 tells you.
- A partnership you paid for services. Yes.
- An unincorporated handyman, labourer or trade sub. Yes.
Who usually does not
- A corporation — a C-corp or S-corp. Generally no, with specific exceptions such as attorneys.
- An LLC taxed as a corporation. No — but you only know this from their W-9.
- A supplier you bought materials from. No — that is goods, not services. The lumber yard does not get a 1099.
- Someone you paid by credit card or a third-party platform. No — the card processor reports that, and sending your own 1099 as well double-reports it. This one catches people who pay subs by card and 1099 them anyway.
The rule that makes all of this easy: W-9 first, cheque second
Every problem with 1099s in January traces back to the same failure in March: paying a sub before collecting a W-9.
The W-9 is the form that tells you the sub's legal name, their tax ID, and — the part that decides everything above — whether they are a corporation. Collect it before the first payment, every time, no exceptions. A sub who has been paid and finished the job has no reason to send you a W-9, and chasing one in January from someone who worked for you in spring is the single most common way this deadline gets missed.
Make it a rule: no W-9, no cheque. It feels rigid the first time and it removes the entire problem permanently.
Why it matters more for you than for most businesses
Two reasons the trades get caught by this specifically.
Volume of subs. A contractor might pay a dozen different subs in a year. That is a dozen W-9s to have collected and a dozen classifications to have right.
The workers comp and liability audits. A sub you cannot produce a valid certificate of insurance for is frequently reclassified as your own payroll at audit — and the 1099 paperwork is part of the same evidence trail. Getting the W-9 and the certificate of insurance at the same time, before the first payment, closes both exposures at once.
The penalties, in kind
Late or missing 1099s carry penalties per form, on a sliding scale that gets worse the longer they go unfiled, and worse again if the omission looks deliberate. The amounts are indexed and change, so the number is not the point — the point is that the penalty is per form, so a contractor who skipped ten of them is looking at ten penalties, not one. Filing late is still far better than not filing.
What to do now, not in January
- Pull your vendor list and flag every unincorporated provider you paid for services this year.
- Check you hold a current W-9 for each. Chase the missing ones now, while they still have a reason to respond.
- Confirm the current threshold and deadline with your CPA — the filing deadline is the same day the copies go to the recipient, with no later date for the government copy, which surprises people used to other forms.
Get the W-9s in now and the January deadline becomes a data-entry afternoon instead of a scramble.
Related
How we do this
We build this into your books. Starting with a month that costs you nothing.
Sub payments tracked against a collected W-9 through the year, incorporation status flagged from it, and card-paid subs kept out of the 1099 run so nobody is double-reported — the whole thing ready in January rather than reconstructed.
- Every transaction categorized, accounts reconciled, the month closed
- Reviewed and signed by Darren Lim, US CPA — licence CPA.74253602
- The Two-Day Guarantee: Your first month back in two days, or the next month is free.
Collecting a W-9 before the first payment turns the January deadline from a scramble into a data-entry afternoon. Books kept that way through the year mean the 1099s are a by-product, not a project.