Do I Send a 1099 for Materials Purchased? 1099-NEC vs. MISC

If you pay a contractor whose invoice covers both labor and materials, you generally report the entire amount on Form 1099-NEC, materials included. The IRS instructions state that reportable nonemployee compensation covers “services performed by someone who is not your employee (including parts and materials),” so the question of whether to send a 1099 for materials purchased through a service contract has a short answer: yes, when the materials came bundled with a service, they belong on the same 1099-NEC as the labor.1Internal Revenue Service. Instructions for Forms 1099-MISC and 1099-NEC (04/2025) The reporting threshold is $600 or more in total payments to a single contractor during the calendar year.

Why the Materials Portion Gets Reported

The IRS treats a service contract as a service contract, even when the contractor also brings physical goods to the job. The 1099-NEC instructions illustrate this with an auto repair example: when an insurance company pays a repair shop under a contract that lists separate amounts for labor and parts, the payer still reports the total if “furnishing parts was incidental to repairing the auto.”1Internal Revenue Service. Instructions for Forms 1099-MISC and 1099-NEC (04/2025) “Incidental” is the operative word. If you hired someone primarily for their labor and they supplied materials to complete the job, those materials are part of the service payment.

This can feel wrong. Reporting $8,000 when $3,000 of that was lumber sounds like it overstates the contractor’s income. It doesn’t, because the contractor deducts what they paid for materials on their own return. Your obligation as the payer is to report the total that changed hands.

When Materials Aren’t Reportable

The distinction turns on what you were actually buying. Pure purchases of goods aren’t subject to 1099-NEC reporting at all. Buy $2,000 in plumbing fixtures from a supply house and walk out with the boxes, and there’s no service payment to report. The same applies to inventory, raw materials for manufacturing, and equipment bought from a vendor.

The gray zone appears when the same party sells you the materials and performs a service. The test is whether the materials were incidental to the service. A plumber who installs a water heater and bills you for the unit plus labor performed a plumbing service; the water heater was incidental. Report the full amount. If instead you bought a water heater from a retailer in one transaction and separately hired an installer in another, the equipment purchase stands on its own and only the installation payment feeds into the 1099-NEC analysis.

Some tax preparers have suggested that a clearly itemized invoice, with materials billed at cost and no markup, might support excluding the materials portion. The IRS instructions don’t endorse that reading. The auto repair example specifically involves a contract “showing an amount for labor and another amount for parts,” and the guidance still says report the total.1Internal Revenue Service. Instructions for Forms 1099-MISC and 1099-NEC (04/2025) When the materials came with a service, reporting the full payment is the safe path.

Payments That Don’t Require a 1099-NEC at All

Some payments fall outside 1099-NEC reporting entirely, and in those cases the materials question never arises.

The card-payment carve-out catches many business owners off guard. Pay a contractor $4,000 by check and $3,000 by credit card, and only the $4,000 goes on your 1099-NEC. The card processor handles the rest.

What the Contractor Does With the Materials Cost

Reporting the full payment doesn’t mean the contractor pays income tax on the materials portion. The contractor deducts the cost of goods sold and other business expenses on their own return, which offsets the gross income you reported. A contractor who received $15,000 from you and spent $6,000 on materials pays tax on $9,000 before other deductions.

The system is built for matching. The IRS compares what you reported paying against what the contractor claims as receipts. Excluding materials on your side creates a mismatch, and mismatches generate notices for both of you.

Get a W-9 Before You Pay

Before writing the first check, collect a completed Form W-9 from the contractor. The W-9 tells you the contractor’s legal name, taxpayer identification number, and entity type, which is what lets you apply the corporate exemption correctly.4Internal Revenue Service. Forms and Associated Taxes for Independent Contractors

If a contractor won’t provide a W-9 or gives an incorrect TIN, you’re required to withhold 24% of the payment as backup withholding and remit it using Form 945.4Internal Revenue Service. Forms and Associated Taxes for Independent Contractors5Internal Revenue Service. About Form 945, Annual Return of Withheld Federal Income Tax Getting the W-9 signed at the start of the relationship avoids that problem. Keep the completed forms on file for at least four years. The IRS also offers a free TIN Matching tool through e-Services that verifies up to 25 name/TIN combinations at a time, which catches errors before they generate penalty notices.6Internal Revenue Service. Taxpayer Identification Number (TIN) Matching Tools

Form 1099-NEC vs. Form 1099-MISC

Nonemployee compensation, including any bundled materials, goes in Box 1 of Form 1099-NEC. The filing deadline is January 31 of the year following payment.1Internal Revenue Service. Instructions for Forms 1099-MISC and 1099-NEC (04/2025) Form 1099-MISC is for a different set of payments: rent to a non-corporate landlord (Box 1), royalties (Box 2), medical and health care payments (Box 6), and gross proceeds paid to an attorney (Box 10), among others.7Internal Revenue Service. Am I Required to File a Form 1099 or Other Information Return? For payments to a contractor for services they personally performed, the right form is the 1099-NEC, and the amount on it is the full payment you made.