Do Subcontractors Get a 1099? Rules and Exceptions

Yes, subcontractors generally do get a 1099. If your business paid an independent worker $600 or more for services during the calendar year, you’re required to report those payments to the IRS on Form 1099-NEC and send a copy to the subcontractor.¹ The rule has real exceptions, though, and the payment method you used matters as much as the dollar amount.

When a 1099-NEC Is Required

Three conditions have to line up. The payment was made in the course of your trade or business, the recipient is not your employee, and the total you paid that person during the year hit $600 or more for services performed.²

The threshold is cumulative. Ten separate $60 checks to the same subcontractor trigger the requirement just as a single $600 payment would. And “trade or business” is the operative phrase: paying a plumber to fix a pipe at your office counts, but paying that same plumber to work on your personal home does not.

Subcontractors Who Don’t Get a 1099-NEC

Even when you’ve paid someone well over $600, a 1099-NEC isn’t always the right move. Two categories of exception cover most cases.

The Corporation Exception

You generally do not issue a 1099-NEC for payments to a C-corporation or S-corporation. The form is for payments to individuals, sole proprietors, partnerships, and single-member LLCs treated as disregarded entities for tax purposes.³

Two carve-outs cut through that exception. Payments of $600 or more for legal services must be reported on Form 1099-NEC even if the law firm is a corporation. Payments for medical and health care services to a corporation are also reportable, though those belong on Form 1099-MISC rather than 1099-NEC.³

Payments by Credit Card or Payment App

If you paid the subcontractor with a credit card, debit card, PayPal, Venmo, or another third-party payment network, you do not issue a 1099-NEC for those amounts. The payment processor reports the transaction on Form 1099-K instead.³ Reporting the same payment yourself would duplicate what the processor already sent.

The practical step is to sort your payments by method. Checks, direct deposits, and cash count toward the 1099-NEC threshold. Card and payment-app transactions don’t.

Rent, Royalties, and Other Non-Service Payments

Money you paid a subcontractor for something other than services goes on a different form. Rent of $600 or more for equipment or space goes in box 1 of Form 1099-MISC; royalties of $10 or more go in box 2.³ If a single person invoiced you for both labor and equipment rental during the year, you may end up issuing both a 1099-NEC and a 1099-MISC to them.

Confirm the Worker Is Actually a Subcontractor

Before you issue any 1099, make sure the person qualifies as an independent contractor rather than an employee. Misclassifying an employee as a subcontractor can leave you liable for unpaid employment taxes, penalties, and back wages.

The IRS weighs three categories of evidence: behavioral control (who decides how the work gets done), financial control (who bears the business expenses and equipment costs, and whether the worker offers services to other clients), and the nature of the relationship (written contracts, benefits, whether the arrangement is ongoing or project-based). No single factor decides it — the agency looks at the whole picture.⁴ If you’re not sure, you can file Form SS-8 and ask the IRS for a formal determination.

Get a W-9 Before You Pay

To prepare a 1099-NEC you need the subcontractor’s legal name, entity type, and Taxpayer Identification Number. Form W-9 collects that information.⁵ Ask for it before the first payment goes out. Trying to chase down someone’s tax ID in January, after the work is done and the relationship is over, is a common and avoidable problem.

Individuals and sole proprietors typically supply a Social Security Number on the W-9. LLCs taxed as partnerships or corporations supply an Employer Identification Number.⁶

If a subcontractor refuses to hand over a W-9, gives you an incorrect TIN, or has been flagged by the IRS, you must withhold 24% of each payment and send it to the IRS as backup withholding.⁷ Backup withholding isn’t optional; skipping it shifts the risk of the unpaid tax onto your business.

Deadline and How to File

Form 1099-NEC is due January 31 of the year after payment. That single date covers both the copy you file with the IRS and the copy you send to the subcontractor.³ There is no automatic extension.

If you file 10 or more information returns of any type during the year — 1099-NECs, 1099-INTs, and W-2s all counted together — you are required to file them electronically.⁸ The IRS’s Information Returns Intake System (IRIS) accepts Form 1099-NEC through a free web portal or an application-to-application channel.⁹ The older FIRE system is set for retirement after the 2026 tax year, so businesses still using it should plan the switch. Businesses filing fewer than 10 returns can still submit paper.

State filing is a separate check. Many states participate in the Combined Federal/State Filing Program, which forwards your federal data automatically. Non-participating states require a direct filing with their tax department.¹⁰

Penalties for Skipping or Filing Late

The IRS charges a per-return penalty that climbs the longer you delay. For returns due in 2026:

Filed within 30 days of the deadline: $60 per return
Filed after 30 days but by August 1: $130 per return
Filed after August 1 or not filed at all: $340 per return
Intentional disregard: $680 per return with no annual cap, or 10% of the amount you were required to report, whichever is greater

Annual caps limit the total for late but non-intentional filing: $4,098,500 for large businesses (average gross receipts over $5 million) and $1,366,000 for small businesses ($5 million or less) at the post-August 1 tier.¹¹ A separate penalty applies for failing to furnish a correct statement to the payee, so a single missed form can generate two penalties.

Foreign Subcontractors Don’t Get a 1099-NEC

If your subcontractor is a nonresident alien, the reporting path is different. You collect Form W-8BEN (for individuals) or W-8BEN-E (for foreign entities) instead of a W-9.¹² The income is reported on Form 1042-S rather than 1099-NEC.¹³

For services performed in the United States, you must generally withhold 30% of the payment unless a tax treaty reduces or eliminates the rate.¹⁴ The withholding applies regardless of where the contract was signed or where you sent the money.

1
Office of the Law Revision Counsel. 26 U.S. Code 6041A – Returns Regarding Payments of Remuneration for Services and Direct Sales
2
Internal Revenue Service. Am I Required to File a Form 1099 or Other Information Return?
3
Internal Revenue Service. Instructions for Forms 1099-MISC and 1099-NEC
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Internal Revenue Service. Independent Contractor (Self-Employed) or Employee?
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Internal Revenue Service. About Form W-9, Request for Taxpayer Identification Number and Certification
6
Internal Revenue Service. Form W-9 (Rev. March 2024) Request for Taxpayer Identification Number and Certification
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Internal Revenue Service. Topic No. 307, Backup Withholding
8
Internal Revenue Service. Filing Information Returns Electronically (FIRE)
9
Internal Revenue Service. E-File Information Returns With IRIS
10
Internal Revenue Service. Combined Federal/State Filing (CFSF) Program State Coordinator Information FAQs
11
Internal Revenue Service. Information Return Penalties
12
Internal Revenue Service. About Form W-8 BEN, Certificate of Foreign Status of Beneficial Owner for United States Tax Withholding and Reporting (Individuals)
13
Internal Revenue Service. Reporting Payments to Independent Contractors
14
Internal Revenue Service. Pay for Personal Services Performed