1099 rules for contractors in 2026
For payments you make in 2026, you file a Form 1099-NEC for each subcontractor you pay $2,000 or more for services during the year, up from $600 through 2025. That's the 1099 reporting limit, and the IRS says it may be adjusted for inflation starting in 2027. The form goes to the IRS and to the sub by February 1, 2027, because January 31 falls on a Sunday in 2027.
Most of 1099 compliance for a contractor is paperwork you do before the first check. This guide covers paying independent contractors who really are subs. If someone works only for you, on your schedule and in your shirt, start with employee or subcontractor, because sending a 1099 doesn't make anyone a sub.
What is the 1099 reporting limit for 2026?
It's $2,000 per sub, counting everything you paid them in 2026 for work on your jobs (IRS instructions for Forms 1099-MISC and 1099-NEC). Three details trip owners up:
- The limit applies to the year's total. Two jobs at $1,150 each add up to $2,300, which is over it.
- Parts usually count. If a plumbing sub bills you for labor and the parts he installed, the whole invoice goes on the form, because the IRS counts "payment for parts or materials used to perform the services" when supplying them was incidental to the work.
- Rent has its own form. Shop or yard rent paid to a landlord that isn't a corporation goes on a 1099-MISC once it reaches the same $2,000.
Which subs get a 1099?
File a 1099-NEC when you paid for services in the course of your business, the person isn't your employee, and they're an individual, a partnership or an LLC that isn't taxed as a corporation. Payments to corporations, including an LLC taxed as a C or S corporation, are generally exempt. Attorneys are the exception: their fees get a 1099-NEC even when the firm is a corporation.
Here's how that sorts a year of subs for one shop. The trades and amounts are an example; each sub's W-9 decides the real answer.
| Who you paid in 2026 | How | Year total | What you file |
|---|---|---|---|
| Drywall sub, sole proprietor | check | $8,400 | 1099-NEC |
| Electrician, one-owner LLC not taxed as a corporation | ACH, 2 jobs | $2,300 | 1099-NEC, because the year's total counts |
| Plumbing sub, labor plus $450 of parts | check | $3,450 | 1099-NEC for the full $3,450 |
| Duct cleaning company, S corporation on its W-9 | ACH | $12,000 | Nothing, it's a corporation |
| Pressure washing sub, one job | check | $1,500 | Nothing, it's under the limit |
| Painting sub paid on the company credit card | card | $6,000 | Nothing, the card company reports it on a 1099-K |
| Law firm (a corporation) for a lien dispute | check | $4,500 | 1099-NEC, attorneys get one anyway |
| Supply house, for equipment and parts | account | $40,000 | Nothing, it's merchandise |
| Shop landlord, an individual | check | $24,000 | 1099-MISC for rent |
One holdover from the old rules: gross proceeds you pay to an attorney, like a settlement check made out to a claimant's lawyer, still go on a 1099-MISC once they reach $600.
Get the W-9 before the first check
A Form W-9 gives you the sub's legal name, taxpayer ID number and tax classification (IRS instructions for the requester of Form W-9). That's everything the 1099 needs, and the classification tells you whether the sub gets one at all. Collect it with the sub's insurance certificate, before the first payment.
If a sub doesn't give you a taxpayer ID number, the IRS requires you to withhold 24% of the reportable payments you make to him and send it in, which is called backup withholding (IRS: backup withholding). It applies even if he says he's applied for a number. You report what you withheld on Form 945, and you file his 1099 even if the total is under the limit (Publication 1099).
Brandon Vaughn, who coaches home service owners, makes the W-9 somebody's job. An owner who was filling the office manager seat himself asked what that role should own, and Brandon read him the duties from the offer letter he uses. Sub paperwork is on the list:
…subcontractor assignments and compliance, making sure that all the subcontractors, you know, we got the W-9s…
Put the same line in the job description of whoever runs your office.
When are 1099s due?
January 31 of the year after you paid, to the IRS and to the sub. For 2026 payments the date is February 1, 2027, since the 31st is a Sunday. If you file 10 or more information returns for the year, all types counted together, W-2s included, you have to e-file them. The IRS's IRIS portal takes 1099s directly (Publication 1099).
A January routine for the office:
- Run a report of what you paid each vendor in 2026.
- Cross off the corporations (attorneys excepted), the supply houses and anything paid by card or through a payment app.
- Mark every sub left at $2,000 or more, and chase any missing W-9 now.
- File the 1099-NECs and send each sub his copy by February 1, 2027.
It's one line on the year-end checklist for contractors. If a W-9 leaves you unsure, ask a tax pro who works with contractors before you file.
What about subs you pay by card or app?
Leave those payments off your 1099-NEC. The IRS instructions say card payments and payment-app ("third-party network") transactions are reported on a 1099-K by the card company or app "and are not subject to reporting on Form 1099-MISC or Form 1099-NEC" (IRS instructions). The sub gets that 1099-K from his card processor no matter how much he took in by card, and from a payment app when he has more than $20,000 in payments and more than 200 transactions in a year (IRS: understanding your Form 1099-K).
Checks, ACH and cash from your own account are yours to report. For a sub you paid both ways, only the check, ACH and cash part goes on the 1099-NEC, so record how each payment was made.
Where sub payments go in your books
In cost of goods sold, on a subcontractors line next to materials and your techs' wages. Brandon told an owner exactly that when the owner's retired accountant had said to keep the sub who did all his pressure washing off the P&L:
It absolutely should be on your profit and loss. This should be up in your cost of goods sold up here as subcontractor expense.
Set each sub up as a vendor in your accounting software, with the W-9 attached and the vendor flagged for 1099s, and book every payment to that subcontractors account. In January, the 1099 list comes from one report by vendor. The chart of accounts for contractors shows where that line sits.
For the shops whose books we keep, we track sub payments all year, so the totals the 1099s need are ready in January. If you run W-2 crews and 1099 painters side by side, see how we keep books for painting contractors. And if last year's subs are a pile of invoices, bring them to a free profit call and ask about 1099 filing.
Common 1099 questions
Do I run payroll for independent contractors?
No. The IRS says you generally don't have to withhold or pay any taxes on payments to independent contractors (IRS). You pay the sub's invoice like any vendor's and file the 1099-NEC. Withholding, employer taxes and Form 941 are for your W-2 techs, which the guide to payroll taxes for your crew covers.
Will the limit change in 2027?
It may. The IRS says the $2,000 limit may be adjusted for inflation beginning in calendar year 2027, so check the figure in the new instructions before you file for 2027 payments.
I missed a 1099 for 2025. What now?
File it now, using the $600 limit that applied to 2025 payments. The penalty is charged per form and depends on when you file the correct return, so sooner costs less (Publication 1099).
