Get a W-9 before you pay anyone, then file a 1099-NEC for every unincorporated sub you paid $2,000 or more during the year, sending it to both the sub and the IRS by January 31. That threshold jumped from $600 to $2,000 starting in tax year 2026.
Two things about that number worth knowing before you rely on it. It is not fixed: the IRS instructions say the threshold increased to $2,000 for tax years beginning after 2025 and may be adjusted for inflation beginning in calendar year 2027, so check it rather than carrying it forward from one January to the next. And $600 did not disappear. The instructions still require a 1099 at $600 in gross proceeds paid to an attorney, reported in box 10, alongside the $2,000 line for rents, prizes and other income payments. If you paid a construction attorney over a dispute, that is the box you are in, and the old number is the one that applies. Corporations are usually exempt. The one habit that keeps all of this painless is collecting the W-9 up front, because chasing a Social Security number after the job is done and the sub has moved on is how contractors end up stuck.
Step one: the W-9, before the first check
Form W-9 is how the sub tells you who they are for tax purposes: legal name, business name, tax classification (sole proprietor, partnership, corporation), and their taxpayer ID number (a Social Security number or an EIN), with a signature certifying it is correct. Get it signed before you hand over any money. Your leverage disappears the moment you have paid them. Keep every W-9 permanently, because it proves you acted in good faith and it is what protects you from having to do backup withholding.
Who actually needs a 1099-NEC
Four things have to be true: you paid someone who is not your employee, you paid them for services in the course of your business, they are an individual or partnership or single-member LLC (not a corporation), and you paid them the threshold amount or more for the year. In 2026 that threshold is $2,000.
Corporations are generally excluded, so if a sub operates as an incorporated company you usually do not send one. The 1099-NEC is for labor and services, so it is the subs and casual workers you pay, not the lumberyard you buy materials from. If a sub bills you for labor and materials together, report the total you paid them.
The deadline and how to file
The deadline is January 31 for both copies: the one that goes to the sub and the one that goes to the IRS. Miss it and the penalties climb the longer you wait.
If you are filing 10 or more information returns of all kinds in the year (1099-NECs, W-2s, and so on added together), you have to file electronically through the IRS system rather than mailing paper. Most contractors are under 10 and can file either way, but bookkeeping software or a payroll service will handle it cleanly.
Backup withholding: the 24% trap
If a sub will not give you a valid taxpayer ID, or the IRS tells you the one they gave is wrong, you are required to withhold 24% of what you pay them and send that to the IRS (reported on Form 945). Pay a casual worker $3,500 with no W-9 and you are technically on the hook to have withheld $840 of it. The backup-withholding threshold also rises to $2,000 in 2026. This is the whole reason you get the W-9 first: a signed, correct W-9 means you never have to do this.
What happens if you skip it
Two separate things. First, your deduction for paying the sub still stands whether or not you filed the 1099, so you do not lose the write-off. Second, you can still be penalized per form for not filing, and if backup withholding applied you can be left liable for the tax you should have withheld. The IRS cross-matches every 1099 filed against both the payer's and the payee's returns, so a mismatch is easy for them to spot. File them on time and the problem never starts.
Common questions
What is the 1099-NEC threshold for 2026?
It is $2,000 in 2026, raised from the old $600. You file a 1099-NEC for each unincorporated sub you paid $2,000 or more across the year, but you must still report your own income no matter what you were paid. The threshold gets inflation-adjusted starting in 2027, so verify the current figure at irs.gov.
Do I send a 1099 to a subcontractor who is an LLC?
It depends how the LLC is taxed, and the W-9 they give you shows which. Send a 1099-NEC to a single-member LLC or one taxed as a partnership if you paid it $2,000 or more, but an LLC taxed as a corporation is generally exempt. When in doubt, the tax classification box on their W-9 tells you.
What happens if a subcontractor will not give me a W-9?
You are required to do backup withholding, taking 24% of the payment and sending it to the IRS, until they give you a valid taxpayer ID. Pay a worker $3,500 with no W-9 and you were technically supposed to withhold $840. This is exactly why you get the W-9 signed before the first check.
Can I still deduct what I paid a sub if I did not file a 1099?
Yes. The deduction for paying the sub stands whether or not you filed the 1099. You do not lose the write-off. You can still be penalized separately for failing to file the form, though, so file it anyway rather than trading a small penalty for a mismatch the IRS can see.
Do I file a 1099 for materials or just for labor?
The 1099-NEC is for services, so it covers a sub's labor and work, not a supplier you buy goods from. The lumberyard does not get one. If a sub bills you for labor and materials together, report the total amount you paid that sub.
The honest bit
- These are 2026 federal figures (the $2,000 threshold, the 24% backup-withholding rate, the January 31 deadline). The threshold gets inflation-adjusted from 2027. Verify at irs.gov.
- Penalty amounts change year to year, so check the current figures at irs.gov before you count on them.
- Some states have their own 1099 filing requirements on top of the federal one, and a few run combined federal-state programs. That varies, so see Working in Your State.
- This is general guidance, not tax advice for your situation.
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Keep reading
Templates you might need
Sources
- IRS - About Form 1099-NEC, Nonemployee Compensation · The reporting threshold for nonemployee compensation and the filing deadline
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