When to Give a 1099 to a Contractor: 2026 Rules for Every Sub and Supplier on Your Job

Mieczyslaw Kurek ran a home-remodeling business out of Brooklyn with about 30 workers on his projects. They set their own hours and brought their own tools. Those two facts usually point toward contractor status. But the Tax Court looked past them and found the workers were employees, because Kurek controlled the deadlines, the quality standards, and the client relationships. That alone would have been expensive. What came next made it catastrophic.

The court denied him the Section 530 protection that would have wiped out the back employment taxes. The reason was not the worker classification itself. It was that he had never filed the workers' 1099s. The entire outcome turned on forms that cost a few dollars per worker to file. Kurek v. Commissioner, T.C. Memo. 2013-64 draws a bright line every contractor should understand. The 1099 is not just a reporting obligation. It is the ticket that keeps your classification protection available even if a court later disagrees with your call.

The move is simple. Collect a W-9 from every subcontractor before the first payment — it gives you the legal name and tax ID you'll need at 1099 time. Then file the 1099 every January without exception. It is the cheapest insurance in the tax code.

The threshold for when to give a 1099 to a contractor just changed for 2026, and it changes the math on who needs a form.

What is the 1099-NEC filing threshold for 2026?

For payments you make to a contractor in calendar year 2026, you must file Form 1099-NEC if you paid that person or business $2,000 or more during the year. That threshold is up from $600 in 2025. The change came from the 2025 tax law under IRC §6041, and the $2,000 figure applies to payments made in 2026. It is inflation-indexed starting in 2027.

If you are thinking about payments you made in 2025, the old $600 threshold still governs those. The year the payment is made is what determines which threshold applies. Income below either threshold is still taxable to the recipient. The form requirement changed, not the tax.

You can confirm the current threshold and filing instructions directly in the IRS instructions for Forms 1099-MISC and 1099-NEC.

Which subcontractors need a 1099-NEC in 2026?

Any individual, partnership, or LLC that performed services for your trade or business and received $2,000 or more in 2026 needs a 1099-NEC. On a typical contracting job, that covers your framing crew, your electrician, your drywall hanger, your painter, your excavator, and anyone else who showed up with tools and sent you an invoice for labor.

The key distinction is services versus merchandise. You report payments for services. You do not report payments for merchandise alone. If you bought $5,000 worth of lumber from a supply house, that is merchandise and no 1099 is required. If you paid a framing sub $5,000 to build the walls, that is services and a 1099 is required if the sub is not a corporation.

When a single invoice mixes materials and labor, you report the total amount paid to that contractor. The IRS does not ask you to split it out. If the invoice separately states the materials cost and the labor cost, some practitioners report only the labor portion. Either approach is defensible as long as you are consistent.

Which vendors are exempt from 1099-NEC reporting?

Four categories of vendors generally do not need a 1099-NEC from you, regardless of how much you paid them:

• Corporations. Payments to C corporations and S corporations are exempt. This includes an LLC that elected S-corp or C-corp tax treatment. The W-9 will tell you, because the contractor checks their entity type in Box 3.
• Merchandise-only suppliers. If you paid a vendor purely for materials, goods, or inventory, no 1099 is required. The reporting rule covers services, not product sales.
• Credit card and payment-app payments. If you paid a contractor by credit card or through a third-party network like PayPal or Venmo, the payment processor reports that on Form 1099-K. You do not also file a 1099-NEC for the same dollars.
• Payments to employees. Wages paid to W-2 employees go on their W-2, never on a 1099. If you are unsure whether someone is an employee or a contractor, the classification question is separate from the 1099 question — see our breakdown of 1099 vs W-2 rules for contractors in 2026.

One important exception cuts against the corporate exemption. Payments to attorneys for legal services always require a 1099-NEC, even if the attorney practices as a professional corporation. If your company paid a law firm $2,000 or more in 2026 for legal services, you file the form.

Does my business entity type change the 1099 filing requirement?

No. The 1099-NEC filing obligation attaches to the trade or business making the payment, not to the entity type. A sole proprietor filing a Schedule C has the same obligation as a single-member LLC, a multi-member LLC, or an S-corp. If you paid a qualifying contractor $2,000 or more for services in 2026, you file the form.

This is one of the few areas where entity choice does not change the rule. Whether you operate as a sole proprietor, an LLC taxed as a partnership, or an S-corp election, the filing deadline and the $2,000 threshold are identical. The only difference is who signs the form and which EIN appears in the payer box.

For a broader view of how entity type affects your overall tax picture — from self-employment tax to reasonable compensation to retirement options — our contractor tax planning hub walks through each structure.

How do you collect W-9s before paying subcontractors?

Make the W-9 a condition of the first check. No W-9, no payment. That is the only system that actually works in practice, because chasing a sub in January for tax information they should have handed you in March is a losing game.

The W-9 gives you three things you cannot file a 1099 without: the contractor's legal name, their tax identification number, and their entity type. The entity type in Box 3 tells you whether the corporate exemption applies. If the sub checks "S corporation" or "C corporation," you generally do not need to file a 1099-NEC for them. If they check "sole proprietor," "partnership," or "LLC," you do.

Keep the W-9 on file. You do not send it to the IRS. You hold it in your records so that when January arrives, you have everything you need to populate the 1099-NEC without a single phone call to the sub.

If a subcontractor refuses to provide a W-9 or gives you a tax ID you cannot verify, the rule is backup withholding: you must hold back 24% of their pay for the IRS. You send that 24% to the Treasury under the contractor's name and EIN (or "missing TIN"), and you still file the 1099-NEC showing the gross amount paid and the amount withheld. Most contractors will hand over a W-9 within minutes of hearing the words "backup withholding."

What happens if you skip the 1099s?

Two things happen, and neither is good. First, the IRS can assess a penalty for each missing or late form. The penalty amount depends on how late you file. Second — and this is the part that cost Mieczyslaw Kurek everything — if the IRS later reclassifies your contractors as employees, you lose the Section 530 protection that would have shielded you from back payroll taxes. Filing the 1099s is a requirement for that protection. Without it, the reclassification means you owe the employer share of FICA — Social Security and Medicare tax. You also owe federal unemployment taxes. You also owe state unemployment taxes. And you owe interest, for every worker going back years.

This is not a scare tactic. It is the mechanical reality of how the statute works. The 1099 filing is the cheapest part of your compliance program and the one with the highest downside if skipped. For a fuller picture of what draws IRS attention to contractor returns, see our post on contractor tax audit triggers and how to fix them.

And if you have been paying workers in cash without collecting W-9s or filing 1099s, the situation is fixable — but the fix starts with getting compliant going forward. Read our guide on paying workers cash and how to do it right before another year goes by.

What is the filing deadline for 1099-NEC in 2026?

For payments made during calendar year 2026, you must furnish Copy B of Form 1099-NEC to the contractor by January 31, 2027, and file Copy A with the IRS by the same date. The 1099-NEC does not get the extra 30-day extension that 1099-MISC used to get. Both deadlines are the same day.

If January 31 falls on a weekend or federal holiday, the deadline moves to the next business day. The safest practice is to treat January 31 as a hard internal deadline regardless of what day of the week it lands on.

You file electronically through approved e-file software or directly through the IRS electronic filing system. Electronic filing is faster, cheaper, and gives you a confirmation receipt.

When do you use 1099-NEC instead of 1099-MISC?

Form 1099-NEC covers payments for services performed by non-employees. That is your subcontractor labor. Form 1099-MISC covers everything else reportable — rent, royalties, prizes, medical payments, and similar categories. If you paid a contractor for services, it goes on the 1099-NEC. If you paid rent on your equipment yard, that goes on Form 1099-MISC.

The $2,000 threshold that took effect in 2026 applies to both forms. The law change raised the reporting threshold across the board for payments covered under IRC §6041.

What should you do before January?

Run your vendor list now. Pull every payment to a non-employee from your accounting system for 2026. Flag the ones that total $2,000 or more. Cross-reference each one against the W-9 on file. If the W-9 is missing, request it today. If the vendor is a corporation, confirm the entity type on the W-9 and mark them exempt.

The contractors who get burned are not the ones who misread the rules. They are the ones who put it off until January and then scramble. A few hours in July or August sorting your vendor list saves a week of stress in January and keeps you on the right side of every threshold, every deadline, and every protection the code offers.

If you want a second set of eyes on your contractor classifications, your 1099 filing process, or your overall tax strategy, book a meeting with our office. We work with trade contractors across every entity type and every trade, and we will tell you exactly where you stand.