You are closing the books and need to report what you paid each sub. For qualifying nonemployee service payments made in 2026, the general federal Form 1099-NEC threshold is $2,000. That amount applies to the calendar-year total, subject to the reporting rules and exceptions. IRS W-2 and 1099 FAQ.
First confirm the working relationship. Then prepare, file with the IRS, and send the sub its statement. Use this checklist to prepare for your CPA or filing service’s tax review.
1. Confirm the worker is a contractor
Before building the 1099 list, distinguish employees from independent contractors. The IRS requires you to determine the relationship before deciding how to treat payments. IRS classification guidance. Review any worker whose vendor account does not match how you supervise them on site.
Ask who contracted with your business and who received payment. A crew lead’s contact name does not automatically identify the tax payee. Match each account to the business or person responsible for its services. Read subcontractor or employee if that relationship is unresolved.
List uncertain accounts separately for review. Give the CPA the agreement, payment record, and a description of actual working practices. Do not issue both a W-2 and a 1099 for the same pay without professional direction.
2. Gather the payee’s tax identity
Obtain the completed W-9 and reconcile it with your vendor record. The IRS describes requesting the contractor’s correct name and TIN after determining independent-contractor status. IRS contractor forms.
Check for duplicate vendor accounts under an owner’s name, trade name, or changed business name. Ask accounting to determine which accounts belong to the same tax payee. Record why the accounts belong together. Do not merge them just because their mailing addresses look alike.
Ask for a current delivery address. Confirm who handles correction questions. Keep the full tax identifier in restricted accounting records. The W-9 guide explains the identity checks and storage boundaries.
3. Separate direct payments from processor payments
Export payments with the date, payee, invoice reference, amount, job, and settlement method. Include the record showing whether a processor settled the transaction through a payment-card or qualifying third-party network arrangement.
The IRS assigns payment-card and qualifying third-party network transactions to the Form 1099-K reporting system rather than the payer’s 1099-NEC or 1099-MISC reporting. IRS form instructions. Ask the processor or CPA to classify uncertain transactions.
Do not use “online payment” as a reporting category. A payment app can settle payments in different ways. Record enough detail for accounting to classify each transaction. Use IRS 1099-K guidance to understand the processor’s reporting role.
A missing 1099-K does not justify duplicating processor-reportable payments on your NEC. A digital receipt does not prove that a payment belongs in the 1099-K system. Give accounting the transaction records.
4. Reconcile payments across every job
Total calendar-year payments for each tax payee across all houses, purchase orders, and invoices. List payments made during 2026 separately from unpaid invoices and other years. The IRS FAQ identifies payments during the calendar year as the reporting basis. IRS reporting FAQ.
Use the following reconciliation sheet before preparing forms:
Scroll to read all columns.
| Record | Question for the reviewer |
|---|---|
| Vendor identity | Do these payments belong to the same tax payee? |
| Job allocation | Have all houses and scopes been included? |
| Payment date | Is the payment in the reporting year? |
| Settlement method | Does the payer or payment settlement entity report it? |
| Credits and adjustments | Has accounting resolved refunds, reversals, and disputed entries? |
| Ledger total | Does the proposed form reconcile with the reviewed payment list? |
Keep unpaid invoices on the accounts-payable report. Ask the CPA to resolve timing questions involving unusual payment arrangements. Do not move an entry between years to match when the work was performed without checking the tax treatment.
For labor-and-material scopes, do not automatically subtract the materials line. IRS instructions include incidental parts or materials in reportable service compensation. IRS nonemployee compensation examples. Have the reviewer distinguish those payments from a merchandise-only purchase.
5. Apply the 2026 threshold and exceptions
For ordinary qualifying service payments, test the reviewed total against the $2,000 threshold for 2026. The former $600 general threshold applies to 2025 payments. IRS reporting FAQ. Label your worksheet with the tax year so you do not apply an old formula to new payments.
Ask the CPA to review corporate status and other exceptions. Many corporate payments are excluded, but the rule has exceptions. A limited liability company designation does not tell you a business’s federal tax classification. IRS form instructions.
Check backup withholding, too. IRS guidance identifies missing or incorrect TIN situations that can trigger it. IRS backup withholding. Flag any withholding already recorded, even if the ordinary service-payment total appears below the general threshold.
6. Prepare the form for the correct year
Use the correct tax-year form or electronic filing specification. Enter the payer and recipient information from checked records. Compare the compensation amount with the reconciliation worksheet before submission.
Use the NEC versus MISC guide to check form choice against the payment type before preparing the return.
Have the reviewer check the payee name and tax identifier, tax year, amount, withholding, and reporting method. Resolve a name or number mismatch at its source. Avoid editing a final PDF while leaving a different value in the accounting export.
If paper filing is appropriate, follow the IRS instructions for acceptable forms and the required transmittal. The IRS warns that its downloaded Copy A is not suitable for ordinary paper filing. General information-return instructions. Do not assume a printable recipient copy is also an IRS filing copy.
7. File with the IRS and send the sub its copy on time
Form 1099-NEC ordinarily has a January 31 deadline for IRS filing and recipient statements. Weekend and holiday rules move an affected deadline to the next business day. 2026 Publication 1099. For 2026 payments, January 31, 2027 falls on Sunday, making the ordinary deadline February 1, 2027 under that rule. IRS deadline rule.
Ask your filing service to confirm the date and any applicable exception. Plan the account review before that deadline. Do not treat mailing the sub’s copy as filing with the IRS.
Electronic filing is generally required when your total covered information returns reaches ten. Waivers and exemptions can apply. 2026 Publication 1099. Count all covered return types with your preparer, rather than only subcontractor NECs.
The IRS provides IRIS for electronic information returns. Its taxpayer portal requires an IRIS Transmitter Control Code. IRS IRIS guidance. Arrange access early or use your preparer’s established filing process.
8. Save filing records and correct errors
Save the reviewed ledger, identity documents, filed return, recipient delivery record, and filing acknowledgment. Confirm the filing was accepted. An uploaded file alone does not confirm acceptance.
If a payee reports an error, compare the complaint with the source records. The IRS has specific correction procedures for incorrect information returns. General correction instructions. Ask the preparer which correction applies and retain the corrected submission acknowledgment.
Use the same reviewed identity in the vendor account for the next payment cycle. Otherwise, you can correct the form and leave the same error in the books.
Keep the source records with the tax review
Use W-9 forms for subcontractors for tax identity and NEC versus MISC for form choice. Reconcile the subcontract payment record before the preparer reviews the reporting total. Resolve a contract dispute or lien question separately from the tax return.
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