How do I handle 1099-NEC filings for subcontractors at year-end?
The foundation of smooth 1099-NEC filing starts long before December. Every subcontractor who isn’t incorporated and who you pay $600 or more during the year must receive a 1099-NEC by January 31. The filing deadline with the IRS is the same date. Missing it triggers penalties ranging from $60 to $310 per form depending on how late you file.
The single most important habit is collecting a W-9 from every subcontractor before you pay them the first time. The W-9 gives you their legal name, taxpayer identification number, and entity type. You need the entity type to know whether a 1099 is even required. Sole proprietors, partnerships, and single-member LLCs need one. So do multi-member LLCs unless they’re taxed as a corporation. S-Corps and C-Corps generally do not require a 1099. Make it a firm rule: no W-9, no first payment. Chasing subcontractors for this information in January when they’ve moved on to other jobs or changed phone numbers is one of the most avoidable headaches in business.
Throughout the year, your accounts payable system should be tracking every payment to every sub. If your bookkeeping software is set up correctly with each vendor flagged for 1099 reporting, generating the year-end report takes minutes. You pull the report, verify totals, and file. If your books are messy or you’ve been paying subs with personal checks without recording things properly, January turns into a research project. Bill payment management that tracks vendor payments consistently throughout the year is what turns 1099 prep into a one-hour task instead of a multi-day scramble.
Before you file, verify a few things. Confirm the legal name and TIN on each W-9 match what’s in your system. Check that total payments to each sub actually meet or exceed $600. Double-check entity types so you’re not filing for corporations that don’t need one. And make sure mailing addresses are current so the forms reach your subs on time.
You can file electronically through the IRS FIRE system or through accounting software that supports e-filing. Electronic filing is faster and gives you confirmation that the IRS received the forms. If you have 10 or more 1099s to file, the IRS now requires electronic filing.
Penalties add up fast. File 1 to 30 days late and it’s $60 per form. Between 31 days late and August 1, the penalty jumps to $130 per form. After August 1 or if you never file, it’s $310 per form. Twenty subcontractors with no filings means up to $6,200 in penalties for paperwork you simply didn’t get to. The IRS also penalizes for incorrect information like wrong TINs, which circles right back to collecting accurate W-9s before that first payment goes out.
This comes up most often with construction companies and other businesses that rely heavily on subcontractors, but it applies to anyone paying independent contractors. As bookkeepers in Fairfax working with businesses across the DMV, we see the January panic every year from owners who didn’t collect W-9s or track sub payments throughout the year. The fix is simple but it has to happen before year-end, not after.
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