How to Track Subcontractor Payments and 1099s in QuickBooks

TL;DR: To track subcontractor payments in QuickBooks so 1099-NEC filing is accurate, mark each vendor as eligible for 1099 tracking, store the tax ID and address from their W-9, and map the expense accounts you post their payments to onto 1099-NEC box 1. QuickBooks pulls 1099 totals from the accounts you map, not the vendor record, so a payment miscoded to Supplies drops off the form. Only unincorporated contractors paid by cash, check, or ACH get a 1099-NEC; most corporations, merchandise, and anything paid by credit card belong off it, because the card processor reports those on a 1099-K. The long-standing $600 threshold rose to $2,000 for payments made on or after January 1, 2026, so confirm the current-year number in the IRS instructions before filing. When one bank payment covers several crews, split it by vendor so each subcontractor's total is right.

Last updated July 2026.

What a 1099-NEC is and who gets one

Form 1099-NEC reports nonemployee compensation: money your business paid to non-employees for work they did. If you run a cleaning company, a landscaping crew, or a trade shop and hire outside labor, those subcontractors are who this form is about. You send each qualifying contractor a copy and file the same information with the IRS.

The reporting threshold decides who gets a form. For years the rule was simple: pay an unincorporated contractor $600 or more during the year in the course of your business and you owe them a 1099-NEC. Legislation passed in 2025 raised that threshold to $2,000 for payments made on or after January 1, 2026, with inflation adjustments later. Because the rule changed recently, confirm the current figure in the IRS Instructions for Forms 1099-MISC and 1099-NEC and with your CPA rather than working from memory. Either way, the contractor owes tax whether or not you send a form, and only cash, check, and ACH payments count.

Who does not get a 1099-NEC

First, most corporations. Payments to a business treated as a C or S corporation (including an LLC that elected corporate tax treatment) are generally exempt. The big exception is legal services: if you pay an attorney or law firm for legal work, you report it even if the firm is incorporated. The W-9 is how you learn a vendor's tax status, which is why you collect it up front.

Second, payments for merchandise. Buying materials, parts, or product is not nonemployee compensation, so a lumber yard or a supply house does not get a 1099-NEC for goods.

Third, and this is the single most common bookkeeping mistake: anything you paid by credit card, debit card, or through a third-party settlement network. The IRS instructions are explicit that those payments are reported on Form 1099-K by the payment settlement entity, not on a 1099-NEC or 1099-MISC. So if you paid a sub with your business credit card, the processor already reports it; put it on a 1099-NEC too and that contractor gets double-counted. Track how you paid, not just how much.

Employee or contractor: the classification test first

Before any of this matters, the worker has to actually be a contractor. The IRS common-law test has three parts. Behavioral control asks whether you direct how the work gets done: schedule, tools, methods. Financial control asks who invests in equipment, who carries the risk of profit or loss, and whether you reimburse expenses. Type of relationship asks about written contracts, benefits, permanence, and whether the work is core to your business.

Concrete version. A cleaner who works your schedule, uses your supplies, and works only for you is almost certainly an employee, and employees get a W-2, not a 1099. An irrigation specialist who brings his own crew, sets his own hours, carries his own insurance, and works for other companies is likely a real contractor. Most crews sit in between, so the facts matter more than the label on the invoice, and misclassifying an employee exposes you to back payroll taxes and penalties. State tests can be stricter than the federal one; some states use an ABC test that treats more workers as employees, so check your own state's rule. Our page on converting bank statements to QuickBooks for cleaning companies covers the labor side in more depth.

Collect the W-9 before the first check

The habit that saves the most January pain is collecting a signed W-9 before you pay a subcontractor the first dollar, not chasing it at year end when the sub has moved on. The W-9 gives you the legal name, business structure, address, and taxpayer identification number you need to file. Along with it, get a current certificate of insurance and track its expiration date, because an expired COI turns your sub into your workers comp audit problem. Make both a condition of the first payment.

Set QuickBooks up so the totals are right

1. Turn on 1099 tracking in the vendor record. In QuickBooks Online, check Track payments for 1099; in Desktop, it is the Vendor is eligible for 1099 box.
2. Store the tax ID and the legal name and address exactly as they appear on the W-9. A nickname or an old address is what turns a filed form into a rejected one.
3. Map your accounts to the box. When you run the 1099 wizard, QuickBooks asks which expense accounts feed 1099-NEC box 1. Point every outside-labor account (Subcontractors, Contract Labor, Job Labor) at box 1.

Here is the part people miss. QuickBooks reports 1099 totals from the accounts you map, not the vendor flag. If a subcontractor payment gets coded to Supplies or Materials instead of your Subcontractors account, that amount never reaches box 1, and the contractor's 1099 comes out low with no error to warn you. Consistent coding all year is what makes the year-end report trustworthy. Our guide on converting bank statements to QuickBooks for landscaping and lawn care covers keeping crew pay and materials separated.

The lump-payment problem, where the bank statement earns its keep

Say you run one weekly ACH to fund the week's labor: $4,850 leaves the account as a single line. That week it covered three crews. Crew A got $2,100, crew B got $1,600, and crew C got $1,150, which adds back to $4,850. Post that as one $4,850 payment to a generic vendor, and every one of those subcontractor totals is wrong, so at year end their 1099s are either missing or lumped onto whoever you happened to name.

The fix is to split the single bank transaction by vendor. In QuickBooks, one payment can be entered as multiple lines, each assigned to a different subcontractor and the correct labor account. Split the $4,850 into $2,100, $1,600, and $1,150 against the three vendors, and each contractor's year-to-date total stays accurate to December. Skip the split for fifty weeks and January becomes forensic accounting.

Reimbursements, materials, and backup withholding

Reimbursements trip people up. If you reimburse a subcontractor for expenses and there was no accountable plan (the sub did not substantiate the costs and return any excess), those reimbursements generally get included in box 1 along with the labor. This area is technical, so verify your situation against the current IRS instructions and your CPA. The practical defense is documentation: keep true materials and pass-through costs on a separate bill line from labor and hold the receipts.

Backup withholding is the tool for a contractor who will not hand over a taxpayer identification number. When a payee fails to furnish a correct TIN, the IRS requires the payer to withhold at the current rate of 24% and remit it. You still file the 1099-NEC, reporting the gross amount in box 1 and the tax withheld in box 4. It is easier to make the W-9 a condition of the first check than to become an involuntary withholding agent for a sub who ghosts you.

Why the bank statement is your backstop

Bank feeds are shallow. Most only reach back about 90 days, which is fine until you take over a set of books in November and need January through August. You cannot pull those months from the feed, so you cannot see the full year of subcontractor payments you are about to file 1099s on. The reliable source is the statements themselves, which the bank keeps for years.

Converting the PDF statements into .qbo files rebuilds the missing history directly into QuickBooks so the vendor totals are complete before you file. Drop the year's statements into the PDF to QBO converter, or if you are reconstructing an older year, our guide on how to import old bank statements into QuickBooks walks the full workflow. Bookkeepers cleaning up several clients at 1099 season can batch the work with our page on converting bank statements to QuickBooks for accountants.

A January checklist

• Reconcile every bank and credit-card account through December.
• Run the vendor 1099 summary and check each contractor's total against what you paid.
• Remove credit-card and third-party-processor payments; the processor reports those on 1099-K.
• Chase missing W-9s and confirm every reportable vendor has a legal name, address, and TIN.
• Verify the account-to-box mapping and scan for payments miscoded to Supplies or Materials.
• File and furnish by the deadline: the 1099-NEC deadline has been January 31 (the next business day if it falls on a weekend), but confirm the current-year date in the IRS instructions.

Frequently asked questions

Do I need to send a 1099 to a subcontractor?

Usually yes, if the subcontractor is unincorporated, you paid them by cash, check, or ACH, and the total reached the current-year reporting threshold in the course of your business. You do not send one to most corporations, to suppliers for merchandise, or for anything you paid by credit card. Verify the current threshold in the IRS instructions before deciding.

Do you send a 1099 if you paid by credit card?

No. Payments made with a credit card, debit card, or through a third-party settlement network are reported by the payment processor on Form 1099-K, not by you on a 1099-NEC. Issue a 1099 for those too and the contractor gets double-counted. This is the most common 1099 error, so track how you paid each subcontractor, not only the amount.

How do I track 1099 payments in QuickBooks?

Turn on 1099 tracking in each vendor record, store the tax ID and address from the W-9, and map your outside-labor expense accounts to 1099-NEC box 1. QuickBooks totals 1099s from the accounts you map, so code every subcontractor payment to a labor account consistently all year. At year end, run the vendor 1099 summary to review each contractor's total before filing.

What is the difference between 1099-NEC and 1099-MISC?

The 1099-NEC reports nonemployee compensation, meaning payments for work done by contractors who are not employees. The 1099-MISC reports other payments such as rent, prizes, and certain legal settlements. Subcontractor labor goes on the NEC. Rent paid to a landlord goes on the MISC. Attorney fees for legal services are reportable even to incorporated firms.

Do LLCs get 1099s?

It depends on how the LLC is taxed. A single-member LLC treated as a disregarded entity, or an LLC taxed as a partnership, is generally reportable like any unincorporated vendor. An LLC that elected S-corp or C-corp treatment is generally exempt, except for legal services. The W-9 tells you the tax classification, which is why you collect it before paying.

What happens if I do not file a 1099?

The IRS charges penalties for failing to file required information returns and for filing them late, and the amount rises the longer you wait, with higher penalties for intentional disregard. Missing 1099s can also draw questions in an audit. Penalty figures change, so confirm the current amounts in the IRS instructions and talk to your CPA if you are behind.