1099 subcontractors: what a construction company must organize before January

In a construction company, 1099 season does not stall over the form. It stalls because the same subcontractor shows up on three jobs, got paid by check, Zelle and card, and nobody added it up during the year. The work that fixes it is bookkeeping, and it happens between October and December: one vendor record per sub, W-9 on file, every payment tied to a job and reconciled to the bank. In January your accountant or CPA gets a finished list, issues and files. GS Brasil organizes, he issues.

The same sub on three jobs and in two different accounts

The electrician worked the street A remodel in March, joined the commercial job in July and closed the year on rework at a third one. Part of the money left the operating account, part left the account the partner uses for advances. In QuickBooks he became three vendors: the name on the check, the LLC name and a nickname.

The damage runs both ways. Job cost is wrong, because each slice landed somewhere else. And the contractor total is wrong, because nobody adds three records together. The fix starts at setup: one sub, one vendor, one legal name, every account pointing to it.

Why the payment method changes what belongs on the 1099-NEC

Construction companies pay every way there is. A check for the old sub, Zelle for the helper, a transfer for the demolition crew, a card for whoever takes cards. For job cost it makes no difference: it is all cost. For the 1099-NEC it does.

That last row wrecks the most numbers in construction. The same sub got 18,000 by check and 4,000 on the card. Job cost is 22,000, and that is correct. The 1099-NEC total is not 22,000. Without the payment method on the entry, nobody separates that in January without reopening the year.

Material the sub buys and you reimburse

The sub bought 3,000 in material, sent the receipt with his labor invoice and got paid in one check. From there two versions of the same job exist: the one that books 3,000 as material and the one that books everything as subcontractor.

For job costing, the split matters: material and labor behave differently and answer to different people, as the article on job costing in construction explains. For 1099 purposes, how to treat the reimbursement is your accountant's call. The bookkeeping job is to hand him both figures separated, with the receipt attached to the entry. If the number arrives blended, he decides blind.

The sub is an LLC. Does he get a form or not?

This is the question that stalls the line in January, and the answer is short: the W-9 answers it. LLC is not a single tax category. Some LLCs are taxed as corporations and some are not, and the box is right there on the form the sub signed.

As a rule, the 1099-NEC goes to individual contractors and to LLCs not taxed as corporations. A company taxed as a corporation is normally left out. That is why the W-9 is not paperwork: it is the document that decides. Without it, the question comes back to you in January with no way to answer. Confirm your sub's case with your accountant.

Retainage held back and partial payments

Construction almost never pays a sub in one shot. It pays by progress, holds a slice until the job passes inspection, and sometimes releases the retainage the next year. That creates two questions, and plenty of people answer them as one.

• What the sub cost the job. It includes what is still held, because the work was performed.
• What the sub was actually paid this year. That is the sum of what left the account. Retainage not released did not leave.

Both numbers are right and answer different questions. The first is job margin. The second is what your accountant uses for the 1099. Mix them and he gets a total that never matched the bank, and the rework lands on your bill.

Job cost and contractor totals have to tie out

There is a simple check almost nobody runs that clears most January problems. Add up subcontractor cost across every job. Add up everything paid to contractors during the year. Setting aside retainage still held and card charges, the two numbers talk to each other. When they do not, the gap has a name: a payment with no job, a duplicated vendor, or an entry that was never reconciled.

It is not a year-end report: it runs at every monthly close, while you can still ask the foreman which job that check was for. See bookkeeping for Florida construction companies and how QuickBooks for contractors holds it up day to day.

October to January, month by month

What the package for your accountant needs

A good accountant charges for rework, rightly so. The more questions he asks, the more the season costs. The package that raises none has six things in it.

• A W-9 for every sub, signed, with the tax classification checked and a current address.
• Yearly total per contractor, one record per person, no duplicated names.
• That same total broken out by payment method, keeping card and platform apart from the rest.
• Subcontractor cost by job, which lets him check the total instead of taking your word for it.
• Retainage held and not yet paid, listed separately, with the job it came from.
• Reconciled accounts and closed books, with the year's P&L and Balance Sheet. The P&L is the result, the Balance Sheet is the position.

This is the same material that feeds 1099 and W-9 bookkeeping all year. What changes in construction is the job in the middle of everything: every payment carries a contractor and a job, and neither field can be blank.

If you cannot say today what you paid each sub this year, and how, there is still time. Send me a message with how many jobs you ran this year and I will tell you where to start.