As a construction business owner, understanding your tax compliance obligations is crucial. One important aspect of tax compliance is filing Forms 1099-NEC for non-employee workers.

Depending on the type of work your construction business does (e.g. general contractor or tier 1 subcontractor, etc.), you could have up to one hundred non-employee workers who you pay in any given year.

This guide will walk you through the process, explaining when and how to file these forms, as well as the potential penalties for non-compliance.

When to File Form 1099-NEC

Forms 1099-NEC are required for non-employee workers who have been paid $600 or more during the tax year. In a construction business, this includes:

• Subcontractors
• Independent contractors
• Other non-employee workers

The deadline for filing Forms 1099-NEC is January 31st of the year following the tax year you are reporting. For example, for payments made in 2024, the forms are due by January 31, 2025.

It is important to keep in mind that the Form 1099-NEC is required to be provided to both the IRS and the non-employee worker by the filing due date.

Who Needs a 1099-NEC?

Generally, you need to file a 1099-NEC for any individual or non-corporate entity you’ve paid $600 or more for services during the tax year. However, there are some exceptions:

• Corporations are typically exempt from 1099-NEC reporting.
• Attorneys and law firms require a 1099-NEC regardless of their business structure, even if they’re incorporated.

How to File Forms 1099-NEC

There are several methods to file your 1099-NEC forms:

1. IRS IRIS System: This is a free, electronic filing option provided by the IRS.
2. Third-party Services: Platforms like Avalara 1099 (formerly Track1099) and Tax1099 offer user-friendly interfaces for a small fee per form.
3. Payroll Provider: If you use a payroll service, they may offer 1099 filing as part of their package.

For businesses filing 10 or more forms, electronic filing was made mandatory as of the 2023 tax year. We file hundreds of Forms 1099-NEC on behalf of our clients.

Completing Form 1099-NEC

When filling out Form 1099-NEC, you’ll need the following information:

• Your business details (name, address, taxpayer identification number (TIN))
• The recipient’s information (name, address, TIN)
• The total amount paid to the recipient during the tax year

This information should be entered in the appropriate boxes on the form. Be sure to use the most current version of the form available from the IRS.

Penalties for Non-Compliance

Failing to file Forms 1099-NEC can result in significant penalties (updated for 2025):

• Up to 30 days late: $60 per form
• 31 days late to August 1st: $130 per form
• After August 1st or not filed: $330 per form
• Intentional disregard: $660 per form (minimum)

These penalties can quickly add up, especially for businesses with multiple contractors. Moreover, intentional disregard can lead to even higher penalties with no upper limit.

Conclusion

Filing Forms 1099-NEC is a crucial part of tax compliance for construction businesses. By understanding when and how to file these forms, you can avoid costly penalties and maintain good standing with the IRS. Remember to collect a Form W-9 from your subcontractors before work begins, keep accurate records of payments, and file your 1099-NEC forms on time. When in doubt, consult with a tax professional to ensure you’re meeting all your obligations.

If you’d like to discuss the construction accounting services offered by Evers CPA, we would be honored to have the opportunity. Please email us at: intro@everscpa.com.