For construction companies, 1099 reporting is more than a year-end administrative task—it’s a critical compliance function. With subcontractors making up a significant portion of the workforce, construction finance teams must ensure payments are properly tracked, classified, and reported.
As reporting requirements evolve, 2026 is an important year for finance leaders to revisit their processes and ensure their systems and controls are aligned.
What Is 1099 Reporting—and Why It Matters in Construction
Form 1099-NEC is used to report payments made to independent contractors and subcontractors. Unlike employees, these workers are not issued W-2s, so 1099 reporting ensures the IRS can track contractor income.
In construction, this commonly includes:
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Trade subcontractors (electrical, plumbing, HVAC, etc.)
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Equipment operators and specialty labor
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Consultants, engineers, and project-based professionals
Because subcontractors often work across multiple projects throughout the year, finance teams must track cumulative payments carefully to ensure accurate reporting.
Key Threshold Update Beginning in 2026
Beginning with payments made in 2026 (filed in 2027), the reporting threshold increases from $600 to $2,000 and will be indexed for inflation moving forward.
While this change may reduce the number of forms required, it does not eliminate the need for proper tracking. Finance teams should still maintain complete payment records and ensure vendors are correctly classified.
This is also a good time to review internal systems and workflows to ensure reporting thresholds and vendor tracking processes are up to date.
Common Challenges Construction Finance Teams Face
Construction companies often encounter several challenges with 1099 compliance:
Incomplete contractor records
Missing or inaccurate W-9 information can delay filing and increase compliance risk.
Worker classification risk
Misclassifying employees as independent contractors can lead to IRS penalties and back taxes.
Manual or fragmented processes
Tracking subcontractor payments across accounting systems, payroll platforms, and job costing tools can create gaps and errors.
Last-minute reconciliation
Waiting until January to organize contractor records increases stress and the likelihood of mistakes.
Best Practices for 2026 and Beyond
Construction finance teams can reduce risk and improve efficiency by implementing a few key practices:
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Collect W-9 forms before issuing the first payment
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Track subcontractor payments throughout the year—not just at year-end
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Maintain centralized, accurate vendor records
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Review contractor payments periodically to ensure compliance
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Prepare early for filing deadlines
Final Thoughts
1099 reporting plays a critical role in maintaining compliance and financial accuracy in construction. As subcontractor-heavy workforce models continue and reporting thresholds evolve, strong internal processes are essential.
By tracking payments consistently, maintaining accurate contractor records, and preparing early, construction finance teams can reduce compliance risk and ensure a smoother year-end close.