The short version for the US: get a Form W-9 before you pay anyone who is not on your payroll, keep a running total per person, and file Form 1099-NEC for each unincorporated sub or helper you paid at least $2,000 by check, cash or bank transfer during 2026. For payments made in 2025 and earlier, the line was $600.
Canada uses different forms. If construction is your main line of business, you report payments to subcontractors on T5018 slips. That is its own section further down.
United States
First decide: helper, sub or employee
Every rule below applies only to people who are not your employees. If the person is an employee, you withhold income tax, Social Security and Medicare from their pay and report it on a Form W-2. You do not withhold on payments to an independent contractor.
The IRS does not use a single test. Its guidance on independent contractors versus employees groups the evidence into three kinds of control:
- Behavioral. Do you control, or have the right to control, what the worker does and how they do the job?
- Financial. Do you control the business side of the work, such as how they are paid, whether expenses are reimbursed, and who provides tools and supplies?
- Relationship. Is there a written contract or employee type benefits? Will the work continue, and is it a key part of your business?
The IRS looks at the whole relationship, not one factor. A helper who shows up at your shop every morning, rides in your truck, uses your tools and works the hours you set looks a lot more like an employee than a licensed electrician who quotes you a price for a rough in and brings a crew. Calling someone a contractor does not make them one. If you are unsure, you or the worker can ask the IRS for a determination on Form SS-8, and this is a good point to bring in an accountant, because a worker who belonged on payroll changes what you owe in payroll taxes.
Before the first payment: the W-9
Form W-9 is how a person gives you their name, tax status and taxpayer identification number (TIN), meaning a Social Security number or an employer identification number. It stays in your files. You do not send it to the IRS. The IRS suggests requesting one from any US person you will report on.
Ask before the first payment, not in January. By January the sub who did two weekends for you last spring may not answer the phone, and you still need the number to file.
If they will not give you a TIN: backup withholding
A payee who does not furnish a TIN is subject to backup withholding on payments you are required to report. The rate is 24 percent. You hold back that share of the payment, send it to the IRS, show it in box 4 of the 1099-NEC, and report the year’s backup withholding on Form 945.
In practice, “no W-9, no check” is simpler than running backup withholding for one person.
During the year: keep a running total
A payment has to go on Form 1099-NEC when all four of these are true, according to the IRS instructions:
- The person is not your employee.
- You paid them for services in the course of your trade or business.
- They are an individual, a partnership or an estate, or in some cases a corporation.
- You paid them at least the threshold during the year.
Parts and materials count too, when supplying them was incidental to the service. A sub who buys the fittings for a repipe and bills you one number is paid for services.
The threshold went from $600 to $2,000
| Payments made | Report on 1099-NEC when the year’s total is |
|---|---|
| In 2025 or earlier | $600 or more |
| In 2026 | $2,000 or more |
| In 2027 and later | $2,000 adjusted for inflation, check the IRS figure |
The change came from the One, Big, Beautiful Bill, as the IRS refers to the 2025 tax law, and it applies to payments made after December 31, 2025. Publication 1099 says the $2,000 amount will be adjusted for inflation beginning in 2027, so check the figure again before you file for 2027.
Card and app payments are not your 1099
If you pay a sub with a credit card, or through a third party network such as a payment app, that payment is reported on Form 1099-K by the card processor or the platform. It does not go on your 1099-NEC. Leave those payments out of your running total.
The platforms have their own thresholds. For payment apps and online marketplaces, a 1099-K is required when payments to a person exceed $20,000 in more than 200 transactions, after the same 2025 law put back the older threshold. Card processors report card payments no matter the amount. Either way, the IRS is clear that the person paid must report all their income, form or no form. See Understanding your Form 1099-K.
Example: three people you paid in 2026
Numbers are made up for the example.
| Person | How you paid | 2026 total that counts | 1099-NEC? |
|---|---|---|---|
| Helper, cash, $150 a day for 12 days | Cash | $1,800 | No, under $2,000 |
| Drywall sub, $2,000 by check plus $1,500 by card | Check counts, card does not | $2,000 | Yes, for $2,000 |
| Electrician set up as a corporation, $6,000 | Check | Not reportable in most cases | Check the W-9 |
The helper would have needed a 1099-NEC for the same $1,800 in 2025, because it was over $600.
After the year: file by the deadline
Form 1099-NEC is due to the IRS and to the person you paid on the same day, January 31. When that falls on a weekend or legal holiday, the next business day counts as on time. For 2026 payments, January 31, 2027 is a Sunday, so the deadline is Monday, February 1, 2027. There is no automatic extension for this form.
Two filing changes to know about:
- If you have 10 or more information returns of any kind for the year, you must e-file.
- Starting with tax year 2026, filed in 2027, the IRS says its Information Returns Intake System (IRIS) will be the only intake system for electronic filing.
Canada: the T5018 for construction businesses
For construction businesses, CRA runs the Contract Payment Reporting System, and the form it uses is the T5018 slip.
Who has to file
You must issue T5018 slips, or send CRA an equivalent listing, when all of these apply:
- Your primary source of business income is construction, meaning more than 50 percent of your income earning activity. CRA’s examples include air conditioning work, electrical work, plumbing, gas pipe work, drywalling, painting, roofing and finish carpentry, on homes as well as commercial buildings.
- You paid Canadian resident subcontractors for construction services.
- The total you paid a subcontractor in the reporting period was more than $500, not counting GST/HST.
A business can be an individual, a partnership, a trust or a corporation. Report cash, cheque, barter and amounts offset against a debt. Do not report payments for goods only.
What goes on the slip
Box 22 is the total you paid the subcontractor, and here you include GST/HST and PST. That is the opposite of the $500 test, which excludes GST/HST. Box 24 is the subcontractor’s business number account (the 15 character one, such as 123456789RT0001) or their SIN. Collect it when you hire them, for the same reason as a W-9.
It is not a T4A
For a construction business, subcontractor payments go on a T5018, not a T4A. CRA says to use a T4A slip for subcontractor payments only when construction is not your primary source of business income. Payments to non-resident subcontractors go on a T4A-NR. If someone was your employee for part of the year and a sub for the rest, the wages go on a T4 and the sub work on a T5018.
Deadline, filing and penalties
| Item | Rule |
|---|---|
| Reporting period | Calendar year or fiscal period, your choice |
| Filing deadline | 6 months after the end of that period, so June 30, 2027 for calendar 2026 |
| Electronic filing | Required for more than 5 slips |
| Late filing, 1 to 5 slips | $100 flat under CRA’s administrative policy |
Deadlines and the e-filing rule are on CRA’s pages for when to file and how to file. Penalties scale up with the number of late slips, and CRA warns that contractors who plan with subs to hide payments can face prosecution and fines of up to 200 percent of the tax avoided.
What to set up this week
Put a W-9, or for Canada a business number or SIN, in the file of every sub you use now. Record how you paid each time, since card payments drop out of the US count. And if a helper works your hours with your tools every week, sit down with an accountant before the year ends rather than after.
