How do I automate 1099 reporting for construction subcontractors?

Key takeaways

• The 2026 filing season covered tax year 2025: Forms 1099-NEC for subcontractors paid $600 or more in 2025 were due to the IRS and to recipients by January 31, 2026.
• For payments made after December 31, 2025, the IRS threshold is $2,000, so the forms due in early 2027 use the higher figure, and the IRS says it may be adjusted for inflation beginning in 2027 (IRS).
• The higher threshold does not remove the work. Aggregation by TIN, W-9 collection and vendor classification still decide which subcontractors cross the line, and the threshold change also applies to backup withholding.
• Collect a W-9 before the first payment, classify each vendor as reportable or exempt at setup, keep one vendor record per TIN, and reconcile reportable totals to the AP ledger monthly.
• Payments made by credit card are reported by the card processor on Form 1099-K, not by you on Form 1099-NEC, so the payment method recorded on each vendor payment matters.

Where should you go next?

• Learn more about Vergo AP Invoice Automation
• Vergo for construction
• Learn more about Vergo Expense Management

What changed for 1099 reporting in 2026?

The reporting threshold for Form 1099-NEC had long been $600. Under the 2025 law the IRS refers to as the One, Big, Beautiful Bill, it rises to $2,000 for payments made after December 31, 2025. The IRS FAQ on Form 1099-NEC and independent contractors now reads: report payments totaling $600 ($2,000 for payments made after December 31, 2025) or more during the calendar year. The instructions for Forms 1099-MISC and 1099-NEC add that the new threshold also applies to backup withholding on those payments, and may be adjusted for inflation beginning in calendar year 2027.

For a construction company, that means two cycles run side by side in 2026. The forms filed in January 2026 used the $600 test for 2025 payments. The forms due January 31, 2027 use the $2,000 test for 2026 payments. Small subcontractors paid between $600 and $2,000 in 2026 drop out, but most trade subcontractors on a job will still be well over the threshold, and a vendor split across two records can be pushed under it by mistake.

Why do construction AP workflows create 1099 risk?

Subcontractor payments come from several streams: progress billings coded to job cost, change order payments, retainage releases, equipment and labor-only invoices, and miscellaneous checks cut in the field office. Each has to be aggregated by taxpayer identification number (TIN), not by vendor name. Duplicate vendor records ("ABC Drywall" and "ABC Drywall LLC") split a subcontractor's total, and inconsistent entity classification includes corporations that should be excluded or excludes sole proprietors who should be included. Retainage released in January belongs to the year it is paid, not the year the work was done.

How do you automate W-9 capture and vendor classification?

1. Request the W-9 at vendor setup. No vendor record should be approved for payment without a TIN, legal name and the entity classification from the W-9.
2. Classify on the vendor record. Set the 1099 flag and box type in the ERP vendor master (Sage 100 and 300, Viewpoint Vista and Spectrum, Foundation and CMiC all carry 1099 fields at the vendor level). Corporations are generally exempt, but payments for legal services are reportable even to corporations (IRS instructions).
3. Verify the name and TIN. Payers that file information returns can use the IRS TIN Matching program, interactively or in bulk, to check name and TIN combinations before filing.
4. Keep one record per TIN. Block new vendor records that reuse an existing TIN, and merge duplicates as soon as they appear rather than at year end.
5. Record the payment method. Card payments are reported on Form 1099-K by the payment settlement entity and are not subject to 1099-NEC reporting, so card-paid invoices should be excluded from your 1099-NEC totals.
6. Reconcile monthly. Compare reportable totals by TIN to the AP ledger each month and run an exception report for missing TINs, unclassified vendors and duplicates.

What happens when a TIN is missing or wrong?

If a payee does not provide a TIN, or provides one that is obviously incorrect, the payer must begin backup withholding at 24 percent. When the IRS sends a CP2100 or CP2100A notice listing mismatched TINs, the payer should send the appropriate "B" notice to the payee immediately and, if the payee does not respond, begin backup withholding no later than 30 business days after receiving the notice. Late or incorrect information returns also carry per-form penalties that rise the later the correction is made; the IRS publishes the current amounts each year. For construction companies, bonding companies and auditors also look at whether W-9 collection is a control or a year-end scramble.

What does a monthly reconciliation catch?

A general contractor with 120 active subcontractors across eight projects reconciles reportable totals to the AP ledger each month. In June the controller finds payments to "ABC Drywall" and "ABC Drywall LLC" on separate vendor records, splitting $18,000 that belongs under one TIN. Under the 2026 threshold, either half could fall under $2,000 on a smaller job and drop off the report. The records are merged and the vendor is marked reportable. In the fall the controller runs TIN Matching, finds two mismatches, and collects corrected W-9s before year end. By mid-December the exception report shows no missing TINs, no unclassified vendors and no duplicates, and the January filing runs from the ERP without rework.

How does Vergo help?

Vergo is AP automation that captures, codes, approves and syncs invoices into your ERP; 1099 tracking and filing stay in the ERP or your filing service, where the vendor's 1099 flag lives. What Vergo changes is the quality of the data underneath. Vergo proposes the coding by inference from your own accounting structure and history, so each subcontractor invoice lands on the correct existing vendor record with its job, phase and cost type, and new vendors are coded on first sight rather than keyed as near-duplicates. Every coding shows why it was chosen. Approval workflows are optional and can route by GL account, by amount or by project. Card spend, employee reimbursements and AP invoices run through one coding model, which keeps card-paid purchases, excluded from 1099-NEC, separate from invoices paid by check or ACH. Vergo integrates with every ERP and accounting software, and it does not pay invoices; payment and the 1099 records that follow from it stay in your ERP.

Related questions

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