5 Simple Steps to Track Subcontractor Expenses the Right Way

Originally published January 2024. Last updated October 2026.

If you pay subcontractors, you will owe some of them a 1099 form at the start of the new year. This article walks you through the five steps I use to track contractor payments in QuickBooks Online all year long. You will learn what changed for 1099s in 2026, how to keep reimbursements off the form, and what to check before December. Do this now, and January becomes a quick task instead of a scramble.

Get a W-9 before the first payment. Mark each contractor for 1099 tracking in QuickBooks. Keep their pay in one expense account and their reimbursements in another. For payments made in 2026, you only file a 1099-NEC once you pay someone $2,000 or more in the year, up from $600. Review your numbers in the fall, not in January.

What Changed for 1099s in 2026

For years, the number was $600. Pay a contractor $600 or more in a year, and you owed them a 1099. A new federal law changed that in 2025. For payments you make in 2026, the line moves to $2,000. You will file those forms in early 2027. After that, the number goes up each year with inflation.

Here is what did not change. You still need to track every dollar you pay a contractor. Your contractor still owes tax on all of it, even if they never get a form from you. And the forms are still due to the IRS and to your contractor by the end of January.

One more rule people miss. If you paid a contractor with a credit card or a payment app like PayPal, leave those payments off your 1099. The card company or the app reports them instead. QuickBooks keeps them off for you, as long as you record them as card payments.

My 5-Step Checklist for Subcontractor Payments

1. Collect a W-9 Before the First Payment

Ask for a W-9 before you pay a new subcontractor for the first time. The keyword is before. Once they have your money, there is no rush on their end. Some people will skirt the system and ignore you if you wait until tax time to ask.

QuickBooks makes this part simple. You can email your subcontractor right from QuickBooks and invite them to enter their own information. You can also attach the signed W-9 to their vendor profile, so it is there when you need it.

2. Set Up Each Vendor Profile the Right Way

Check the settings for every subcontractor. QuickBooks can email each contractor their 1099 at the end of the year. That only works if their email is in their profile. Add their legal name, address, and tax ID number too.

Then check the box to track payments for 1099. This tells QuickBooks to keep a running total for that person. It is the step most owners skip, and it is the one that makes January easy.

3. Record Contractor Pay in One Place

Pick one or two accounts on your Chart of Accounts for contractor pay, and use only those. Common names are Contract Labor, Subcontractors, or Cost of Goods Sold Labor. Those accounts then show up as one clear line on your Profit and Loss statement.

This matters more than it looks. When you prepare 1099s in QuickBooks, it asks which accounts hold contractor pay. A payment recorded somewhere else can drop off the form. When you keep pay in one place, you do not have to wade through every report and line item to find it.

One note on words. A subcontractor is not your employee, so what you pay them is not wages. It is payment for their services. Anything they bought for you is a separate thing, which brings us to step four.

4. Keep Reimbursements Separate From Pay

Picture your subcontractor buying something on your behalf so they can do the job. It could be a painter buying paint. It could be a professional organizer buying bins before a job. It could be a remote law clerk paying a filing fee on a case for one of your clients. In each case, they fronted the money, and you need to pay them back.

That pay-back is not income for them. If you lump it in with their pay, it lands on their 1099. They will owe tax on money that was never theirs. And your own reports will hide what you spent on supplies.

Here is the rule to follow. Ask for the receipt, and pay back the exact amount on it. When your subcontractor shows you what they spent, that pay-back can stay off the 1099. If supplies are built into their price for the job and you never see receipts, the whole amount counts as their pay. When you are unsure, ask your tax preparer before you file.

Pro Tip: Record a bill in QuickBooks, then pay against that bill. The bill lets you split one payment into separate lines. Put the work on one line, coded to Subcontractors. Put the supplies on another line, coded to Job Supplies or Reimbursable Expenses. Your contractor gets taxed on the work only, and your reports show both numbers clearly.

5. Review Your Numbers in the Fall

Do not wait until January to look at your reports. Start in the fourth quarter. Run your Profit and Loss and the 1099 contractor reports in QuickBooks. Look for anyone missing a W-9, a tax ID, or an email address.

Many subcontractors track what they earn from you. Ask them to compare their numbers with yours. It is much easier to fix a mismatch in October than to send a corrected 1099 in February.

What Waiting Until January Costs You

Here is what January looks like when this work waits. You open QuickBooks and start hunting. One contractor never sent a W-9 and now will not answer your emails. Payments are spread across four different accounts. Supply money is mixed in with pay.

Now you have a few weeks to fix a full year of records. The IRS charges a penalty for each 1099 that is late or wrong. Your contractor may pay tax on money that was only a reimbursement. And every hour you spend digging is an hour you do not spend with your clients.

Every one of those problems starts in the first month you work with a new contractor. That is why the checklist starts with the W-9.

Want a Second Set of Eyes Before Year-End?

If you are reading this in the fall and your contractor records feel messy, you still have time. Our 75-Point Diagnostic Review looks at your books the way we would before year-end. It shows you where contractor pay, reimbursements, and missing W-9s could cause trouble, so you can fix them before the forms are due.

Start with the 75-Point Diagnostic Review