How Should Montana Contractors Handle 1099s and Subcontractors?

SDH
April 14, 2025

Whether you build homes in Bozeman or remodel kitchens in Kalispell, working with subcontractors is a part of doing business as a contractor. But when it comes to the IRS, the line between a contractor and an employee matters—a lot.

The most common question we hear from Montana builders is: “Do I need to issue 1099s to my subcontractors?”

1099 Basics for Contractors:

When You Must File:

You paid an individual or unincorporated business $600 or more in a calendar year
The payment was made for work performed (not product purchases)
The person is not an employee (employees receive a W-2)

You Must Collect a W-9 First Before a subcontractor lifts a hammer, collect a signed IRS Form W-9. This gives you their legal name, tax ID number (SSN or EIN), and address. It’s your responsibility to issue a 1099-NEC form by January 31st the following year.

Avoid Common Pitfalls:

Misclassifying Employees as Contractors
If you tell someone when, where, and how to work, they might legally be an employee—even if they’re paid like a contractor. Misclassification can lead to back taxes, penalties, and audits.
Missing the Filing Deadline
Failing to send 1099s on time (both to the contractor and the IRS) can result in penalties ranging from $50 to $270 per form.
Not Reconciling Records
Always match your books with what you report on 1099s. A mismatch can trigger an IRS red flag.

Why Accurate 1099 Handling Matters

Contracting work can involve dozens of subcontractors per year. A solid system for managing 1099s will:

Keep you compliant
Save time during tax season
Reduce audit risk

Tools We Recommend

Use job-costing software that integrates with 1099 reporting, or let us manage filings for you. QuickBooks, Buildertrend, and Knowify are great for tracking payments to subs.

Pro Tip: If you paid a subcontractor through PayPal or another third-party platform, you don’t need to issue a 1099—they will receive a 1099-K instead.