Article
Get your business to the next level.
Join 4 Level Coach, the leading Custom Home Building & Remodelling Program.
Article
1099 Regulations: What Builders and Remodelers Need to Know Right Now
If you are a custom home builder or remodeler, you already juggle schedules, clients, budgets, and crews. The last thing you want is the IRS breathing down your neck because of a paperwork slip-up. Yet every year, plenty of builders end up paying fines and penalties because they either misunderstand or ignore 1099 regulations.
Let’s cut through the confusion. No fluff. No legal jargon. Just what you need to know about 1099 regulations, what has changed, what is coming down the pipeline, and how to protect your business from unnecessary headaches.
Why 1099 Regulations Matter More Than You Think
When you hire subcontractors, trades, or even certain vendors, you are responsible for properly classifying and reporting those payments. The IRS uses 1099 forms to track income that is not on payroll. If you skip issuing a form, misclassify a worker, or underreport payments, you are the one holding the bag.
And let’s be real. Builders and remodelers often work with dozens of independent contractors throughout the year: framers, electricians, plumbers, tile installers, roofers. The list goes on. If you do not have a system to track who gets paid, how much, and under what classification, it is only a matter of time before something slips through the cracks.
Fines are no joke either. In 2024, penalties for failing to file a 1099 range from $60 to $310 per form, depending on how late you are. If the IRS thinks you intentionally disregarded the rules, that penalty jumps to $630 per form. Multiply that across multiple subs, and suddenly you are looking at thousands in avoidable costs.
What Has Changed Recently with 1099 Regulations
The IRS has been tightening the screws on independent contractor reporting. Here are the biggest updates that affect builders and remodelers:
Third-Party Payments Are Tracked More Closely
Remember when you thought paying a sub through PayPal or Venmo would keep things off the radar? Not anymore. The IRS has lowered reporting thresholds for 1099-K forms. While the $600 threshold was delayed again for 2024, the new rules are set to fully roll out soon. Expect third-party payment processors to report transactions whether you like it or not.
Remember when you thought paying a sub through PayPal or Venmo would keep things off the radar? Not anymore. The IRS has lowered reporting thresholds for 1099-K forms. While the $600 threshold was delayed again for 2024, the new rules are set to fully roll out soon. Expect third-party payment processors to report transactions whether you like it or not.
Misclassification Crackdowns
The Department of Labor has been laser-focused on cracking down on misclassification. If you treat someone like an employee (setting their hours, providing tools, directing how the work is done), but you pay them like a 1099 contractor, you are on thin ice. Construction is one of the top industries flagged for audits.
The Department of Labor has been laser-focused on cracking down on misclassification. If you treat someone like an employee (setting their hours, providing tools, directing how the work is done), but you pay them like a 1099 contractor, you are on thin ice. Construction is one of the top industries flagged for audits.
Stricter Deadlines
The deadline for sending 1099-NEC to contractors is January 31, with no wiggle room. That means your bookkeeping needs to be buttoned up as soon as the year closes. Builders who wait until tax time are already too late.
The deadline for sending 1099-NEC to contractors is January 31, with no wiggle room. That means your bookkeeping needs to be buttoned up as soon as the year closes. Builders who wait until tax time are already too late.
The Coming Storm: What Builders Should Watch For
Here is what is on the horizon that could affect your projects and payroll:
Lower Thresholds for 1099-K
The IRS is pushing to reduce the reporting threshold for third-party platforms permanently to $600, down from $20,000. Even if delays continue, assume it is coming. That means every small transaction with a sub through PayPal, Cash App, or Venmo will be tracked.
The IRS is pushing to reduce the reporting threshold for third-party platforms permanently to $600, down from $20,000. Even if delays continue, assume it is coming. That means every small transaction with a sub through PayPal, Cash App, or Venmo will be tracked.
More Data Matching
The IRS is investing heavily in data-matching software. If your books say you paid a contractor $10,000, but the contractor does not report it, the system will flag both of you. Builders are often the first ones contacted because you are the one who issued the payment.
The IRS is investing heavily in data-matching software. If your books say you paid a contractor $10,000, but the contractor does not report it, the system will flag both of you. Builders are often the first ones contacted because you are the one who issued the payment.
Tougher Classification Tests
There is movement toward adopting an even stricter test for employee versus contractor classification, leaning on the old “ABC test.” If adopted federally, it will become even harder to call someone an independent contractor unless they truly run their own business.
There is movement toward adopting an even stricter test for employee versus contractor classification, leaning on the old “ABC test.” If adopted federally, it will become even harder to call someone an independent contractor unless they truly run their own business.
How Builders Should Handle 1099 Compliance Without Losing Their Mind
Compliance does not have to be complicated. It comes down to systems and discipline. Here are the core steps:
- Collect W-9s Before Work Starts
Do not cut a single check until you have a completed W-9 from every subcontractor. This gives you their legal name, entity type, and tax ID. No W-9, no work. - Track Payments by Vendor
Whether you use QuickBooks, JobTread, Buildertrend, or a simple spreadsheet, log every payment. Separate material-only suppliers from service providers, because only the service providers generally require a 1099. - Stay Ahead of Deadlines
Do not wait until January. Review your vendor list in December. Verify addresses, totals, and classification so you can file on time. - Work with Bookkeepers Who Understand Construction
Not every bookkeeper knows the difference between paying a lumber supplier and paying a framing crew. Choose someone who understands how construction projects work so they do not accidentally misreport payments.
Common Misconceptions Builders Need to Quit
A lot of builders and remodelers repeat the same myths when it comes to 1099 regulations. Here are the most common ones and the truth behind them:
- “I pay them with Venmo so the IRS cannot track it.” Wrong. If you are paying through third-party apps, 1099-K reporting kicks in once you pass the thresholds. It is tracked.
- “No 1099 if they have an LLC.” Not true. Unless the contractor is formally incorporated as a C-corp or S-corp, you still need to issue the form. Always get a W-9 to verify their entity type.
- “Material suppliers do not get 1099s.” That is partly true if they are only selling materials. But if installation or service is tied into the invoice, then yes, you owe a 1099.
- “I can just file late and deal with it later.” Dangerous thinking. Late filing penalties add up fast and can easily surpass the actual cost of issuing the forms correctly and on time.
- “It is per job, not per year.” Another big mistake. The threshold applies to the total amount you pay someone in a calendar year, not per project.
Objections Builders Raise and Why They Do Not Hold Up
Builders often push back with reasons they think justify avoiding the hassle. Let us dismantle them.
“I do not have time for this paperwork.”
You also do not have time to deal with an IRS audit. Setting up a simple system once saves countless hours later.
“It is just one guy helping me out.”
If you paid more than $600, it does not matter if it was one guy for one project. The IRS expects a 1099.
“I already pay too much in taxes. Why help the IRS?”
Issuing a 1099 does not mean you pay more tax. It means you are protecting your deductions and ensuring the IRS does not disallow them.
Issuing a 1099 does not mean you pay more tax. It means you are protecting your deductions and ensuring the IRS does not disallow them.
“My subs will be mad if I report what I paid them.”
If they are legitimate businesses, they should already expect this. If they push back, that is a red flag you should not ignore.
If they are legitimate businesses, they should already expect this. If they push back, that is a red flag you should not ignore.
Real-World Tips from the Field
Let us put real numbers on this. Imagine you hire 15 different subs over the course of a year. You forget or choose not to file 1099s. That is 15 missed forms. Even at the lowest penalty of $60, that is $900. At the higher end of $310 per form, that is $4,650. If the IRS claims intentional disregard, it jumps to $9,450. That is money that could have gone toward equipment, marketing, or your bottom line.
Now multiply that across multiple years or projects, and you see how quickly this adds up.
Why Getting Coaching Helps Builders Avoid Compliance Nightmares
You did not get into custom home building to become a tax expert. But compliance ties directly into profitability. A business profit coach, like 4 Level Coach, helps builders put systems in place that keep the money side of the business running smoothly. That means more time spent building and less time untangling tax messes.
A coach can help you:
- Build simple financial workflows that make 1099 prep automatic.
- Train your office manager to spot classification red flags before they become IRS issues.
- Keep your focus on growth instead of fines and penalties.
Final Word
1099 regulations may feel like a distraction from swinging hammers and managing projects, but they are part of running a real business. The rules are tightening, audits are increasing, and construction is always on the IRS radar. Builders and remodelers who take this seriously not only protect themselves but also run stronger, more professional businesses.
Do not wait until January panic mode. Put systems in place now, keep your W-9s organized, and issue those 1099s on time. Your future self will thank you.
If you are serious about growing and protecting your construction business, 4 Level Coach is here to guide you. From setting up bulletproof financial systems to helping you scale with confidence, we make sure compliance never gets in the way of profits. Book a call today at 4levelcoach.com and let’s put the right systems in place so you can build with peace of mind.
Get Started
Ready to Elevate Your Business?
We help builders move from stressed and stretched to strong and strategic. From doing it all, to leading a business that can finally stand on its own.