Paying Independent Contractors: Deductions and the New $2,000 1099 Rule for 2026

Jeremy Knight, CPA • November 10, 2026

Quick answer: What you pay independent contractors, like a graphic designer, bookkeeper or subcontractor, is a deductible business expense. Starting with payments made in 2026, you must issue a Form 1099-NEC when you pay one contractor $2,000 or more in the year, up from $600. Payments made by credit card or PayPal are reported by the processor instead.

Contractor payments at a glance

  • What qualifies: Payments to non-employees for services to your business
  • 1099-NEC threshold: $2,000+ to one contractor in 2026 (was $600); due to the contractor by January 31, 2027
  • Records to keep: Form W-9 for each contractor, invoices, proof of payment

What counts

  • Subcontractors on jobs
  • Freelance designers, writers, virtual assistants and web developers
  • Bookkeepers and cleaning services paid as businesses
  • Any non-employee you pay for work done for your business

What doesn't count

  • Wages to employees (those are payroll, with W-2s)
  • Payments to yourself as the owner
  • Personal services, such as your own lawn care at home

How to gather your contractor records

  1. Get a Form W-9 from every contractor before you pay them. It gives you their legal name, address and taxpayer ID.
  2. Save every invoice with the date, service and amount.
  3. Pull payment records from your bank, Venmo, Zelle, Cash App or check register.
  4. Note how each payment was made. Card and PayPal payments are reported on 1099-K by the processor; checks, cash, ACH, Zelle and similar need a 1099-NEC from you if the total hits $2,000.
  5. Total each contractor for the calendar year.

How to organize and bring your data to Hub City Tax Pros

  1. Make a list: contractor name, total paid in 2026, how paid, W-9 on file (yes/no).
  2. Flag anyone at $2,000 or more paid by check, cash or bank transfer.
  3. Bring the list, W-9s and invoices to our Lubbock office in early January so 1099s go out on time.

Common mistakes

  • Waiting until January to ask for a W-9
  • Using the old $600 threshold for 2026 payments
  • Treating someone as a contractor when you control their hours and tools like an employee

Frequently asked questions

What is the 1099-NEC threshold for 2026?

$2,000 paid to one contractor during 2026. It was $600 for earlier years and will be adjusted for inflation starting in 2027.

Do I send a 1099 if I paid a contractor through PayPal?

Generally no. Payments by credit card or a payment app's goods-and-services option are reported by the processor on a 1099-K.

Are contractor payments tax deductible?

Yes, when they're for work done for your business.

Bring your records to Hub City Tax Pros

Bring your contractor list and W-9s to Hub City Tax Pros. Walk in or call (806) 810-5798. Our CPAs and IRS Enrolled Agents at 4414 82nd St., Suite 214, Lubbock, TX 79424 (The Village Shopping Center) will review your numbers, make sure every eligible dollar counts, and file your 1040 with transparent pricing. Locally owned in Lubbock, not a franchise. No appointment needed during tax season. Real tax pros. Real prices. Right here on 82nd.

This article is general information for tax year 2026, not tax advice for your situation. Tax rules change; bring your records in and we'll apply the rules that fit you.

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