.png)
Tax Help for Construction Contractors and the Trades
Updated: Oct 5
Short answer: All State Tax Resolution, led by Sabih Shafi, an IRS Enrolled Agent, helps contractors and tradespeople nationwide with 1099 income, estimated payments, deductions and IRS balances. Usually nobody withholds tax from 1099 pay, so you pay income tax and self-employment tax as you go. If you owe or are behind, file the missing returns first, then pick a payment option.
Key takeaways
1099-NEC pay has no withholding. You owe income tax plus 15.3% self-employment tax on net profit, and you generally pay quarterly.
Safe harbor: pay the smaller of 90% of your 2026 tax or 100% of your 2025 tax (110% if your 2025 adjusted gross income topped $150,000).
For 2026 payments, 1099-NEC reporting starts at $2,000, up from $600. Subcontractors need one too, so collect a W-9.
Paying a crew in cash or on 1099s does not make them contractors. Employees mean payroll taxes and Form 941.
Behind or owing? File first, then consider a payment plan, hardship status, an Offer in Compromise or penalty relief.
How a 1099 contractor is taxed
When a customer or general contractor pays you on Form 1099-NEC, nothing is withheld. Contractors and subcontractors are generally self-employed, and sole proprietors and single-member LLCs report on Schedule C.
You owe income tax plus self-employment tax: 15.3%, made of 12.4% for Social Security and 2.9% for Medicare. It is generally figured on 92.35% of net earnings, on Schedule SE, once they reach $400, and you deduct the employer-equivalent part. Net earnings are income minus ordinary and necessary expenses, so every real deduction lowers both taxes. You report all income whether or not a 1099 arrives.
Quarterly estimated payments and the safe harbor
With no withholding, you pay as you go. You generally must make estimated payments if you expect to owe at least $1,000 for the year. The 2026 dates are April 15, June 15, September 15 and January 15, 2027. Pay online, by phone, or with Form 1040-ES. The payments cover self-employment tax too.
The safe harbor: pay at least the smaller of 90% of your 2026 tax or 100% of your 2025 tax (your 2025 return must cover 12 months). If your 2025 adjusted gross income was over $150,000 ($75,000 if married filing separately), use 110%. A safe harbor avoids the underpayment penalty, but you still owe the balance when you file. Seasonal income? The annualized income method on Form 2210 can lower slow-quarter payments.
1099s you receive and 1099s you must send
Receiving. For 2026 payments, a business must send you a 1099-NEC if it paid you $2,000 or more for services, including parts and materials. The 2025 law raised that from $600, with inflation adjustments from 2027. Card processors send a 1099-K for any amount. Payment apps and online marketplaces must send one only above $20,000 and more than 200 transactions, the level the 2025 law restored.
Sending. You file a 1099-NEC for each person who is not your employee and whom you paid $2,000 or more in 2026 for services, including subs and helpers you treat as contractors. Payments to corporations, including an LLC taxed as one, are generally exempt, and card or payment app payments are reported by the processor. File by January 31 (the next business day if it falls on a weekend) and give each person a copy.
Ask every sub for a Form W-9 up front. If a sub will not provide a taxpayer ID, or the IRS says it is wrong, backup withholding applies: you must generally withhold a flat 24% and send it to the IRS.
Employee or independent contractor?
A 1099 or cash does not make a worker a contractor. The IRS weighs the whole relationship: behavior (do you control what the worker does and how), money (who supplies tools, how they are paid, expense reimbursement) and the type of relationship (contracts, benefits, ongoing work). If you have the right to direct how the work is done, the worker is generally an employee, and the IRS says the label and the payment method do not matter.
Employees mean withholding, the employer share of Social Security and Medicare, unemployment tax, and Form 941. Treating employees as contractors without a reasonable basis can make you liable for employment taxes, and unpaid withheld tax can be assessed against responsible owners personally. If you are unsure, Form SS-8 asks the IRS to decide, or eligible businesses can use the Voluntary Classification Settlement Program to reclassify workers going forward.
Deductions that fit the trades
An expense must be ordinary and necessary: common in your trade and helpful for your business.
Tools and equipment. The de minimis safe harbor lets you deduct items up to $2,500 per invoice or item (no audited financial statement; you elect it). For bigger purchases, Section 179 allows a first-year deduction up to $2,560,000 for 2026, capped at your business taxable income. Bonus depreciation is 100% for qualifying property acquired after January 19, 2025, and the 2025 law made it permanent. Business use must generally exceed 50%, and some used equipment qualifies.
Truck or van. Use the standard mileage rate or actual costs in your business-use share. The 2026 rate is 72.5 cents per business mile before July 1 and 76 cents from July 1. For a vehicle you own, choose the standard rate in the first year you use it for business. You cannot use it if you took Section 179 or bonus depreciation on that vehicle. Keep a log. Commuting to a regular workplace is not deductible, but driving between job sites is. If your home office is your principal place of business, driving from home to a job site can count.
Materials, licenses and insurance. Supplies, materials and repairs are deductible. So are licenses and regulatory fees paid to state or local governments, and premiums for liability, workers' compensation and business vehicle insurance.
Home office. Space used regularly and exclusively for business, such as billing, books and ordering supplies, with no other fixed place for that work. A separate workshop or garage can qualify too.
Phone and safety gear. The business share of your phone, and protective gear your work requires, such as boots, glasses, hard hats and gloves.
Job accounting, S corporations, QBI and state rules
The cash method counts income when you receive it and expenses when you pay them. The accrual method counts income when you earn it and expenses when you incur them. Special long-term contract rules apply to some jobs, but the tax law has exceptions for home construction contracts and for smaller contractors with jobs expected to finish within two years. Check before you assume you qualify.
An S corporation owner who works in the business must be paid reasonable pay as wages before taking distributions. Wages carry employment taxes and distributions do not, so the IRS can reclassify distributions as wages when pay is too low. Whether it saves money depends on profit, and it adds payroll and a separate return.
The qualified business income deduction lets many sole proprietors, partners and S corporation owners deduct up to 20% of qualified business income, and the 2025 law made it permanent. Limits depend on income, business type, W-2 wages and property. Wages your own S corporation pays you are not qualified business income.
Sales tax on materials and contractor licensing are state matters, and they differ, so check yours before you bid in a new state.
Unfiled years or a balance owed
File every missing return first, even if you cannot pay. If you do not, the IRS may file a substitute return that can leave out your deductions, and the bill can lead to a levy or lien. You can lose a refund after three years, and unfiled self-employment income earns no Social Security credits.
Then choose how to pay:
Payment plan. Short-term (up to 180 days) or monthly. Interest and penalties keep adding up. The IRS is generally barred from levying while a request is pending.
Currently not collectible. If paying would cause hardship, the IRS may pause collection. The debt is not erased, and interest and penalties continue.
Offer in Compromise. It settles for less than you owe. You must have filed all required returns and made required estimated payments, and employers must be current on payroll deposits.
Penalty relief. Options include first-time abatement, reasonable cause and statutory exceptions. The IRS is making first-time relief automatic from summer 2026 for filers with three prior years of timely returns and payments, which missing returns can rule out.
A lien is a legal claim on your property, including business property and accounts receivable. A levy takes property, such as wages, bank funds or vehicles. If you get a Final Notice of Intent to Levy, act right away.
How we help
I am Sabih Shafi, an IRS Enrolled Agent, federally licensed to represent taxpayers before the IRS in all 50 states. We work remotely with contractors nationwide, in English or Spanish.
Returns and estimates: Schedule C, self-employment tax and quarterly payments sized to your real profit.
Records and crews: bookkeeping cleanup, W-9s and 1099s for subs, classification and Form 941 problems.
Planning: LLC and S corporation decisions, including reasonable salary.
Back taxes: missing years, payment plans, Offers in Compromise, penalty relief, levies and liens.
A flat fee quoted in writing before work starts.
Frequently Asked Questions
Do I have to pay quarterly taxes as a 1099 contractor?
Generally yes, if you expect to owe $1,000 or more for the year. Meeting the safe harbor above avoids the underpayment penalty.
Do I owe tax if I never got a 1099?
Yes. You report all business income whether or not a 1099 arrives. If a 1099-NEC shows more than you report, attach an explanation to Schedule C.
Do I have to send 1099s to my subcontractors?
For 2026 payments, file a 1099-NEC for each individual or non-corporate business you paid $2,000 or more for services. Get a W-9 up front.
Can I pay my helpers in cash instead of putting them on payroll?
Cash does not change their status. If you control what they do and how, they are generally employees, and payroll taxes and Form 941 apply.
Does an LLC lower my taxes as a contractor?
Not by itself. A single-member LLC is generally disregarded for income tax and reports on Schedule C unless it elects corporate treatment.
General information, not tax advice for your situation.
Related Reading
Talk to an Enrolled Agent
This article is general information, not individual tax advice. If you want to talk through your own IRS or state balance, book a free 20-minute review or call or text us directly.
Comments