1099-NEC Reporting in Construction: What Lenders and Developers Need to Know

For lenders and owner–developers, managing Form 1099-NEC reporting is a significant challenge, since the flow of capital across projects collides with federal income tax compliance. Each tax year, payments classified as nonemployee compensation must be reported to the Internal Revenue Service, tying construction finance directly to broader income tax and information return rules.

Failure to report payments correctly can create tax liability, trigger penalties, or even jeopardize expense deductions, risks that extend beyond developers to their financial partners. This article outlines what lenders and developers need to know about Form 1099-NEC to navigate reporting obligations, mitigate risk, and maintain a reliable payment workflow.

What Is Form 1099-NEC?

Form 1099-NEC is the IRS mechanism for reporting nonemployee compensation of $600 or more annually. It applies to payments for services rendered by independent contractors, subcontractors, and professional service providers.

Owner–developers must issue these forms to trades engaged under contract, while lenders monitor compliance across funded projects.

The IRS requires a separate 1099-NEC for each qualifying payee, with copies sent to both the contractor and the IRS by January 31. While payments for materials alone do not trigger a 1099-NEC, any labor or service component does. This means invoices for both time and materials (T&M) with a labor component may be reportable.

Incorrect or late filings can trigger escalating IRS penalties and put expense deductions at risk, exposing both developers and their lenders. In an industry where hundreds of contractors may cycle on and off projects, the reporting burden compounds quickly.

Who Needs to File 1099s in Construction?

The paying entity is responsible for filing 1099s.

• Owner–developers and general contractors: Must issue 1099-NECs to subcontractors and independent contractors they hire.
• Lenders: While not directly filing 1099s, lenders carry exposure if funded projects fail to maintain compliance. Borrower risk is, in effect, lender risk.

A common misconception is that 1099s apply to all entities. In practice, they generally cover payments to individuals, partnerships, and LLCs taxed as sole proprietorships or partnerships. Payments to C- or S-corporations are usually exempt, though key exceptions, such as legal services and medical/health payments, must still be reported.

Key Filing Requirements and Thresholds

The IRS has a clear set of requirements for reporting:

• Federal threshold: $600 per contractor, per year.
• State variations: Many states impose their own reporting rules or lower thresholds. Compliance requires awareness across every jurisdiction of operation.
• Deadlines and penalties: Forms must be filed with the IRS and delivered to contractors by January 31. The IRS now mandates e-filing for businesses submitting 10 or more information returns. The 10-return threshold is aggregated across all information returns (e.g., W-2, 1099-NEC, 1099-MISC, etc.), which means most organizations will e-file. Penalties for late or incorrect filings can escalate quickly, from modest fines to hundreds of dollars per form. Use Form 1096 only for paper filing; for e-filed returns, corrections are submitted electronically.

How to File Form 1099-NEC

Filing Form 1099-NEC information returns can be a straightforward process when integrated into year-end tax reporting workflows:

1: Collect W-9s: Secure a completed Form W-9 from every independent contractor or service provider before issuing payment. Validate Taxpayer Identification Numbers (TINs) early using the IRS TIN Matching Program to reduce corrections and backup withholding risk.

2: Track payments: Monitor cumulative nonemployee compensation throughout the tax year to identify who crosses the $600 federal reporting threshold. Flag mixed invoices (labor + materials) so the compensation paid for services performed is captured.

3: Generate and distribute: Issue a 1099-NEC to each qualifying contractor by the January 31 due date. Copies must also be provided to the IRS to satisfy income tax reporting obligations.

4: File with the IRS: Submit electronically through the IRS Information Returns Intake System (IRIS) or via an approved e-file provider. Businesses filing 10 or more tax forms in a calendar year are required to file electronically.

Common mistakes include not obtaining a W-9 from every contractor, using a mismatched EIN or TIN, missing the January 31 due date, and failing to apply the 24% federal income tax withheld rule for backup withholding when a payee does not provide a valid TIN.

The Built Solution: A Better Way to Manage Compliance

Spreadsheets and disconnected systems simply can’t keep pace with construction finance. Frequent contractor turnover, high payment volumes, and scattered records make human error inevitable. A single typo or missed threshold can result in penalties and erode trust between borrowers and lenders.

At Built, we designed a platform to address these exact problems. We turn 1099 reporting from a year-end scramble into a seamless, integrated part of your payment workflow. Our platform provides the following:

• Centralized record-keeping: All contractor and payment information is stored in a single source of truth, eliminating the risk of data discrepancies.
• Automated tracking: Our system automatically tracks and aggregates payments to each contractor, ensuring you always know who has met the $600 threshold.
• Built-in compliance: The platform includes built-in checks to confirm data accuracy and helps you avoid common mistakes like mismatched TINs.
• Streamlined filing: With a click of a button, you can generate accurate forms and export them in a format ready for filing with the IRS.

This approach positions 1099 reporting as a core component of a broader strategy for transparent, efficient, and compliant payments.

The Path to Compliant Payments

While 1099 reporting is an unavoidable part of managing a construction project, the process doesn’t have to be a compliance headache. For lenders and owner–developers, a proactive approach with the right technology is the key to minimizing risk, meeting IRS deadlines at tax time, and maintaining trust across projects.

By moving beyond manual methods, you can build efficient, transparent, and compliant payment workflows that scale with your portfolio.

See how Built integrates 1099 compliance into a broader payment workflow. Schedule a demo today.

1099 NEC Reporting FAQS

Why does the IRS separate Form 1099-NEC from Form 1099-MISC, and what does it mean for construction projects?

The IRS reintroduced Form 1099-NEC in 2020 to separate nonemployee compensation reporting from miscellaneous payments. For lenders and developers, this means contractor services (e.g., electricians, surveyors, consultants) must be tracked independently of payments like rents, royalties, or legal fees.

Having two forms increases the reporting complexity on large projects and makes consistent accounting software workflows critical to avoid filing errors.

How does 1099-NEC compliance create risk exposure for lenders?

While lenders don’t file 1099s directly, they are indirectly exposed when a borrower fails to maintain compliance. Improper filings can lead to IRS penalties, disallowed expense deductions, and reputational risk that undermines loan repayment capacity.

Because borrower risk is lender risk, many lenders now treat 1099-NEC processes as part of broader construction loan oversight, monitoring whether developers have structured, auditable systems in place to manage reporting obligations.

Are all payments to service providers reportable, or are there exceptions?

Not all payments trigger a 1099-NEC. While nonemployee compensation (fees, labor, professional services) must be reported, cash payments for personal expenses, tax-exempt interest, crop insurance proceeds, broker payments, and certain royalty payments are handled through other IRS forms (such as Form 1099-MISC).

Developers must know which appropriate form applies, and lenders benefit when borrowers use accounting software that flags the correct reporting path automatically.

Disclaimer: The information provided in this article is for educational purposes only and does not constitute legal or financial advice. Please consult with a qualified tax professional or legal expert for guidance tailored to your specific situation.