HVAC shops bring in refrigerant recovery specialists, duct fabrication crews, controls programmers, and rooftop crane operators. Plumbing shops use drain camera operators, slab leak specialists, gas line subs, and backflow prevention testers. Electrical contractors pull in low-voltage crews, trenching companies, and fire suppression subs. A mid-size HVAC operation doing $3 million a year might have 8 to 15 active subcontractors in any given year.
Every one of those subs is a potential 1099 exposure waiting to happen in January. Most shops know that in theory. Most of them still scramble.
What you are actually required to do
The rule is simple in theory. Any individual or unincorporated business you paid $600 or more for services in the calendar year gets a Form 1099-NEC filed with the IRS by January 31st of the following year. You also send them a copy. If you paid via credit card or PayPal, the payment processor handles it through a 1099-K and you are off the hook for that payment. Everything paid by check, ACH, Venmo, Zelle, or cash: that is your 1099 to file.
For tax year 2025, the threshold is $600. For payments made in 2026, recent legislation moved the threshold to $2,000. The practical effect is that smaller one-off subs are less likely to require a filing going forward, but anything over the threshold is still mandatory and the IRS takes the deadline seriously.
Where it actually breaks down
The threshold is not the hard part. The hard part is that every one of these requires a W-9 collected from the sub before you pay them. The W-9 gives you their legal name, their business structure, and their Taxpayer Identification Number. Without a TIN, you cannot file the 1099. The IRS sends back a B-notice. The sub gets a letter. You get a penalty.
IRS penalties for 1099s range from $60 to $660 per form depending on how late or how wrong the filing is. For a trades shop working with 20 or more subs, a messy January can accumulate penalties fast.
The W-9 collection problem compounds over time. A shop that has been in business for ten years has paid dozens of subcontractors. Some of those subs have changed their business structure. Some have changed their address. Some have folded entirely. If the W-9 on file is from 2018 and the TIN is wrong, the IRS will let you know. In practice, most contracting businesses have at least a few subs with missing paperwork, inconsistent payment records, or vendor setup errors that create real exposure when January comes around.
The Venmo and Zelle trap
This is the one that catches HVAC and plumbing shops that think they are fine.
The common assumption: if you paid a sub through Venmo or Zelle, the app handles the reporting. This is incorrect. Venmo and Zelle are not payment processors in the same sense as a credit card company. They do not generate a 1099-K for business-to-business payments the way a credit card processor does. If you paid a drain camera operator $4,000 through Venmo across three jobs last year, that is your 1099-NEC to file. Most shops that pay subs informally through these apps have no idea this applies to them.
The fix is not complicated, just consistent
Collect a W-9 before paying any sub for the first time. File it somewhere you can find it. Track cumulative payments to each sub across the year in QuickBooks or wherever your books live. Run a contractor payments report in January, identify everyone over the threshold, and file. Gusto, QuickBooks, and dedicated services like Track1099 and BoomTax make the actual filing process fast.
The problem is almost never the filing itself. The problem is that nobody set up the intake process before the first check cleared. Build the W-9 requirement into how you onboard any new sub and January becomes a twenty-minute task instead of a scramble through a year's worth of bank statements.
[The Service Trades Assessment][LINK: quick survey] asks about your payroll and compensation setup, including how subcontractor payments are tracked.
Michelle Onizuka is co-founder and Systems Architect at Onizuka Studio. She builds automation and AI systems for small businesses — including service trades operations across Tampa Bay and beyond.