How to record a payment to a subcontractor
Updated 4 min readWritten by the WIPKeep team
The short answer
Paying a subcontractor is recorded as a debit to the cost of the job and a credit to whatever you paid from. If you are job costing, the debit goes to Work in Progress for that job rather than straight to an expense account, so the cost stays with the job until it closes. Either way you also need the sub's tax details on file during the year, not in January.
Key takeaways
- The debit side is the cost. The credit side is where the money came from, which is your bank account if you paid immediately or Accounts Payable if you were billed.
- If you job cost, subcontractor costs belong to the job, not to a general expense bucket. Untagged sub costs are the fastest way to make a job look more profitable than it was.
- Collect a W-9 before the first payment. Chasing tax IDs in January is how contractors lose weekends.
- The 1099-NEC reporting threshold changed for 2026 payments. Confirm the current amount before you assume it is the number you remember.
You bring in an electrician for two days on the Alvarez bathroom. He invoices you $1,400 and you pay it from the business account. Here is what that looks like in the books.
The entry when the cost belongs to a job
| Account | Debit | Credit |
|---|---|---|
| Work in Progress: Alvarez bathroomHeld on the balance sheet while the job is open | $1,400.00 | |
| Business Checking | $1,400.00 | |
| Total | $1,400.00 | $1,400.00 |
Debits equal credits. The cost is now attached to the job. It will move to cost of goods sold when the job closes, alongside the revenue it helped earn.
Why not just debit a Subcontractor Expense account? You can, and plenty of contractors do. The difference shows up at the edges of your fiscal year. If the job is unfinished on December 31, expensing the $1,400 immediately puts a cost on this year's profit and loss with no matching revenue, because the revenue arrives next year. Holding it as work in progress keeps the two together. See what work in progress means on a contractor's books.
The entry when you are billed now and pay later
Most subs invoice you and get paid on terms. That is two entries, not one.
| Account | Debit | Credit |
|---|---|---|
| Work in Progress: Alvarez bathroom | $1,400.00 | |
| Accounts PayableWhat you owe the sub | $1,400.00 | |
| Total | $1,400.00 | $1,400.00 |
Debits equal credits. The cost is recognized when the work was done, which is the point of accrual bookkeeping.
| Account | Debit | Credit |
|---|---|---|
| Accounts PayableClearing what you owed | $1,400.00 | |
| Business Checking | $1,400.00 | |
| Total | $1,400.00 | $1,400.00 |
Debits equal credits. Paying a bill does not create a new cost. The cost already happened. This entry only settles the debt.
What you have to track during the year
Subcontractor payments carry a reporting obligation that materials purchases do not. If you pay an unincorporated subcontractor for services during the year and the total crosses the reporting threshold, you generally have to issue them a Form 1099-NEC and file a copy with the IRS.
The practical consequence for your bookkeeping is simple and it has nothing to do with the threshold: you need a W-9 on file before you make the first payment, and you need your subcontractor payments recorded against the vendor, not lumped into a generic materials or labor line. Do those two things and the January question answers itself.
- Get a signed W-9 before the first check. It is much easier to ask when they want to be paid.
- Record every payment against the named vendor so the year's total is a lookup, not an archaeology project.
- Keep services separate from goods. Payments for materials you bought from a supplier are a different animal from payments for someone's labor.
- Confirm the current threshold and the filing deadline with your preparer each January.
Frequently asked questions
- Do subcontractor payments go to an expense account or to the job?
- If you are job costing, they go to the job, held as work in progress until the job closes. If you are not job costing, they go to a subcontractor cost account. The job-costed version keeps costs and revenue in the same period, which matters most when a job spans your year end.
- What is the 1099-NEC threshold for 2026?
- It rises to $2,000 for payments made in calendar year 2026 under the One Big Beautiful Bill Act, up from the long-standing $600, with inflation adjustments starting in 2027. This was verified in July 2026. Because the figure is now indexed, confirm the current amount with your tax preparer before filing.
- Do I issue a 1099 to an incorporated subcontractor?
- Generally no for corporations, with specific exceptions such as legal services. The W-9 you collect tells you the entity type, which is another reason to collect it before you pay rather than after.
- What if I paid a sub in cash?
- The entry is the same except the credit goes to whatever cash account it came from. The obligation to report the payment does not change because the payment method changed.
Sources
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