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How do I track subcontractor payments?

Collect a W-9 from every subcontractor before you pay them anything. This form gives you their legal name, address, and tax identification number for 1099 reporting. Chasing W-9s in January when you’re trying to file is frustrating and often unsuccessful. Make it a policy: no W-9, no payment.

Set up each subcontractor as a vendor in your accounting software. In QuickBooks, create a vendor record with their complete information including the tax ID from the W-9. Mark them as a 1099 vendor so the software tracks payments automatically throughout the year. Skip this step and you’ll be manually adding up payments from bank statements come tax time.

Assign every subcontractor payment to the specific job it belongs to. This is where most contractors fall short. You paid the electrician $4,800 but you don’t know which project it was for. When entering the bill or payment, code it to the job so you can see true project costs. Without job-level tracking, your construction job costing becomes unreliable and you can’t tell which projects actually made money.

Record payments using the actual payment method. If you wrote a check, enter the check number. If you paid by ACH or Zelle, note that in the memo field. This detail helps when reconciling bank statements and when subcontractors claim they weren’t paid. Clear records prevent disputes and protect you if there’s ever a question about whether someone received their money.

For construction work, track retainage separately. Many contracts withhold 5% or 10% until project completion. Your accounting system should show the full contract amount, what’s been paid, and what’s held as retainage. When you release retainage at project close, that payment also needs to be assigned to the original job.

Reconcile your accounts weekly rather than monthly. Catch duplicate payments or miscoded transactions while you still remember what happened. Review subcontractor expenses by job at least monthly so you can spot when costs are running higher than expected before a project gets away from you.

At year end, run your 1099 report before January 31. Anyone you paid $600 or more during the year needs a 1099-NEC. Your accounting software can generate these automatically if you set up vendors correctly from the start. If you didn’t track consistently, you’re stuck reconstructing a year of payments under deadline pressure.

Subcontractor labor is usually one of the biggest expenses on any job. If you can’t track it accurately, you’re bidding future work without knowing your true costs. Many San Diego contractors who struggle with profitability have a tracking problem more than a pricing problem. A San Diego bookkeeper who understands construction can help you build systems that capture this data without adding hours to your week.

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