Are Payments to Subcontractors Tax Deductible? (2026)

Yes

Yes. Money you pay other people to do work for your business, subcontractors, freelancers, and independent contractors, is fully deductible as contract labor. If you pay a non-corporate contractor $600 or more in a year, you generally must issue them a 1099-NEC and collect a W-9 from them first. Payments to employees are wages, which are handled differently.

Where it goes: Schedule C, Line 11 (contract labor)

Illustration for whether payments to subcontractors is tax deductible

When you hire someone as an independent contractor to help with your business, a virtual assistant, an editor, a subcontractor on a job, a freelance designer, the amount you pay them is a deductible business expense. It reduces your net profit just like any other cost of doing business.

The paperwork matters. Before you pay a contractor, collect a W-9 with their taxpayer information. If you pay a non-corporate contractor $600 or more during the year for services, you are generally required to issue them a 1099-NEC after year end. Collecting the W-9 up front makes that easy.

There is a difference between contract labor and employees. If the worker is really an employee, their pay is wages (with payroll taxes), not contract labor. Misclassifying an employee as a contractor causes problems, so make sure the working relationship genuinely fits contractor status.

Keep records of what you paid each contractor and the W-9s you collected. If a contractor also billed you for materials, keep those separate, since the labor and the materials may be categorized differently.

When it qualifies

Payments to subcontractors and freelancers for business work
Virtual assistants, editors, designers, and other independent contractors
Contract labor on a job or project you are running

When it does not

Wages paid to actual employees (those are payroll, not contract labor)
Payments for your own personal projects unrelated to the business

How much can you deduct?

The full amount you paid contractors for business work. Issue a 1099-NEC to any non-corporate contractor you paid $600 or more.

A worked example

Example: you pay a freelance editor $2,500 during the year to help with your business. The full $2,500 is deductible as contract labor, and because it is over $600 to a non-corporate contractor, you collect a W-9 and issue a 1099-NEC.

A deduction only counts if you can prove it. NeoReceipt captures the receipt and files it onto the right Schedule C line, so every write-off is documented at tax time.

Try NeoReceipt free 1099 tax calculator

Frequently asked questions

Can I deduct payments to subcontractors?+

Yes. Money you pay subcontractors, freelancers, and independent contractors to do work for your business is fully deductible as contract labor on Schedule C Line 11.

Do I have to issue a 1099 to a subcontractor?+

Generally yes, if you paid a non-corporate contractor $600 or more for services during the year. Collect a W-9 before you pay them so you have the information to file the 1099-NEC.

What is the difference between contract labor and wages?+

Contract labor is paid to independent contractors and goes on Line 11. Wages are paid to employees and involve payroll taxes. Misclassifying an employee as a contractor can cause problems.

Can I write off paying a virtual assistant?+

Yes. Paying a virtual assistant or any freelancer to help run your business is deductible contract labor. Collect a W-9 and issue a 1099-NEC if you pay them $600 or more.

What records do I need for contract labor?+

Keep records of what you paid each contractor, the W-9 you collected, and any invoices. Keep material costs separate from the labor if a contractor billed for both.

Is paying an overseas contractor deductible?+

The payment is still a deductible business expense. The 1099-NEC filing rules mainly apply to U.S. contractors; foreign contractor reporting can differ, so confirm the paperwork with a tax professional.