Subcontractor Invoicing: How to Bill and Get Billed Properly

Subcontractor relationships live or die on clarity: who invoices whom, for what, under which flow-down terms, and how fast cash moves after the end client pays, if that is your arrangement.

If you are the subcontractor (billing up)

Mirror the prime contract

Your statement of work should reference rates, milestones, expenses and approval paths. If the prime needs backup for their client, such as timesheets or receipts, send it with the invoice; see expense invoicing.

Invoice like AP will scrutinize it

Use the PO or work order number, phase codes and dates. Tie lines to milestones or progress billing when applicable.

Understand payment timing

A pay-when-paid or pay-if-paid clause shifts the end client's payment risk onto you. Price and plan your cash reserves accordingly, ask a lawyer whether such a clause is enforceable where the work is done, and get any retainage release schedule in writing.

Send your W-9 up front

If you bill a US business, send your Form W-9 with your first invoice. A payer who does not have your correct taxpayer identification number may have to apply backup withholding at 24% to reportable payments (IRS: backup withholding).

If you are the prime (billing clients and paying subs)

Separate client invoices from sub costs

Client invoices should show your work separately from pass-through costs unless the contract requires a bundled presentation. Either way, avoid ambiguity about your margin.

Internal controls

Use approval workflows before paying large sub invoices, and verify any change to a sub's bank details by phone. Keep an audit trail linking sub bills to client revenue.

Tax forms and withholding

Requirements vary by country and entity type; the US federal rules are below. Coordinate with your accountant, and see invoice tax compliance for what must appear on invoices.

Is your subcontractor really a contractor?

Calling someone a subcontractor does not make them one. The IRS says all evidence of control and independence must be considered, grouped into three categories:

Category	The question
Behavioral control	Does the business control, or have the right to control, what the worker does and how they do the job?
Financial control	Does the business control the business side of the job, such as how the worker is paid, whether expenses are reimbursed and who provides tools and materials?
Type of relationship	Are there written contracts or employee-type benefits, is the relationship expected to continue, and is the work a key part of the business?

No single factor decides it. If it is still unclear, either the business or the worker can file Form SS-8 and ask the IRS to determine the worker's status; the IRS says that can take at least six months.

Forms W-9 and 1099-NEC (US)

Step	Rule	Source
Before the first payment	Collect Form W-9 from each US subcontractor for their taxpayer identification number	IRS: backup withholding
No correct TIN	Backup withholding at 24% on reportable payments	Same
After year-end	File Form 1099-NEC for each nonemployee paid $2,000 or more for services in 2026 ($600 for earlier years); copies to the sub and the IRS by January 31 (February 1, 2027 for 2026 payments, as January 31 is a Sunday)	Instructions for Forms 1099-MISC and 1099-NEC
Incorporated subs	Payments to corporations, including LLCs taxed as C or S corporations, are generally not reported; payments for legal services are an exception	Same
Card or payment app payments	Not reported on Form 1099-NEC; any reporting is on Form 1099-K by the payment company	Same
Foreign subcontractors	A foreign individual gives you Form W-8BEN instead of a W-9; whether any US withholding or reporting applies depends on the facts, so check with an accountant	IRS: About Form W-8BEN

Sources accessed 28 October 2026. This is general information, not tax or legal advice. Last reviewed 28 October 2026.

Common subcontracting structures

Pattern	Example	What to watch
Subcontracted portion	$10,000 project; the sub does $6,000 of it and you keep $4,000	Collect the sub's W-9; 1099-NEC if they are unincorporated and paid $2,000 or more in the year
Pass-through with markup	Sub bills you $7,000; you bill the client $10,000	Your $3,000 margin is visible if you list the sub's cost; agree with the client how costs are shown
White-label	You bill the client $10,000 under your name and pay the sub $7,000	Check your client contract allows subcontracting, and cover confidentiality in the sub agreement
Joint billing	Prime and sub each bill the client directly	Each party collects its own payments and handles its own tax forms

Worked example: a design agency wins a $20,000 project and subcontracts the illustration to a sole-proprietor illustrator for $8,000, paid in two $4,000 instalments by bank transfer in 2026. The agency's gross margin is $20,000 − $8,000 = $12,000. Because the illustrator is unincorporated and was paid $8,000 (over $2,000) by bank transfer, the agency collects a W-9 before the first payment and files Form 1099-NEC for 2026 by February 1, 2027. Had the illustrator been paid through a payment app, no 1099-NEC would be filed.

Step-by-step: subcontracting part of your work

Step 1: Put the subcontract in writing

Use a master service agreement or subcontract that sets out the scope, payment terms (including any pay-when-paid clause), deliverable dates, IP assignment and confidentiality. Do not subcontract on a handshake.

Step 2: Check the worker's status and collect the right form

Apply the IRS common-law test above, then collect a W-9 from a US sub or a W-8BEN from a foreign individual before the first payment.

Step 3: Agree insurance and liability

Decide whether the sub must carry its own liability insurance, who is responsible for defects in the sub's work and whether the sub indemnifies you. Keep certificates of insurance with their expiry dates visible.

Step 4: Agree when the sub is paid

If you pay the sub only after the client pays you, say so in the agreement, for example "payment within 7 days of [client] paying us". If you pay on fixed terms regardless, plan the cash gap.

Step 5: File year-end forms

For US subs, file Form 1099-NEC for each unincorporated subcontractor paid $2,000 or more in 2026, and give them their copy by the same deadline.

Disputes between tiers

When an end client disputes work, the prime and sub should document the facts quickly; see disputed invoices. Do not deduct amounts from a sub's payment without following the subcontract's dispute clause.

Payment hygiene

Pay subs on predictable cycles; they will prioritize your next project. When you must delay, give a date, not silence. Each month, compare what you owe subs with what clients owe you, so a slow-paying client does not leave you unable to pay subs on net 15 terms. For your own cash flow, set up reminders on client invoices.

Where InvoiceQuickly fits

InvoiceQuickly is for the invoices you send. A subcontractor can use it to bill the prime: put the PO or work order number in the line description or notes, and record full or partial payments as they arrive on any plan. There is no retainage or progress-billing feature, so follow the net-line method on our contractor invoicing page. You cannot attach timesheets or receipts to an invoice, so send backup separately. Your tax ID is copied from settings to new invoice PDFs; check the saved IDs and PDF before sending.

For primes, InvoiceQuickly does not receive or approve sub invoices, pay subcontractors or file 1099s. Use your accounting or payroll software for those.

Final takeaway

Prime and sub relationships come down to documentation and timing. Pay subs as quickly as you reasonably can when clients pay you; your reputation is working capital. Never let informal side deals with subs contradict the prime contract. When conflicts arise, put it in writing first and keep every version in your trail.

Frequently asked questions

Do I need a written subcontract agreement?

Yes. It protects both sides and settles questions about scope, payment timing, IP and liability before they become disputes. A master agreement plus a short project schedule for each job works well.

Should I mark up the subcontractor's rate?

If you manage the work, own the client relationship and take responsibility for quality, a markup pays for that. There is no standard percentage; set it from your costs and the risk you carry, and agree with the client whether sub costs are shown at cost or included in your price.

What if the subcontractor's work is poor?

You are responsible to your client for the work you deliver. Document the problems, ask the sub to fix them under the agreement, and use whatever remedy the subcontract provides rather than withholding payment informally.

Do I need to issue a 1099 if I paid a subcontractor through PayPal?

Not a Form 1099-NEC. Payments by card or through a payment app are not reported on Form 1099-NEC; any reporting is on Form 1099-K from the payment company. Payments by bank transfer or check to an unincorporated US sub of $2,000 or more in 2026 generally do need a 1099-NEC.

What about international subcontractors and 1099s?

A foreign individual gives you Form W-8BEN rather than a W-9. Whether any US withholding or reporting, such as a Form 1099 or 1042-S, applies depends on the person's status and where the work is done, so check with an accountant.

Bill primes clearly and track what each job has paid. Get started with InvoiceQuickly.