Business FinancesQuestion 627 of 1605
A general contractor pays an unincorporated subcontractor $1,200 over the calendar year for services. For federal and California tax reporting, the contractor must issue which form to the subcontractor?
a.No form is required because the subcontractor is licensed by the CSLB
b.Form 1099-MISC, because the subcontractor is a sole proprietor
c.Form 1099-NEC for nonemployee compensation, because total payments to the unincorporated subcontractor for services equal $600 or more
d.Form W-2, by January 31
Explanation
Under IRC §6041/§6041A (mirrored by Rev. & Tax Code §18631), payments of $600 or more in a calendar year to a non-corporate service provider must be reported on Form 1099-NEC (Nonemployee Compensation), which since tax year 2020 replaced Box 7 of the 1099-MISC for service compensation. W-2 is for employees, not subcontractors. 1099-MISC is still used for rents, royalties, and other items but no longer for nonemployee compensation. CSLB licensure does not exempt the payer from federal/state information reporting; only payments to corporations (other than legal/medical) are generally exempt.
Law Reference: Internal Revenue Code §6041 (CA Rev. & Tax §18631)Practice all 1605 questions free — no signup required.
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Sen Lin, PrepPass Founder · Verified against California CSLB Contractor License Law & Business Exam · How we review
Reviewed by Abraham Chen — Licensed California General Contractor (CSLB License #1101856 — verify)