What Is Contract Labor on Schedule C?

Contract labor on Schedule C refers to payments made to independent contractors or subcontractors for work done on behalf of a business. These individuals are not considered employees and typically receive a 1099-MISC (prior to 2020) or 1099-NEC (2020 and later) for payments exceeding $600.

Key Points About Contract Labor on Schedule C

✔ Definition – Contract labor involves hiring independent contractors who are not employees but work on specific projects or tasks. These workers are often freelancers or subcontractors.

✔ Reporting – Payments to independent contractors are reported under the Contract Labor category on Schedule C, where they are deducted as business expenses.

✔ Tax Forms – If payments exceed $600, businesses must issue a 1099-MISC (before 2020) or a 1099-NEC (2020 and later) to the contractor and file a copy with the IRS.

Pro Tip

📎 Employers can streamline payment processing by using QuickBooks Desktop Payroll to automate contractor payment tracking and tax form generation.

✔ Deductions – The cost of hiring contract labor is a deductible business expense, which can help reduce taxable income.

✔ Distinction from Wages – Contract labor is different from wages paid to employees, which are reported under the Wages category on Schedule C. Employees receive a W-2 form, while contractors receive a 1099 form.

Pro Tips

🏗️ Construction businesses managing multiple contractors can benefit from GPS Breadcrumbs to verify job site attendance and accurately track independent contractor hours.

📊 To ensure proper payroll and tax record-keeping, companies can use QuickBooks Essentials to manage contractor payments efficiently.

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