Do I Send a 1099 for Materials Purchased? Form, Box, Exceptions

If you hire a contractor for a job and the bill covers both their labor and the materials they supplied, you report the entire payment on Form 1099-NEC, materials included. The question of whether to send a 1099 for materials purchased usually comes up when an invoice shows a big parts number next to a smaller labor line, and the answer from the IRS is the same either way: reportable nonemployee compensation covers “services performed by someone who is not your employee (including parts and materials).”¹ The reporting kicks in once total payments to a single contractor reach $600 for the calendar year.

Why the Full Payment Gets Reported

The IRS treats a service contract as a service contract even when the contractor also hands over physical goods. The 1099-NEC instructions give an auto-repair example: when an insurance company pays a shop under a contract that lists separate amounts for labor and parts, the payer reports the total if “furnishing parts was incidental to repairing the auto.”¹ “Incidental” is the operative word. If you hired someone for their work and they brought materials with them to complete it, those materials are part of what you paid for the service.

This feels wrong to people the first time they run into it. Reporting $8,000 when $3,000 was lumber looks like you’re overstating what the contractor earned. You’re not. The contractor deducts the cost of those materials on their own return, so the tax lands only on their actual profit. Your job as the payer is to report what you paid.

When Materials Aren’t Part of a Service Payment

The distinction turns on what you were actually buying. If you walked into a supply house and bought $2,000 in plumbing fixtures, no service was performed and no 1099-NEC is required. That’s a purchase of goods. The same is true for inventory, raw materials for manufacturing, or equipment bought from a vendor.

The gray area shows up when one person both sells you materials and performs the service. The test is whether supplying the materials was incidental to the work. A plumber who installs a water heater and bills you for the unit plus labor is providing a service; the water heater was incidental to that service, and you report the whole thing. If instead you bought a water heater from a retailer in one transaction and then hired a separate installer in another, the equipment purchase stands on its own and doesn’t get reported.

Some tax pros have suggested over the years that an itemized invoice listing materials at cost with no markup can support excluding the materials from the 1099. The IRS instructions don’t back that up. The auto-repair example specifically involves a contract “showing an amount for labor and another amount for parts,” and the IRS still says to report the total.¹ Reporting the full payment is the safer path.

When You Don’t Send a 1099 at All

Several categories of payments fall outside 1099-NEC reporting regardless of what portion was materials.

Payments to a C corporation or S corporation, including an LLC that has elected corporate tax treatment. The main exceptions are payments for legal services and for medical or health care services, which must be reported even when the provider is a corporation.²
Payments made by credit card, debit card, or a third-party payment network like PayPal or Venmo for business transactions. Those are reported on Form 1099-K by the payment processor, not by you.¹
Total payments to a single contractor under $600 for the year.¹
Personal payments. The reporting rule applies only to payments made in the course of your trade or business. A handyman you hired to fix your own house doesn’t get a 1099 from you.³

The credit card exception catches business owners off guard. If you paid a contractor $4,000 by check and $3,000 by credit card during the year, you report only the $4,000 on Form 1099-NEC. The card processor takes care of the rest.

Which Form and Which Box

Nonemployee compensation, including any bundled materials, goes on Form 1099-NEC, Box 1. The filing deadline is January 31 of the year after payment, and there’s no automatic extension.¹ Form 1099-MISC covers a different set of payments: rent to a non-corporate landlord (Box 1), royalties (Box 2), medical and health care payments (Box 6), and gross proceeds to an attorney in a settlement (Box 10).⁴ If you’re paying someone for services they performed, you want the 1099-NEC.

What the Contractor Does With the Materials Cost

Reporting the full payment on the 1099-NEC doesn’t mean the contractor pays income tax on the materials. They deduct the cost of goods sold and their other business expenses on their own return, which offsets the income you reported. A contractor who received $15,000 from you and spent $6,000 on materials pays tax on $9,000 before any other deductions.

The system is built this way on purpose. The IRS matches what you reported against what the contractor reports on their return. If you shave the materials off the 1099, the two figures no longer line up, and both sides can end up answering IRS notices about the gap. Report the full check.

1
Internal Revenue Service. Instructions for Forms 1099-MISC and 1099-NEC (04/2025)
2
Internal Revenue Service. Instructions for Forms 1099-MISC and 1099-NEC (Rev. April 2025)
3
Internal Revenue Service. Reporting Payments to Independent Contractors
4
Internal Revenue Service. Am I Required to File a Form 1099 or Other Information Return?