Final answer:
A builder sends a Form 1099-NEC to subcontractors if they are independent contractors. For employees, a Form W-2 is issued. It's crucial to classify workers correctly to avoid IRS penalties.
Step-by-step explanation:
A builder will send a Form 1099-NEC to his subcontractors if they are independent contractors and not employees of the builder's company.
This tax form reports non-employee compensation, which is the amount paid to individuals for services performed for a trade or business.
It is very important for a builder to properly classify workers and send the correct forms, because misclassification can lead to significant penalties and fines from the IRS.
If a subcontractor is considered an employee, then the builder would send a Form W-2 instead, which is used to report an employee's annual wages and the amount of taxes withheld from their paychecks.
On the other hand, if a business does not have any payments that meet the criteria for 1099 reporting, then they might not be required to send out a tax form, though this situation is less common in the construction industry where subcontracting work is often paid for in a manner that requires reporting.