Michigan Residential Builders License Practice Test

What document must be given by a general contractor to a subcontractor for payments made in the previous year?

1. W-2

2. 1099

3. Invoice

4. Form 1040

The correct answer is: 1099

The document that must be provided by a general contractor to a subcontractor for payments made in the previous year is the 1099 form. This form is used in the U.S. tax system to report various types of income other than wages, salaries, and tips. Specifically, when a subcontractor is paid $600 or more over the course of the year, the general contractor is required to issue a 1099-MISC (or 1099-NEC, depending on the nature of the payment) to report that income to the IRS and to the subcontractor. The 1099 form serves as a record for the subcontractor to use when filing their taxes, as it summarizes their earnings from that contractor for the tax year. This is important for proper tax reporting since subcontractors are often self-employed and responsible for paying their own taxes on income received. In contrast, the other options listed are not suitable for this purpose. The W-2 form is typically issued to employees reporting wages, while an invoice is a document that details yet-to-be-paid services rather than a summary of previous payments. Form 1040 is the individual income tax return form used by taxpayers to report their annual income, but it does not pertain directly to