Every freelancer eventually hits the same wall: too much work, not enough hours. So you hire help. A virtual assistant to wrangle the inbox. A designer to finally fix that logo you made in Canva at midnight. A developer to build the website you've been "about to launch" since spring. And then tax season rolls around and the question shows up: can I write any of this off?
Short answer: yes — and it's not some vague "business cost" bucket, either. Money you pay to non-employees for work on your business has its own dedicated line on Schedule C: Line 11, contract labor. For a lot of freelancers it ends up being one of the biggest deductions they never claimed, usually because nobody told them it existed.
This guide walks through the whole thing: what counts as contract labor (and what doesn't), exactly where it goes on the form, when the 1099-NEC paperwork kicks in, and the records you'll want on hand if the IRS ever asks. By the end you'll know how to handle the people you hire — no 3 a.m. panic-Googling required.
What Counts as Contract Labor on Schedule C?
The official definition is simpler than the paperwork suggests. Contract labor is any payment to an independent contractor, subcontractor, or freelancer for services performed for your business.[IRS.gov] Not an employee. Not a vendor selling you stuff. A person (or company) doing work you hired out.
Sound abstract? Here's what that looks like in real freelance life:
- Paying a designer $450 to create your logo and brand kit
- Hiring a virtual assistant $800 a month for scheduling, invoicing follow-ups, and inbox triage
- Paying a developer $5,000 to build your website
- Subcontracting the video-editing piece of a client project to a specialist while you handle the filming
- Paying an editor $300 to review a long-form report before it goes to your client
Notice the pattern: it's the work that matters, not the person's title or how you found them. Whether you found your editor on Upwork, through a friend, or in the comment section of a newsletter, the payment is still contract labor.
Just as important is what doesn't count:
- Payments to employees. If you hired actual employees, their wages belong on Line 26 — a completely different line with completely different rules (more on that below).
- Payments for products, not services. Buying a laptop from a guy who resells electronics isn't contract labor. Equipment and supplies go on Lines 18 and 22. The 1099-NEC rules, as we'll see, are specifically about services.
- Personal payments with no business purpose. Your kid's math tutor, your gym membership, the person who fixed your fence at home. If it isn't for the business, it isn't deductible — this line or any other.
One gray area worth naming: payments you make through an app or platform — Fiverr, Upwork, Thumbtack, whatever — absolutely still count as contract labor. How you paid doesn't change what it was. (It does change your 1099 paperwork, which is its own fun topic, covered below.)
Where Does Contract Labor Go on Schedule C?
Right on Line 11 of Schedule C, in Part II (Expenses). It sits between Line 10 (commissions and fees) and Line 12 (depletion — which most freelancers never touch). You enter the total amount you paid to contractors during the year for business services, full stop.
Two things people get wrong here. First, this is a separate category from your other expenses — don't bury contractor payments in "other expenses" on Line 27a. The IRS gives this money its own line because it actively cross-checks Line 11 totals against the 1099-NEC forms businesses file. Keeping the numbers where they belong keeps your return easy to reconcile.
Second — and this is the part that trips people up — the $600 reporting threshold has nothing to do with the deduction. Whether you paid a contractor $150 or $15,000, it's deductible. The $600 threshold only decides whether you have to tell the IRS about it with a 1099-NEC. Small payments are just as deductible as big ones; they just fly under the reporting radar.
Want the full tour of the form while you're here? The Schedule C explained walkthrough goes through every part, line by line.
When Do You Need to Send a 1099-NEC?
Here's the rule: if you paid any single contractor $600 or more during the calendar year for services, you have to send them a Form 1099-NEC.[IRS.gov] The threshold is per contractor, not combined — three contractors at $500 each doesn't trigger anything, but one designer at $620 does.
The form goes to the contractor and the IRS, and the deadline is January 31 of the following year — no extensions worth counting on. A handful of situations excuse you from filing: payments made by credit card or through platforms like PayPal (the platform reports those itself), and payments to corporations in most cases. Everyone else — the freelance illustrator, the VA on a monthly retainer, the developer who invoices you monthly — gets a 1099-NEC if they cross $600.
Skip it and the penalties are per form, starting around $60 and climbing sharply the later you file — with no cap on how many forms the IRS can ding you for. Intentional disregard (knowingly not filing) costs far more. This is genuinely a five-minute-per-form chore that you do not want to turn into a fine.
Making it painless comes down to one habit: collect a W-9 from every contractor before you pay them, not in January when they've gone quiet. The W-9 gives you their legal name, address, and Tax ID — everything the 1099-NEC needs. You'll also need your own payer ID: an EIN works best (free, takes about five minutes on IRS.gov, even for solo freelancers with no employees). And if a contractor flat-out refuses to provide a Tax ID? The IRS requires you to start backup withholding — currently 24% of their payments — which is exactly as awkward as it sounds. Get the W-9 up front and none of that happens.
⚠ Important: If you paid a contractor $600 or more in 2026, send them a 1099-NEC by January 31, 2027. One copy to the contractor, one to the IRS. The IRS deadline is strict, and the penalties are per form.
How Much Can You Deduct?
The full amount — no haircuts, no caps. Unlike business meals (deductible at 50%) or the home office (capped at 300 square feet under the simplified method), contract labor is deductible dollar-for-dollar. If you paid a developer $5,000 to build your website, the entire $5,000 goes on Line 11 and directly reduces your taxable profit. You're taxed on what's left after your expenses, not on what you grossed.
And because your net profit feeds both income tax and self-employment tax, every dollar of contractor payments saves you money at your combined rate. Here's roughly what that looks like at different spending levels:
| Contractor Paid | Deduction | Tax Saved* |
|---|---|---|
| $1,000 | $1,000 | ~$280 |
| $5,000 | $5,000 | ~$1,400 |
| $10,000 | $10,000 | ~$2,800 |
*Estimate at a 28% combined rate (income tax + self-employment tax). Most freelancers land somewhere between 25% and 40% depending on their bracket and state.
One honest caveat, because it matters: the deduction covers real services at a real market rate. Paying your spouse $10,000 a year to be your "contractor" when they don't actually do anything is where Line 11 turns into an audit story. Pay real people for real work at going rates and you're on solid ground.
What Records Do You Need?
Deductions are only as strong as the paper trail behind them. For every contractor you pay, hold onto:
- An invoice from the contractor — amount, date, description of the work
- Proof of payment — the bank statement line, PayPal/Stripe receipt, or canceled check
- Their W-9 info — legal name, address, and Tax ID/SSN, which you'll need anyway if a 1099-NEC is required
- A brief description of the work performed — "logo redesign," "Q3 blog editing," not just a payment reference number
- Dates of service — so the payments line up with the work
Keep all of it for at least three years (the IRS's standard window to look back). The low-effort way: run every contractor payment through the same business bank account or card, then in December, match your invoices against what you actually paid. When January comes and it's 1099 time, you'll have tidy totals instead of a forensic accounting project. If most of your contractor spending happens through platforms, it's worth knowing this is one of the deductions freelancers most often leave unclaimed — the payments are right there in your statements, but nobody connects them to Line 11.
Contract Labor vs. Wages — What's the Difference?
This is the line that gets freelancers (and the IRS) worked up, so let's make it plain:
- Employee wages go on Schedule C Line 26. With employees you withhold income tax, pay half of their Social Security and Medicare, file W-2s, and usually deal with state unemployment insurance.
- Contract labor goes on Line 11. Contractors handle their own taxes. You just pay them — and issue a 1099-NEC if they hit $600.
The difference isn't what you call them; it's how the working relationship actually behaves. The IRS looks at who controls how, when, and where the work gets done, who provides the tools, and whether the person works for others too.[IRS.gov] If you set someone's schedule, supervise them daily, and they work only for you, they're probably an employee no matter what your invoice says. Misclassifying employees as contractors is a known audit trigger, and getting caught means back employment taxes plus penalties. The safe version: contractors set their own methods, use their own equipment, invoice you for specific projects, and can realistically work for other clients.
Common Questions About Contract Labor Deductions
Can I deduct Fiverr or Upwork payments?
Yes. Payments to freelancers through platforms are contract labor when the services were for your business. Bonus nuance: because you paid by card or through a platform, you generally don't owe a 1099-NEC for those — the platform handles its own reporting. The deduction still belongs on Line 11.
What if I paid a contractor in cash?
Still deductible, but now proof is everything. Get an invoice, ask for a signed receipt, write down what the work was. Going forward, pay contractors by a traceable method whenever you can — cash plus zero paperwork is the weakest position to be in if the deduction is ever questioned.
Do I need a formal contract?
The IRS doesn't require one. But a simple written agreement — scope, rate, deadline, and a line stating the person is an independent contractor — costs you ten minutes and buys you real protection, both for disputes and for proving the relationship is genuinely contractor-based.
What if the contractor is overseas?
Payments to foreign contractors for services performed outside the US generally don't require a 1099-NEC — the rule targets US-source income. Keep a Form W-8BEN from the contractor in your files as your documentation, and know that the deduction itself works exactly the same on Line 11. If someone outside the US is performing work inside the US, that's a more complicated corner of the rules — worth a quick chat with a CPA.
How is this different from "other expenses" on Schedule C?
Line 27a is the catch-all for things that don't have a home — software, courses, bank fees. Contract labor has its own line because the IRS matches it against 1099-NECs filed under your payer ID. When you lump contractor payments into "other," your Line 11 shows zero while 1099s exist under your name — that mismatch generates letters. Put them on Line 11 and everything reconciles.
The Takeaway
Contract labor is one of the most straightforward deductions on Schedule C: real work, real people, full deduction, one form a year if anyone crosses $600. If you hire help — even occasionally, even small amounts — the payments belong on Line 11, and leaving them off just means paying tax on money you already spent running your business.
Want to see how this fits with everything else you can claim? Use TaxNinja's free deduction finder to walk through every Schedule C category against your actual situation — it shows what qualifies and what each deduction is worth in dollars. Takes about ten minutes, and your numbers never leave your browser.