Passthrough billing means invoicing clients for costs you incurred on their behalf — subcontractor fees, software, ad spend, vendor services — on top of or separately from your labor fees. All passthrough revenue runs through your books as income with an offsetting expense.
Three billing models:
- At-cost: charge exactly what you paid the vendor. Net income = zero; gross revenue increases. Common when your margin is on management fees.
- Cost-plus: add a markup (typically 15–20% for creative agencies, 15% for media buying, 10–20% for IT/consulting). The markup is ordinary taxable income on Schedule C.
- Bundled retainer: vendor costs included in a fixed monthly fee. Requires a clear cap or true-up mechanism when actual costs diverge from estimates.
The tax trap: even at-cost passthroughs are revenue + expense. Both sides must be recorded. Omitting passthrough revenue understates income when 1099s or payment records show the full gross. Omitting the vendor expense overstates income and taxes.
Per-client tagging in ExpenseBot: tag every vendor receipt and subcontractor invoice to the client project as it arrives. At billing time, open the profit-by-client report to see revenue, costs, and margin. Pull tagged costs into the reimbursable expense invoice builder as line items.
Consolidated invoice structure: (1) labor/management fee, (2) vendor costs by line item with vendor name and description, (3) third-party fees (Stripe, platform fees), (4) subtotal + tax + total.
1099-NEC for subcontractors: file by January 31 for any individual, sole proprietor, or single-member LLC paid $600+ in services during the calendar year. Corporations and credit card payments are exempt. Collect W-9 before the first payment — don't chase W-9s in January.
GST/HST/VAT: if registered, charge tax on the full invoice including vendor passthroughs. Input tax credits on the original vendor receipts offset the output tax owed.
See also: Agency Passthrough Billing Guide | Profit by Client | Agencies Solution