The 1099 report shows an independent contractors full invoice amount in the NEC column but retainage was held out. What should I report

If retainage was held out, the payment should look like

line one:  expense account and full amount

line two:  retainage liability account and the amount as a negative number

So the payment nets to the actual amount paid, and that what is reported automatically by QBO when doing it this way

Contractor payments are always counted on cash basis, what you actually paid them using cash or check