Yes, wages paid to independent contractors are deducted from your business income. The flipside of a 1099-MISC to a contractor is a 1096 filed on your side of the payment equation. You need to verify that PayPal is also handling that piece for you.
You would have $39,000 in gross income (using your example above), from which you would deduct the wages paid to your contractor's (as well as your other deductible expenses), to derive your taxable income.
Make sure that you fall on the right side of the IRS definition of what constitutes an IC. Getting that one wrong can be a big problem.
