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Managing 1099 Contractors in QuickBooks Online

If you hire an individual to perform services for your business and they are not an employee, they are considered an independent contractor (also known as a 1099 contractor). Payments to 1099 contractors must be tracked so that you can report this information to the Internal Revenue Service (IRS) at the end of the year. To ensure that payments are tracked properly, you will need to set up contractors in QuickBooks; add an account to post all payments to; pay contractors with a paper check, electronic fund transfer (EFT), or debit/credit card; and provide a 1099 form to all the contractors who meet the threshold at the end of the year. If the total payments to a contractor equal $600 or more, you must issue a 1099 form and report this information to the IRS. Failure to track and report payments to 1099 contractors could lead to penalties and fines.

In this chapter, we will show you how to set up 1099 contractors, how to make payments to 1099 contractors, and what to do at the end of the year to report payments to independent contractors.

In this chapter, we will cover the following topics:

• Setting up 1099 contractors
• Tracking and paying 1099 contractors
• 1099 year-end reporting

Let’s get started with setting up 1099 contractors in QuickBooks Online.

Setting up 1099 contractors

It’s important to set up 1099 contractors correctly in QuickBooks to ensure payments are tracked for 1099 reporting purposes. In QuickBooks, contractors are set up as vendors, which is anyone that you pay who is not an employee. To learn more about how to set up vendors, refer to Chapter 6, Managing Customer, Vendor, and Products and Services Lists. To ensure that the information you enter is accurate, request a W9 form from all of your contractors. This form will include the contractor’s name or the name of their company, their federal tax ID number or social security number, their business entity (for example, sole proprietor, partnership, or corporation), and their mailing address.

Follow these steps to set up a 1099 contractor in QuickBooks:

1. Navigate to the Expenses tab, as shown in Figure 16.1:

   

   Figure 16.1: Navigating to Expenses

2. A screen similar to the one shown in the following screenshot will appear. Ensure that you are on the Vendors tab:

   

   Figure 16.2: Clicking on Expenses and then Vendors

3. Select New vendor, as shown in Figure 16.3:

   

   Figure 16.3: Clicking the New vendor button

4. The following screen will appear for the new vendor:

   

   Figure 16.4: Completing the Vendor Information form to set up a 1099 contractor

   At a minimum, you should complete the fields specified in the preceding screenshot. It is also a good idea to attach the completed W9 form to the vendor record. You can do this by clicking on Attachments, which is located at the bottom of the screen, above the Cancel button.

   Pro Tip: To ensure that payments to a contractor are marked for 1099 reporting, be sure to put the checkmark in the box that appears below the Business ID No. field. If you forget to do this, payments will not be tracked for 1099 reporting.

Repeat steps 1 through 4 for each 1099 contractor you pay throughout the year. Once you have added all of your contractors to QuickBooks, you are ready to make payments. We will discuss how to track and pay 1099 contractors next.

Tracking and paying 1099 contractors

The simplest way to keep track of payments to 1099 vendors is to create an account called Contractor expenses. This account should be added to your chart of accounts list and used to post all 1099 payments. For more information on adding accounts to the chart of accounts, refer to Chapter 5, Customizing QuickBooks for Your Business.

You can pay 1099 contractors the same way you do other vendors. You can write a check, send a wire transfer, or use your debit/credit card to make payments to contractors. Refer to Chapter 9, Recording Expenses in QuickBooks Online, to learn more about how to pay contractors.

Now that you know how to add independent contractors to QuickBooks, set up an account to track payments, and make payments, it’s time to discuss what you will do with this information.

1099 year-end reporting

1099 year-end reporting consists of printing and mailing 1099 forms to contractors who meet the $600 threshold and reporting this information to the IRS by January 31 of each year.

This date is subject to change, so be sure to visit IRS.gov each year to confirm the due date. Similar to a W2 form for an employee, the 1099 form includes the amount you have paid to a contractor within the calendar year. This form is used by independent contractors to report their earnings for the year on their tax returns. Failure to provide this information to the IRS and the contractors could result in fines and penalties.

When you are ready to generate 1099 forms, the process to do this is very simple. First, you review the accuracy of your information and the basic contact information for each contractor. Then, you review the payments that have been flagged as 1099 payments. If this information is correct, you can have Intuit process your 1099 forms electronically for a fee. Another option is to manually print and mail the 1099 forms yourself.

Follow these steps to learn how to do 1099 reporting:

1. Navigate to the Expenses tab, as shown in Figure 16.5:

   

   Figure 16.5: Navigating to Expenses

2. From the Vendors tab, click on the Prepare 1099s button, as shown in Figure 16.6:

   

   Figure 16.6: Clicking the Prepare 1099s button

3. If this is your first time preparing 1099s, the following screen will appear:

   

   Figure 16.7: Clicking Let’s get started to file your 1099 forms

   Click the Let’s get started button.

4. On the next screen, you can review your company information and make any necessary corrections:

   

   Figure 16.8: Reviewing your company info for accuracy

   Click the Save button when you are done.

5. Click Next at the bottom of the screen and select the box and the account you have categorized 1099 payments to, as shown in Figure 16.9:

   

   Figure 16.9: Categorizing payments to contractors

   Pro Tip: In general, you will select Box 1, Nonemployee Compensation on the 1099 forms you generate for the contractors you have paid. In the drop-down below this box, select the account these payments were posted to. To learn more about which box to select, refer to the IRS instructions for Form 1099. You can find this information at IRS.gov.

6. On the next screen, review your contractors’ information to ensure that it is accurate:

   

   Figure 16.10: Reviewing contractors’ info for accuracy

   Note that you cannot print 1099 forms if the mailing address and tax ID (or social security number) are missing. You must obtain this information prior to printing 1099 forms.

7. A list of contractors that meet the 1099 threshold will be displayed on the next screen:

   

   Figure 16.11: Reviewing 1099 payments for accuracy

   In order to meet the 1099 threshold, contractors must receive payments totaling $600 or more within the calendar year. If a contractor was paid less than $600, you are not required to issue a 1099 form and the contractor will not show up in the preceding list.

8. On the next screen, select the 1099 plan that works best for you:

   

   Figure 16.12: Choosing the method you wish to use to file 1099 forms

   The two 1099 plans available are:

   • E-file: This plan starts at $14.99 and is a full-service plan. Intuit will e-file 1099 forms, print and mail copies of the 1099 forms to your contractors, and give contractors access to view their 1099 forms online.

     Pro Tip: This is the most efficient way to process your 1099 forms. They will be sent to vendors as well as the IRS. You will also have a copy to keep on file for your records. While printing and mailing is an option, it is recommended to file electronically if possible.

   • Print and mail: This plan starts at $58.99 and is ideal for business owners that prefer to process their 1099 forms in-house. Intuit will mail you a 1099 kit that will include blank 1099 forms you can print on. You are responsible for mailing all 1099 forms to your contractors and sending copies to the IRS before the deadline.

To select a plan, just click the button at the bottom of the plan you want to choose and follow the onscreen prompts to complete filing your 1099 forms.

Summary

In this chapter, we discussed how to set up 1099 contractors in QuickBooks, how to track payments that have been made to 1099 contractors, the various ways you can pay 1099 contractors, and how to report and file 1099 forms at the end of the year. If you hire individuals such as an attorney or a bookkeeper to provide services to your business, you now know how to set them up in QuickBooks and track payments that are made to them throughout the year. You also know that the threshold for reporting 1099 payments is $600 in payments within a calendar year. Finally, we have shown you how to sign up for the 1099 service provided by Intuit so that you can print and mail 1099 forms.

1099 reporting is just one of many tasks that must be performed at the end of the year. In the next chapter, we will discuss other tasks that must be completed so that we can close the books for the year.

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