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How to Prepare 1099-MISCs for Independent Contractors in QuickBooks Online (Plus)

 

 

This is a guide for how to create, prepare, file and send 1099-MISCs in QuickBooks Online.

 

As you wind down this year and gear up for the next, it’s time once again to prepare 1099-MISCs for your independent contractors to report their “non-employee” compensation. Check the IRS website for the latest deadlines.

 

Of course, it’s always a smart idea to keep organized records throughout the year. But if you’re just now pulling everything together in time for this year’s deadline, at a minimum, make sure you have the accurate financial and contact information (legal name, organization, address, Tax ID) on file for each contractor.

 

The good news is, as long as your vendor expense-tracking is set up properly, your QuickBooks is 1099-ready this year and in the years to come.

 


 

Set up 1099-MISC tracking for contractors

 

 

  • Independent contractors are categorized as vendors in QBO. This makes sense since, like product vendors, they are individuals you pay money to.

  • Start by either manually adding the contractor as a new vendor in the Expenses module or editing their information from an open expense or bill form. If you decide to add a new vendor from a new expense or bil forml, enter the contractor as the payee on the form, click “+ Add New,” wait for the window to expand and then click “+ Details.”

  • Here’s a one-click solution to ensure the right vendors show up when it’s time to file 1099s. When you’re on the Vendor Information screen, add their Tax ID (found on the W-9 form your contractors completed when they began work) and check the box at the bottom labelled “track payments for 1099.

 

 

 

 

Set up a new expense account

 

 

  • On-demand or self-employed workers/independent contractors/freelancers are individuals who do service for you but are not your official employees. This means their pay must be tracked separately. If you want to know what distinguishes a contractor from a regular employ, check out the 1099 vs. W2 Wizard.

  • It’s important to set up an expense account for payments made to contractors. Visit the IRS website for a complete list of what payments should be included. Do not mix these expenses with other employee expenses.

  • Create a new expense account. Open from the Accounting module and go into your Chart of Accounts. Name the account “Contractor Payments” or something that makes sense to you and is easy to remember. Make a note about what the account is in the description. Select “Expenses” as the Category Type and “Cost of Labor” as the Detail Type.

 

 

 

 

 

Haven’t been tracking information for 1099-MISCs in QuickBooks? No sweat

 

  • You can designate an existing vendor as a contractor at any point by editing their account information and checking the box “track payments for 1099.” This will make their name appear on the appropriate list in the 1099 Preparation module.

  • What’s more important is categorizing applicable 1099-MISC expenses (see link to IRS page above) in the correct expense account, which is separate from your regular employee payroll. If you categorized past payments in a different account, simply go back and categorize those payments in the new “Contractor Expenses” account you created.

 

 

 

 

 

Prepare your 1099s in QuickBooks

 

  • Now that your records are in order, the hard part is over! Time to prepare your 1099-MISCs. Go to the Expenses Module and select the “Vendors” Tab, click the “Prepare 1099s” button and then “Let’s Get Started.” As you progress through the module, you’ll see how your hard work getting organized pays off!

 

  • When you reach Step 2 called “Accounts,” select Box 7: Nonemployee Compensation and then choose the account you used to pay your contractors (in the example case, the account called “Contractor Payments”). This lets the IRS know what money was used for non-employee and employee compensation.
     

Box 7.png

 

  • In Step 3, the vendors you set up for tracking will automatically appear on the list. Don't see one of your contractors? Edit their profile in the "Vendor" tab and set them up for vendor tracking. Complete the module, and you’re ready to send the forms!

 

 

 

 

 

Filing time

 

  • At the end of the module, you have the option to either e-file the forms (fees apply) or print and mail them to the IRS. If you elect to print and mail the forms, make sure you’re using the correct blank 1099 Form Kits formatted for printing from QuickBooks. Follow the link in the module if you need to order more forms.

    Of course, you can always print this information from QuickBooks and order tax forms for free from the IRS directly if you want to fill them out by hand - a good option if you have a small team (less than 5 people).

 

  • You’re almost done. There's a follow-up form to file, the 1096 form, which provides the IRS with summary totals from your 1099s (and other applicable tax forms). Send this in by February 28th. Learn more about the 1096 and check the IRS website for the latest information.

 


 

 Join the conversation!

 

 

Got your own version of this workflow system? Please share your best practices with the community!

 

 

 

Related Articles

Solved
Best answer 12-23-2017

Accepted Solutions
Content Leader

Re: How to Prepare and Send Independent Contractor 1099-MISCs Using QuickBooks Online (Plus)

@NHBooks,

 

A warm welcome to the QB Community!

 

Thank you for your terrific feedback. I will amend the article to ensure users are getting the best information. Since this was a general purpose article, we didn't deep-dive into unique scenarios, like the one you describe, but perhaps it should be included.

 

Or we could make a new post specifically about 1099 special cases. Mind if I use the information from your post? Is there any other information we can add to elaborate further? 

12 Comments
Established Community Backer ***

Re: How to Prepare and Send 1099-MISC’s to Your Contract Employees Using QuickBooks Online (Plus)

Picky, but the title is wrong, there is no such thing as contact employee

 

Printable 1096 and 1099-misc forms are free for the asking from the IRS, no reason to pay anyone for them.

https://www.irs.gov/businesses/online-ordering-for-information-returns-and-employer-returns

 

What should be stated in my opinion, is that ONLY cash and check payments to independent contractors are reported on the 1099-misc.

 

So the really easy way to handle this going forward is to pay your contrators using a credit card, paypal, google or apple pay, etc etc - then there is NO 1099 to track or prepare.

ProAdvisor

Re: How to Prepare and Send 1099-MISC’s to Your Contract Employees Using QuickBooks Online (Plus)

As Rustler said, you may also want to mention "Excluded" section of QBO. It's shown in video #1 as what's excluded.

Reference Exclude Payments:
https://community.intuit.com/articles/1634851-prepare-and-file-1099s-quickbooks-online

 

+

image.png Excluded

Content Leader

Re: How to Prepare and Send 1099-MISC’s to Your Contract Employees Using QuickBooks Online (Plus)

Post amended, thank you @Rustler and @vpcontroller. I will add a bit about the exclusions later this afternoon.  

ProAdvisor

Re: How to Prepare and Send 1099-MISC’s to Your Contract Employees Using QuickBooks Online (Plus)

Also, with this new feature, you can invite your contractors to fill out their own 1099 tax info. Time-saving feature! 

 

Invite a contractor to add their own 1099 tax info:

 https://community.intuit.com/articles/1637708

Established Member

Re: How to Prepare and Send 1099-MISC’s to Your Contract Employees Using QuickBooks Online (Plus)

I saw the new capability and thought it was a great addition! However, if I've already been tracking my contractors as vendors, when I try to add them in the new Contractors interface, it (correctly) states that record already exists. However, there's no clear option to move them from "Vendors" to "Contractors". What's a good practice here, or is there a way to do it that I'm missing completely?

Established Community Backer ***

Re: How to Prepare and Send 1099-MISC’s to Your Contract Employees Using QuickBooks Online (Plus)

@Whitemane, if your contractors are already listed in your vendors page, they should transfer to the contractor page. IF the box is selected to "Track Payments for 1099" in the vendor information page. Mine automatically transferred. 

Established Member

Re: How to Prepare and Send Independent Contractor 1099-MISCs Using QuickBooks Online (Plus)

This information is not quite correct.  In some instances, a 1099 contractor is not providing a service that is an expense as stated in the article.  It mostly comes into play with building contractors who are doing new construction or remodeling of properties (for instance you are a company that purchases properties, has them remodeled, and then rents them).  In this instance,  the payments need to be coded to a fixed asset account, not an expense account.  There are other possibilites where the payments need to be fixed assets and not expenses for proper accounting.  

 

Also there are times when the 1099 contractor does not get expensed to a Contract Labor or similar account, such as lawyers would be coded to Legal Fees, ookkeepers or tax preparers might be coded to Accounting Fees, landlords to Rent, etc.  

 

I recommend you review your vendor list each year to look for 1099 contractors who you paid $600 or more to, regardless of where the payments were coded.  It is also a good way to see if you have any possible Use Tax vendors on the list that you need to check to see if sales tax was paid.

Content Leader

Re: How to Prepare and Send Independent Contractor 1099-MISCs Using QuickBooks Online (Plus)

@NHBooks,

 

A warm welcome to the QB Community!

 

Thank you for your terrific feedback. I will amend the article to ensure users are getting the best information. Since this was a general purpose article, we didn't deep-dive into unique scenarios, like the one you describe, but perhaps it should be included.

 

Or we could make a new post specifically about 1099 special cases. Mind if I use the information from your post? Is there any other information we can add to elaborate further? 

Experienced Member

Re: How to Prepare and Send Independent Contractor 1099-MISCs Using QuickBooks Online (Plus)

I am ready to complete my 1099's for the year 2017. When I click the e-file button I get this messge (below) - This is confusing....does this mean QB considers the 1099's for 2017 year to be prepared in 2018 ?  So I can't make arrangements for the efile until after Jan 1, 2018?

 

"The 2017 season is over for filing 1099-MISC forms.

We look forward to filing your 1099 forms in 2018!"

Established Community Backer ***

Re: How to Prepare and Send Independent Contractor 1099-MISCs Using QuickBooks Online (Plus)


@CBohn wrote:

I am ready to complete my 1099's for the year 2017. When I click the e-file button I get this messge (below) - This is confusing....does this mean QB considers the 1099's for 2017 year to be prepared in 2018 ?  So I can't make arrangements for the efile until after Jan 1, 2018?

 

"The 2017 season is over for filing 1099-MISC forms.

We look forward to filing your 1099 forms in 2018!"


QB hard wired the 1099 wizard to only create a 1099 for last year - really dumb in my opinion.  So until Jan 1, you can not do 2017 1099's

 

The error, because of the hard wired programming, is telling you that you can not prepare 2016 1099's this late in 2017

Content Leader

Re: How to Prepare and Send Independent Contractor 1099-MISCs Using QuickBooks Online (Plus)

@Rustler, since 1099s are filed on a yearly basis, do you happen to know the precedent/penalty for filing them retroactively?

Established Community Backer ***

Re: How to Prepare and Send Independent Contractor 1099-MISCs Using QuickBooks Online (Plus)


@JamesOng wrote:

@Rustler, since 1099s are filed on a yearly basis, do you happen to know the precedent/penalty for filing them retroactively?


Like anything with the IRS there are a bunch of if-this-then-that scenarios, but download the

2017 General Instuctions for Information returns

section O, Penaties starting on page 18

 

Generally speaking

The amount of the penalty is based on when you file the correct information return. The penalty is as follows.
$50 per information return if you correctly file within 30 days (by March 30 if the due date is February 28);


maximum penalty $536,000 per year ($187,500 for small businesses, defined below).
$100 per information return if you correctly file more than 30 days after the due date but by August 1;


maximum penalty $1,609,000 per year ($536,000 for small businesses).
$260 per information return if you file after August 1 or you do not file required information returns; maximum penalty $3,218,500 per year ($1,072,500 for small businesses).

 

Notice the per form and per year in the listings - can get really expensive