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HOW DO YOU EXCLUDE AN AMOUNT FROM A 1099?

 
9 Comments
QuickBooks Team

Re: HOW DO YOU EXCLUDE AN AMOUNT FROM A 1099?

Hello @loriwood1,

 

The amounts reported in 1099 are based on the expense accounts you've mapped for each transaction types. And I'd be glad to help you exclude the amount.

 

We'll need to change the transaction category that isn't included in the mapped category of Box 7. This way, it will be excluded from your 1099. Here's how:

  1. On the left panel, click Expense, then Vendors.
  2. Select the vendor/company name.
  3. Find the transaction and click View/Edit under Action column.
  4. Under Category column, change it into different category type.
  5. Click Save and close.

You can check the screenshots below for your reference.

Most importantly I encourage seeking advice from your accountant or tax preparer first. You can ask him/her if it's advisable to exclude those amounts.

 

Please feel free to leave a comment below if you have any other questions.

Senior Explorer **

Re: HOW DO YOU EXCLUDE AN AMOUNT FROM A 1099?

Hello @Mark_R , could you please let me know what categories are not considered in the box 7?

 

I will submit payments to the independent contractors (creating bills and matching them with the transaction in the bank in QB),  which include fee for their services, and travel expenses and sometime per diem. We are going to exclude the travel expenses and per diem from the 1099 (asking the independent contractor to follow an accountant plan) , But I would like to know how I can separate those payments, so in QB I can only see the fee for their services in box 7 when filling the 1099.  Please note that we are expecting to submit only 1 ACH transaction for the total amount to be paid.

Can I create 2 bills for 1 payment? I mean 1 bill for fee services (using "contractors" category) and other bill for travel expenses and per diem (using travel expense category). When I have in banking the transaction from the ACH payment, I will match that transaction with those 2 bills. is that possible? So, I will be able to report in box 7 in 1099 the bills with fee services (contractors category) and exclude the bills with travel expense category. is that right?

 

Thanks a lot for your support.   

 

QuickBooks Team

Re: HOW DO YOU EXCLUDE AN AMOUNT FROM A 1099?

Hi there @LuzBeaty,

First, let me walk you through on how to map your 1099 so you would know how the payments are categorized per box.

Here's how:

  1. Go to Expenses and click Vendors at the top.
  2. Click on Prepare 1099s at the top-right corner.
  3. If this is your first time using the 1099 Wizard, click the "Let's get started" button. Otherwise, click on the "Continue your 1099s" button.
  4. You'll see the Review your company info page first. Confirm your details and click Next.

For you to know what are the categories included in the box 7 and other boxes, please check this article: Instructions for Form 1099-MISC. I suggest seeking advice from your accountant about what categories that shouldn’t be included.

Regarding your last question, yes you can create two bills for one payment. Also, I recommend seeking assistance from your accountant before making any changes in your account.

Below are some helpful articles that can give you more information about this.

Please post again if you have other concerns. Have a great day!

Senior Explorer **

Re: HOW DO YOU EXCLUDE AN AMOUNT FROM A 1099?

@DarellAThank you for your prompt reply.

 

I think I can have 1 bill with 2 lines, one for each each category (contractor and travel expenses)

1. Create 1 bill for vendor X with a total amount, i.e 150 USD. 

   In the bill create 2 lines:

     line a: fee for days worked with category "contractors" i.e 100 USD

     line b: travel expenses and/or per diem with category "travel expenses" i.e 50 USD

3. Submit the ACH payment in the business bank account for 150 USD

4. Once the transaction is available in "banking", match it with the bill created above.

     In this case, contractors account will be increased by 100 USD, travel expenses will be increased by 50 USD

5. In the end of the year, when I am ready to submit a 1099 in QB for that vendor, I will map the accounts for 1099 in the step 2, "Box 7: Nonemployee compensation" with account "Contractors".  So, in the box 7 of the 1099, I will have only 50 USD and all payment made under category "travel expenses" will be excluded in box 7.

 

Is that right?

 

Highlighted
QuickBooks Team

Re: HOW DO YOU EXCLUDE AN AMOUNT FROM A 1099?

Thanks for getting back to us, @LuzBeaty.

 

Yes, your example is absolutely correct. Allow me to add a few information about 1099.

 

When preparing 1099 form, all vendor payments through cash, check, or ACH should be included when filing 1099. However, you can read this article to know when to exclude payments on form 1099: Vendor Payments to Exclude on Form 1099-MISC.

 

To clarify things about excluding amounts from 1099, I recommend seeking help from your accountant. He/She could guide you what to do about your 1099. Or contact the IRS for further discussion on the compliance side of 1099.

 

Let me know there's anything else you need. I'm still here to help you more.

Senior Explorer **

Re: HOW DO YOU EXCLUDE AN AMOUNT FROM A 1099?

@Mark_Rthank you so much for your reply. I am glad that I finally I got it...it took me some time :)

I also want to thank you for the additional info. 

I was searching about excluding reimbursements,  I checked in IRS, fringe benefit guide, and reimbursements such as travel expenses (loading, air tickets, etc.) and per diem can be excluded by the company when filling out the 1099 for the independent contractor under an accountable plan. If the company does not want to have an accountable plan, the total payment needs to be included in the 1099 and it is up to the contractor to deduct them on their own tax return.

Our company will exclude them from the 1099, because we will ask the independent contractor to follow an accountant plan (i.e provide documentation that expenses are business related and bills/receipts). 

Have a nice & safe evening Mark. 

Established Community Backer ***

Re: HOW DO YOU EXCLUDE AN AMOUNT FROM A 1099?


@LuzBeaty wrote:

@Mark_Rthank you so much for your reply. I am glad that I finally I got it...it took me some time :)

I also want to thank you for the additional info. 

I was searching about excluding reimbursements,  I checked in IRS, fringe benefit guide, and reimbursements such as travel expenses (loading, air tickets, etc.) and per diem can be excluded by the company when filling out the 1099 for the independent contractor under an accountable plan. If the company does not want to have an accountable plan, the total payment needs to be included in the 1099 and it is up to the contractor to deduct them on their own tax return.

Our company will exclude them from the 1099, because we will ask the independent contractor to follow an accountant plan (i.e provide documentation that expenses are business related and bills/receipts). 

Have a nice & safe evening Mark. 


An accountable plan is between employer and employee.  A 1099 contractor is not an employee.

reimbursed expenses is for employees

 

A contractor is in business, he has expenses and he has income.  He bills you for his expense plus his mark up (just as you do for your customers), you pay the bill and that is his income.

 

What you pay him, the total paid in cash or check, is reported on the 1099-misc block 7

 

If the vendor is askign you to do this, one or more of the following is true

1. he does not understand how it works

2. he wanting to under report total income and making you complicit in his fraud

 

and from your accounting aspects, in an audit it could easily be found that since you are treating him as an employee (accountable plan, reimbursable expenses) then he is, and you would be liable for past payroll taxes, plus interest and penalties.  That would also required amended income tax reporting to both the fed and the state too

 

see the attachment, the IRS holds a hard line on qualifying a contractor

specifically item 13

Senior Explorer **

Re: HOW DO YOU EXCLUDE AN AMOUNT FROM A 1099?

@Rustler  thank you so much for your feedback.

We want to do the things the best it is possible, following the rules and laws. 

Now I am confuse, see what I found in IRS "Fringe Benefit Guide"

https://www.irs.gov/pub/irs-pdf/p5137.pdf 

"Generally, the taxability of fringe benefits or reimbursements paid to independent contractors is similar to that for employees. However, different withholding and reporting requirements apply to these workers. …. Reimbursements for Travel, Transportation and Other Out-of-Pocket Expenses
As with employees, expense reimbursements or advances must meet the accountable plan rules to be excluded from reporting and income. In general, all compensation for services for an independent contractor must be reported on Form 1099-MISC when the amount (excluding reimbursements under an accountable plan) is $600 or more in a calendar year. The amounts are not subject to income or employment tax withholding"

"If the individual is considered an independent contractor and does not properly account to the payer for reimbursed expenses, then any advances or reimbursements are to be included on a Form 1099-MISC as taxable nonemployee compensation, along with other payments for their services. Reg. §1.274-5T(h)(2) "

 

So I understood, that we will be able to ask the nonemployee (independent contractor) to follow an accountant plan, if they want us to exclude the reimbursements in the 1099.  FYI, we are taking over of an existing small business, and the current owner exclude per diem payments to some engineers, so I am searching the best way to do it if that legally possible.

 

Thanks,

Established Community Backer ***

Re: HOW DO YOU EXCLUDE AN AMOUNT FROM A 1099?

@LuzBeaty 

 

I tried your link, it comes back 404 not found

I did find it doing a search for the pub number though

 

I see what you are saying, I am cautious in respect to the IRS, so for me the key words are

out-of-pocket expense

 

In the example on page 90. the key to me is that the contract calls for a fee plus out-of-pocket expenses.  That tells me that the expenses are above and beyond what I hired him to do, unexpected in other words.

 

and then, it goes to say that the contractor will not claim those expenses if there is a reimbursement.  I agree that whether or not the contractor claims those expenses even though they met the requirements of the accountable plan, that is not really my purview.  And if there was an audit, it could turn into a mess that I do not want to be involved in.

 

It would seem to be a judgement call as to whether or not

1. the contract states something about out-of-pocket expenses

2. that the expenses are indeed out-of-pocket, and then meeting the requirements of the accountable plan, which also if I am not mistaken requires that you have a written accountable plan.

 

I am not a tax guy, I would suggest that for your own piece of mind you get with a local tax accountant and come to a decision as to how you will do it.  Personally I will not mess with an accountable plan that deals with someone not a direct employee.

 

I solved the whole 1099 issue by only doing business with contractors who will take a credit card or paypal.  :-)

 

BUT, to get back to the question, QB only reports on payments to a vendor that are in the mapped expense account.  So if you do go with reimbursed expenses, simply use an expense account that is not mapped to the 1099, and QB will never consider them

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