Paying 1099 Contractors as Vendors. Are there accounting and/or legal concerns?

TriangleTutoringNC · ‎November 08, 2022

Hello!

I have been contemplating this issue for some time now and my research has not led me to a definite solution. Our tutoring company has tutors (currently as 1099 independent contractors) and will need to be paid in a week. My partner (cofounder) and I have paid her as a vendor (three times), since she bootstrapped tutoring, even though she has a profile under the contractors' tab on QBO. I am debating on whether the payroll feature is required for this, as I am trying to minimize overhead while keeping the accounting and legal aspect aligned with regulatory and best practice.

I recently speaking with a QB customer service rep on the phone and was told that I do not have to subscribe to the payroll feature, as she mentioned other people have paid contractors as vendors. I want to ensure the contractors are getting the 1099s they need for filing taxes if we decide to pay them as vendors.

Is this a common solution for my business structure, and what (if any) concerns should I have with paying contractors as vendors vs subscribing to payroll and direct depositing their payments that way?

Fiat Lux - ASIA · ‎November 08, 2022

As the 3rd option, consider signing up for a separate Melio account for free to integrate with your QBO and paying your 1099 contractors for free. You don't need to sign up for the payroll add-on. You'll check all the payments you made through Melio that year, classify them, and export a .CSV file with the information needed to file your 1099 annual forms later.

https://melio.grsm.io/pricing

GebelAlainaM · ‎November 08, 2022

Hello there. I'm here to share additional information about your concern about paying your contractors.

Yes, I agree with Fiat Lux - ASIA that you don't need to sign up for the payroll add-on if you'll want to set up your contractors as vendors. QuickBooks tracks all their related payments so when you need to file their 1099s, you already have all their info. If you'll want to track contractor payments for 1099s, here's how:

Go to the Sales menu and select Vendors.
Choose the vendor you want to track and open their profile.
Click Edit.
Then select and tick the Track payments for 1099 checkbox.

You can refer to this article for more details: Set up contractors and track them for 1099s in QuickBooks.

On the other hand, if you'll want to pay your contractor with a direct deposit, you may consider subscribing to payroll services in QuickBooks. To learn more, you can refer to the following articles:

I've also added this article in case you're ready to file your Federal 1099s: Create and file 1099s with QuickBooks Online.

If you have any other QuickBooks-related concerns feel free to post a reply. I'll be around. Have a good one!

TriangleTutoringNC · ‎November 10, 2022

Thank you for this suggestion! Melio looks like a feasible solution, but will my contractors now have to create an account with them as well?

Fiat Lux - ASIA · ‎November 10, 2022

@TriangleTutoringNC wrote:
Thank you for this suggestion! Melio looks like a feasible solution, but will my contractors now have to create an account with them as well?

No. They don't need to signup anything to accept payments. Once you schedule a payment, you can add your contractor's email address and have them notified once the payment is processed.

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Paying 1099 Contractors as Vendors. Are there accounting and/or legal concerns?