1099 for independent contractor

LuzBeaty · ‎March 21, 2019

Hello, Should I include in box 7 the expenses reimbursed to the independent contractor? note that the contractor paid for expenses such as lodging, air tickets and sometimes visa, and our customer pays for that and when we make the payment to the contractor we reimburse him those expenses. What about the PER DIEM that our customer covers and we include in the payment to the contractor? If that needs to be included, how can I split the payment (daily fee and expenses) from the bills in QB? Please note that we will have only 1 banking transaction for the payment for matching with the bill.

Thanks a lot for your support!

john-pero · ‎March 22, 2019

You don't have to split the payment as long as you split the bill. The key here is having separate accounts for what is and what is not to be tracked.

An example. I have a vendor that performs appliance repair but we also purchase used appliances from him. The appliances themselves are or can be a separate expense under repairs and maintenance subject to de minimis safe harbor where we can up from expense appliances for our apartments up to $2500 per line item. These appliance purchases do not have to be included in the 1099 to him (although he said go ahead and include it). To exclude these "repairs" I would have a separate expense account for appliances subject to safe harbor as a sub account or repairs. and when running the 1099 wizard, exclude that account form this contractor - then only the actual repair jobs would be included.

In your situation you should enter a bill from the sub contractor that segregates their labor from airline tickets or other reimbursements. Do it at the bill level, then pay the bill and you do not have to worry about it at the check level. In the end it is all the same but does create a better workflow and paper/digital trail

View solution in original post

john-pero · ‎March 21, 2019

Although technically a 1099 like this is supposed to only be for services, i.e. labor there is nothing wrong with including 100% of what you pay the contractor on the 1099. It is up to them to keep track of their own offsetting expenses

LuzBeaty · ‎March 21, 2019

Thanks @john-pero for your prompt reply.

I was searching about this and you are right. 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).

Could you please help me to identify how I can split in QB the service payment and travel expenses and per diem? As I said above, we will make only 1 transfer for the payment from the business bank account. I will create bills in QB, and I am wonder if the payment can be split there, so when I am ready to issue the 1099, only the fees for their services are included in box 7.

Thanks a lot for your ongoing support.

john-pero · ‎March 22, 2019

You don't have to split the payment as long as you split the bill. The key here is having separate accounts for what is and what is not to be tracked.

An example. I have a vendor that performs appliance repair but we also purchase used appliances from him. The appliances themselves are or can be a separate expense under repairs and maintenance subject to de minimis safe harbor where we can up from expense appliances for our apartments up to $2500 per line item. These appliance purchases do not have to be included in the 1099 to him (although he said go ahead and include it). To exclude these "repairs" I would have a separate expense account for appliances subject to safe harbor as a sub account or repairs. and when running the 1099 wizard, exclude that account form this contractor - then only the actual repair jobs would be included.

In your situation you should enter a bill from the sub contractor that segregates their labor from airline tickets or other reimbursements. Do it at the bill level, then pay the bill and you do not have to worry about it at the check level. In the end it is all the same but does create a better workflow and paper/digital trail

LuzBeaty · ‎March 22, 2019

@john-peroThank you so much for your ongoing support.

Let me try to summary what I understood:

1. Create 1 bill for vendor X

2. In the bill create 2 items:

item a: service expenses with category "contractors"

item b: travel expenses and/or per diem with category "travel expenses"

3. Submit the ACH payment in the business bank account

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

5. In the end of the year, when I am ready to submit a 1099 in QB for that vendor, it will only show up the payments made under category "contractors". All payment made under category "travel expenses" will be excluded in box 7.

Is that right?

How can I map what categories are included in box 7 for 1099? or if it is set up by default, if yes what categories are excluded in box 7?

Do you know if the amount in box 7 can be modified? that will be my plan B in case the exclusion through categories doesn't work for any reason.

Have a nice and safe day John!

LuzBeaty · ‎March 22, 2019

@john-pero please let me try to explain myself better with an example, so you can please let me know if it is right or not.

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.

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1099 for independent contractor