1099 Contractor Expense Reimbursements

How do I record a non-taxable reimbursement for a contractor? I do not use Quickbooks Payroll.

I understand properly recording the taxable 1099 wages, but I don't know how to record non-taxable reimbursement items. In example - I have an 1099 Independent Contractor, who earned $15k but their 1099 states an taxable income of $18k. The $3k difference is a non-taxable payment as it was an reimbursement.

Thanks for dropping by the Community, @Darshane.

You can create a new expense account for your non-taxable reimbursement. Let me walk you through how.

1. Go to Accounting, then Chart of Accounts.
2. Select New. Then, choose "Expenses" or "Other expense" as Account Type and enter the Account details.
3. Click Save and Close.

After that, record the reimbursement using that account.

1. Go to +New, then Check.
2. Look for the account you've just created under Category column, enter other information on the field.
3. Click Save and close.

With these steps, you'll be about to record the reimbursement without including it on the 1099 mapping. You can learn about the different pay methods for contractors at this link: Pay Methods For Employees Or Contractors.

I've also added these links below that I'm sure you'll find helpful. These resources will guide you on providing services to your contractor.

• Independent Contractor Defined
• Classify Workers Correctly: Independent Contractors vs. Employees

That'll do it. Feel welcome to come by anytime if you have other questions or concerns. We're always here to help you every step of the way. Have a great weekend.

can you please elaborate on this? what expense account do i add?

i have a contractor who does work for me but buys supplies with his own cc. he submits invoices to me with labor and supply costs. i'm not sure how to enter it into QB so that the labor reimbursements don't appear as income on the 1099 form. or should they? 

is it his responsibility to deduct them? 

can you elaborate on this please?

when you say add a new account and then enter the details... what details?

I have a contractor who does work for me but buys supplies with his own cc. he submits invoices to me with his labor time and the supplies for reimbursement, which i pay him for.

i'm not sure how to enter these payments into QB without the supply reimbursements showing up as income. or should they?  

help. thanks!~

Please keep in mind I am not an accountant but this removed the non-taxable expenses from my contractor's 1099 report. I use QB Desktop (19)

Go to Lists > Chart of Accounts > Account (icon at bottom) > New

Choose Expense > Continue

Enter Account Name - I named mine EE Non-Taxable Reimbursement and entered mine into the sub-account of Independent Contractors, but keep in mind it might not be the same for you depending on how you're charting your contractors. I also add a description so future-me would know what to use it for.

Tax-Line Mapping - now here was the tricky part that I may have gotten wrong. I need the items to either not show up on a 1099 as taxable income or be put in Box 12: Code L (Non-Taxable Reimbursements for EE Business Expense) so it won't affect my contractors. I could not find ANYTHING after over an hour of research regarding what the tax line mapping items mean or how they reflect on a W-2 or 1099.

So.... I used UNASSIGNED - if you know the correct one PLEASE for the love of Pete let me know.

Regardless - this worked and removed the non-taxable expenses I had paid to the contractor. I re-ran their expected 1099 report for this year and the expected total was correct. I also want to note that the transactions re-itemized using the EE Non-Taxable Reimbursement were easily located in the Chart of Accounts, so if I screwed it all up at least it will be easy to locate to correct. 

Also as a note - you will need to go back through every single invoice/bill made to the contractor in question and re-assign the account it was under for ones you don't want recorded as taxable income. Meaning the invoice was originally under an account for office supplies and I changed it to the EE Non-Taxable one that I made.

ANYONE who knows what they are doing regarding this please correct me if I've done anything incorrectly.

Please keep in mind I am not an accountant but this removed the non-taxable expenses from my contractor's 1099 report. I use QB Desktop (19)

Go to Lists > Chart of Accounts > Account (icon at bottom) > New

Choose Expense > Continue

Enter Account Name - I named mine EE Non-Taxable Reimbursement and entered mine into the sub-account of Independent Contractors, but keep in mind it might not be the same for you depending on how you're charting your contractors. I also add a description so future-me would know what to use it for.

Tax-Line Mapping - now here was the tricky part that I may have gotten wrong. I need the items to either not show up on a 1099 as taxable income or be put in Box 12: Code L (Non-Taxable Reimbursements for EE Business Expense) so it won't affect my contractors. I could not find ANYTHING after over an hour of research regarding what the tax line mapping items mean or how they reflect on a W-2 or 1099.

So.... I used UNASSIGNED - if you know the correct one PLEASE for the love of Pete let me know.

Regardless - this worked and removed the non-taxable expenses I had paid to the contractor. I re-ran their expected 1099 report for this year and the expected total was correct. I also want to note that the transactions re-itemized using the EE Non-Taxable Reimbursement were easily located in the Chart of Accounts, so if I screwed it all up at least it will be easy to locate to correct. 

Also as a note - you will need to go back through every single invoice/bill made to the contractor in question and re-assign the account it was under for ones you don't want recorded as taxable income. Meaning the invoice was originally under an account for office supplies and I changed it to the EE Non-Taxable one that I made.

ANYONE who knows what they are doing regarding this please correct me if I've done anything incorrectly.

I’m having the same issue. This seems to make sense! Has this continued to work for you? 

I want to address your contractor issue, @Gabalot.

I'll help you manage your contractor's non-taxable reimbursement in QuickBooks Desktop. This way, your 1099 form will be accurate at all times. 

Do you have the same issue with the client's info513? If so, I'd suggest following the explanation with Rustler. This way, you'll be guided accordingly in handling the 1099 contractor expense reimbursements.

But if you have the same question and scenario with the customer's Darshane, I'd recommend doing the ShiellaGraceA steps above. This way, you can record your contractor's non-taxable reimbursement in QuickBooks. 

If you're currently using our Payroll Service, we've different ways to record non-taxable reimbursement. To start, let's create a payroll item first. Do the following: 

1. Go to the Lists menu and choose Payroll Item List.
2. Select Payroll Item and click New.
3. Pick the Custom Setup button, then hit Next.
4. Select the Addition item type and click Next.
5. Enter a new item name and select expense account. 
6. Set the Tax Tracking type to None so that the amounts don't report on tax forms. 
7. Pick appropriate taxes, then hit Next. 
8. Select Calculate this item based on quantity, then Net pay on the next page. 
9. Enter the default rate and click Finish. 

For more information about the process, see this link: Create a non-taxable reimbursement payroll item.

After that, record the transactions by creating a check. For complete steps, visit this article: Create, modify, and print checks.

Check out these articles below on how to modify items and 1099 frequently asked questions in QuickBooks:

• Edit a payroll item
• Modify your chart of accounts for your 1099-MISC and 1099-NEC filing

I want to make sure your concern is fully addressed, and I'm here to provide further assistance if you have any other QuickBooks-related questions. Happy to help again. Be safe, Gabalot.

I am finding the best approach for our small business is to have either (1) a Consulting/Contract Labor Account Category that would be tied to 1099 and then all your labor for services paid would be assigned to this account for all your outside contractors and then any reimbursable expenses submitted would go to regular accounts like supplies that are not taxable or (2) create two accounts that are similar but one is taxable and one is not:  For example, we pay contractors for helping with advertising but I also need to reimburse the owner for advertising costs (Google Ads) he paid on his own.  I create an Advertising & Marketing - taxable account that is tied to 1099 and an Advertising & Marketing - non taxable account for reimbursements.  This is only if you really want to see total cost of Advertising & Marketing on your P&L.  Quickbooks does not allow you to adjust the 1099 taxable piece at the transaction level but only at the global account category level, which is what is causing lots of headaches for preparing 1099's.

Quickbooks should add this as a feature to assign a default 1099 status to an account but allow the user to "uncheck" the 1099 "taxable-ness" at the transaction level by vendor so we could uncheck reimbursable expenses for a particular expense...but doesn't exist in QB Online right now.

My thoughts & two cents - FWIW 

Hi there, lshulda41.

I appreciate you for sharing ideas. To ensure your suggestion reaches our developer's team, I'd suggest sharing it through the Send Feedback Online option.

Let me guide you with these steps:

1. Click the Help menu.
2. Hit Send Feedback Online.
3. SelectProduct Suggestion.
4. Enter your feedback suggestion.
5. Click the Send Feedback button.

Check out these articles below on how to modify items and 1099 frequently asked questions in QuickBooks:

• Edit a payroll item
• Modify your chart of accounts for your 1099-MISC and 1099-NEC filing

You can always post anytime you need help. Keep safe!