How to Process and File 1099s with QuickBooks Online

| 3 min read

How to Process and File 1099s with QuickBooks Online

Business owners usually know that there are paperwork responsibilities involved when employing someone. What isn't always common knowledge is the differences between an employee and an independent contractor.

The IRS requires that organizations properly determine this, and if a mistake occurs, it is usually costly.

Employee Or Independent Contractor?

An employee classification depends on the degree of control that the employer has over the worker. An independent contractor decides when and how they work. They also dictate the payment for services and don't require expenses to be reimbursed.

The employer and employee relationship involves a contract, whether an employment contract or benefits like vacation, 401k contributions, insurance, etc. The employer must process and file 1099s for all persons deemed as independent contractors.

Setting Up

All contractors who receive $600 or more per year from your organization must receive a 1099 unless they are an incorporated business. All lawyers must receive a 1099 regardless of their business structure. Lastly, anyone you pay rent you must receive a 1099.

Of course, as with anything, there are exceptions. One thing most business owners don't know is that if you pay a contractor with a debit card, credit card, or Paypal the 1099 is issued by the merchant processor. That is why we recommend paying all vendors by debit or credit card whenever possible. 

To ensure that your 1099 contractors are ready at the end of the year, you should obtain a W-9 IRS form for each one. You can use this form to enter the information by going to the 'Expenditure' tab on the left side of the QuickBooks Online (QBO) site. From the dropdown, choose 'Vendors.' 

Click on the green box in the top right corner to add a new vendor.

When entering the vendor, add the full name, address, city, state, zip code, and email. You can also enter a phone number, billing rate, terms, and more. On the bottom right side of the screen, you will see a field to enter the Business ID or Social Security Number.

You must complete this section to run a 1099 form. Also, check the box that says 'Track payments for 1099'. There is an option for entering the default expense account, and this is helpful for accounting purposes.

In addition to a W-9 form, you should also request a workers compensation insurance certificate or waiver, as well as a general liability insurance certificate. Believe me when I tell you that the lack of insurance certificates is what gets most people in the case of an unemployment insurance audit. If the contractor is deemed invalid because you don't have the proper documentation they will reclassify the contractor payments as W-2 wages and you will owe back taxes.

1099 Forms

There are two ways to generate and send 1099 forms for non-employee wages. You can purchase a 1099 kit and print the forms yourself from the file in QBO, or you can pay QuickBooks to print and mail your documents.

The second option is more straightforward because it can be tricky to line the 1099 forms up correctly in a printer. Also, if you don't purchase the forms early in the season, it can be challenging to obtain them. The steps are the same for each method until the very end.

How To Generate 1099s

If you'd like to prepare 1099s through QuickBooks Online, the pre-process doesn't begin until November 7th of the calendar year, so you may have to wait a little while longer until the 1099s actually populate.

  1. On the QBO website, choose the 'Expenses' tab and click on 'Vendors' in the dropdown menu.
  2. Click on the box at the top of the screen that says 'Prepare 1099s'.
  3. From this page, choose the green box that reads 'Continue your 1099s'.
  4. Verify that all of your company information is correct and choose 'Next.'
  5. The next step is to choose the appropriate expense account from your Chart of Accounts. Most small businesses use Box 7 for non-employee compensation or Box 1 for rents.
  6. A dropdown appears from the box you select, and you can map the accounts where you have posted the payments. For example, you may choose Repairs and Maintenance or Accounting. You can pick multiple accounts. Hit 'Next' when you are finished.
  7. On the next page, review your contractors, the amount you paid them, and the category for each.
  8. If there are any missing vendors, click the button that says 'Add from vendor list.' It may be that the box to track 1099 payments wasn't marked, or the contractor information is missing the ID number.
  9. When all of the contractors are correct, hit 'Next.'
  10. This step is crucial as it is your last chance to ensure all of the 1099s are correct. Review the amounts to make sure they add up to any other reports. QBO filters any contractors that received less than the $600, so keep this in mind.
  11. Here is where you decide if you wish to print and mail the 1099s or allow Intuit to do them for you. If you want to send them out yourself and save a few bucks, click on 'No, I'll print and mail.' To have Intuit do the work, choose the 'Automated E-File and Delivery' box.
  12. You will receive an email when your Intuit-generated 1099s are complete.

Keep in mind that you can always see the 1099 information by going to the 'Reports' tab on the left-hand side of the QBO site. Scroll down to the 'Expenses and Vendors' section and choose the '1099 Transaction Detail Report'.

It is wise to run this report quarterly to ensure you enter all of the information correctly and promptly.


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