If your small business pays freelance or contracted nonemployees $600 or more, the IRS requires that you file 1099-NEC forms at the end of each year. This form takes the place of the previous 1099-MISC for nonemployee compensation. Using QuickBooks Online to file and distribute 1099 forms is easy and ensures the figures are correct.
The first step in tracking 1099 information is adding the vendor. Best practices require a W-9 to be completed as soon as an individual goes to work for you. You can obtain a blank W-9 by going to the IRS website and downloading the form or, even easier, using QBO to send the form to the subcontractor via email.
Adding a New Contractor
- In the left-hand side menu, hover over 'Payroll' and choose 'Contractors' from the dropdown.
- Click on the green box 'Add a Contractor' on the right-hand side.
- Fill out the form with the name and email of the new contractor. Check the box at the bottom that says 'Email this contractor to complete their profile...' and then click 'Add Contractor'.
- The contractor will receive an email with instructions on how to fill out the W-9 form.
- When the form is received, return to the 'Contractor' screen and hover over the 'Personal Details' section for the contractor. Click on the green pencil icon that appears in the right-hand corner and enter the W-9 information. Hit 'Save'.
- Above the 'Personal Details' box, you can click on the 'Documents' tab to download the W-9 to save an electronic version of the form.
Tracking 1099 Information
QuickBooks Online tracks 1099 information for you all year long. This means at the end of the year, running 1099 forms is a quick, easy task. To switch on this feature:
- Hover over 'Expenditures' in the left-hand side menu bar and choose 'Vendors'.
- Locate the vendor you want to edit and click on the name.
- Click on the tab 'Vendor Details'.
- On the far right, choose the 'Edit' box.
- In the vendor box, click the box beside the words 'Track payments for 1099'. Add the account you will be using to track the payments which is usually 'Contractor'
- Hit 'Save'.
Checking the Facts
To ensure that the amounts are correct, run a report for review.
- Hover over 'Reports' in the left-hand side menu and choose 'Reports'.
- Scroll down to the section 'Expenses and Vendors' and locate '1099 Transaction Detail Report'. Click on the three dots on the right-hand side of the report name and choose 'Customize'.
- When the customization box appears, choose the 'Report Period' from the dropdown. Click on 'Run Report'.
- The transaction detail report appears and is sorted by Vendor.
Prepare and File 1099 Forms
Once the facts are verified, you are ready to prepare and file your 1099 forms.
- Hover over 'Expenditures' in the left-hand side menu and choose 'Vendors'.
- On the vendor screen, click the white box in the top right-hand corner and choose 'Prepare 1099s' from the dropdown.
- Choose 'Let's Get Started'.
- Ensure that all the information is correct and click 'Next'.
- Choose the type of 1099 form you will need for your needs. Most of the time, it will be a 1099-NEC for non-employee compensation. You will need to choose the account where these vendors are categorized.
- Click 'Next' and verify that all of the contractor's information is correct.
- Note: If you paid your contractor through a 3rd party site like Paypal or Venmo, you are not responsible for creating the 1099 forms. This is done by the 3rd party site.
- Next, click 'e-file for me' or 'I'll file myself' to print and mail the forms.
If you choose 'e-file for me', your 1099 forms will appear. Hit 'Continue' and follow the directions on screen.
Filers receive a filing status via email or can check in the following way:
- Hover over 'Taxes' on the left-hand side menu bar and choose '1099 filings'. A list of all the 1099 forms will appear. Check the column that says 'Filing Status'.
- It will say 'Submitted' or 'Accepted'.
IRS requirements are not something you want to misunderstand. You open up risk to your business and can end up costing the business a lot of money now, or in the future.