Working with independent contractors in your business? QuickBooks Online simplifies the process of paying them.
Paying independent contractors through QuickBooks Online can be a smart, cost-effective way to streamline your business’s finances! This post will walk you through how QuickBooks Online manages contractor payments, from direct deposit options to issuing checks and filing 1099-NECs with ease. You'll learn about the tools available to keep everything organized and compliant with IRS reporting requirements.
But before we dive in, there’s something you should keep in mind: classifying a worker as an independent contractor isn't just a business choice—this distinction is determined by the IRS! They use specific criteria to differentiate between independent contractors and employees, looking at things like how much control you have over their work and the financial relationship between you. And yes, the IRS is serious about this because proper classification ensures that taxes are correctly paid, and workers receive the protections they deserve if they should be classified as employees. Missteps here can lead to some pretty hefty penalties, so it's worth getting right!
Will it cost me more to pay independent contractors via QuickBooks Online?
If you’re only paying independent contractors (as opposed to also paying employees), you can use QuickBooks Online’s built-in tools that allow you to issue paper checks to them. But you’ll need add-on capabilities if you, for example, want to pay by direct deposit or have QuickBooks e-file 1099-NECs for you. These simplifications come with additional monthly fees, and we can help you get them set up.
How does QuickBooks Online track information about contractors?
QuickBooks Online walks you through the process of creating individual records for contractors. Click Expenses in the toolbar and select Contractors. Click Add a contractor. A window opens containing fields for the contractor’s name and email address. Enter them, then check the box below it. QuickBooks Online will send an email to the individual, inviting him or her to set up an Intuit account (or sign into an existing one). Click Add contractor.
You can invite contractors to complete their personal profiles.
QuickBooks Online then walks the contractor through the process of completing the personal profile, including contact information, business type, and Social Security number, which will be used to create a Form W-9, a document required by the IRS. When the contractor finishes it, she’ll be able to digitally sign it, and you’ll be notified that the task is done.
How Do You Pay Contractors?
Unless you subscribe to QuickBooks Contractor Payments and can set up direct deposit, your options for paying contractors will be limited. You can write a check, create an expense, or enter a bill from the Contractors “homepage.” Hover over Expenses in the toolbar again and click Contractors, then select your option from the dropdown list at the end of each row.
Or, from this same page, click Pay contractors. The page that opens displays a list of your contractors in a table. Select the bank account you’ll be using from the drop-down list in the upper left. Click the box in front of the name of each contractor you want to pay to open its details window. Since you haven’t set up direct deposit yet, your only option here is to create and print paper checks. Enter the Check number under Payment Method and complete the rest of the fields here.
Can I see how much I’m paying contractors?
Yes, you can. Click Reports in the toolbar and scroll down to What you owe. There are two reports here that you can customize and run: 1099 Contractor Balance Detail and 1099 Contractor Balance Summary. You can also run Contractor Payments (under Payroll) to see what payments you’ve made to contractors.
Can I create and file Form 1099-NECs for my independent contractors?
Not only can you do so, but you must also submit Form 1099-NECs for independent contractors for whom you’ve paid $600 or more during the tax year. And if they’re not filled out correctly, you could face penalties from the IRS. Also, your contractors depend on you to complete this step because they must report their income to the IRS.
If you pay an independent contractor $600 or more in a tax year, you must send a Form 1099-NEC.
You’ll get the information you need from two places: the Form W-9 that the contractor supplied prior to being paid for the first time and the total compensation paid from your QuickBooks Online files. In 2024, you can (and should) be submitting your 1099s electronically, and QuickBooks allows you to do this.
How to File Form 1099-NECs Using QuickBooks Online:
Prepare Your Information: Before you start, make sure each of your contractors has submitted a completed Form W-9. QuickBooks Online will use the information from the W-9 to populate the 1099s.
Navigate to the 1099 Filing Feature: In QuickBooks Online, go to the Payroll menu and select Contractors. From here, click on Prepare 1099s.
Review Contractor Information: QuickBooks Online will display the list of contractors and the amounts paid to each throughout the year. Double-check that each contractor's details—such as name, address, and Social Security Number—are accurate.
Map Your Accounts: QuickBooks will ask you to map the payments made to contractors to the appropriate boxes on the 1099-NEC. This ensures that payments are reported correctly.
E-File or Print: Once you’ve reviewed the details, you have two options:
E-File: Select the e-file option to have QuickBooks Online file the 1099-NECs directly with the IRS. This option also allows you to email copies to your contractors.
Confirm and Submit: If you choose to e-file, follow the prompts to submit your 1099-NECs. QuickBooks will guide you through the process, and you’ll receive confirmation when the forms have been filed.
A Complicated Chore
Managing payments for independent contractors in QuickBooks Online can save you time and help keep your records organized, but it’s crucial to understand the ins and outs of the process. From setting up contractors correctly to ensuring you’re filing 1099-NECs accurately, every step is important for staying compliant with IRS requirements and avoiding potential penalties. By following the steps outlined above, you can simplify the process and focus on what you do best—running your business. And if you ever need a hand with setting up or managing these details, don’t hesitate to reach out for expert guidance. We’re here to make sure your contractor payments go smoothly, so you can rest easy during tax season!
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