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Before Payroll Part 8: Setting up Independent Contractors in QuickBooks

Two weeks ago I shared with you how to set up employees in QuickBooks, but what if you have 1099 independent contractors? Last week discussed how you determine if a worker is a 1099 independent contractor or an employee? Today I would like to go into how you go about setting up independent contractors in QuickBooks. Before I do begin, I would like to let you know how and why this falls under employees and payroll on this blog. The reason is that often times both employees and contractors are paid on the same payroll schedule and are sometimes paid by direct deposit with the employees. Not only this, but when you bring a person on with your company, you need to know if they are an employee or a contractor and set them up as such. With my last few articles being about setting up employees and determining whether a worker is a contractor or employee, this is the next step in this series to let you know how to go about setting up 1099 contractors in QuickBooks.

Collecting the W-9

The first thing you will need to do is collect the W-9 from the independent contractor. To find this form, you can go to the Tools & Resources page at the top of the page, or refer back to my last article in this series. This form will provide you with the information you need to correctly enter their information into QuickBooks. On this form, note the name, business name, entity, address, and taxpayer identification number fields.

IRS Form W-9

You will use all of the information provided here, but I would like you to reference the entity section in this form where it states “check appropriate box for federal tax classification.” If the contractor checks C Corporation, S Corporation, of LLC as a C or S Corporation, or if they selected “Exempt Payee,” you are not required to file form 1099-MISC for these entities, and can set them up as regular vendors or other names in QuickBooks and not read further (I do like to include “Inc.” to their name so that I remember I don’t need to send them a 1099 when I review this at the end of the year). Any other entities and you should continue. If you are required to file any 1099 forms other than 1099-MISC or with Trusts and Estates, this goes beyond the scope of what I am sharing here and you should consult further with your Accountant for these situations.

Setting up Independent Contractors in QuickBooks

So you have their information – now you need to set them up in QuickBooks. First, you will need to go to the Vendor Center by clicking the icon or going to Vendors –> Vendor Center. Once there, click on New Vendor –> New Vendor. Fill in the information on the Address Info tab as you see it on the W-9.

Vendor Setup

If the contractor included a business name and their personal name, include both in QuickBooks. When you file their 1099, you will need this information to populate when you process these forms.

Additional Info

The next tab is Additional Info, and you will need to make sure and fill this section in correctly as it will determine their 1099 mapping in QuickBooks.

Additional Info Tab

If they included both their SSN and EIN (they shouldn’t have, but some do), you will want to put the EIN only as the IRS will track this information correctly to them this way. If their business is a partnership and they only included their SSN, check with them to find out their EIN as their SSN will link it to only one owner and not to the business itself. If this is an individual/sole proprietor, they will put their SSN in this field. If this is the case, make sure and enter the dashes in correctly (XXX-XX-XXXX) in the Tax ID as this will default to the EIN setup (XX-XXXXXXX).

Ensure you check the “Vendor eligible for 1099″ box. This will link the vendor to QuickBooks’ 1099 reports under Reports –> Vendors& Payables –> 1099 Summary (you will need to select the current year).

1099 Reports

I will go into greater detail about setting up vendors in another post when I cover Accounts Payable, so I will leave it at this for now.

Wrapping up…

I will follow this article up next week with how to set up 1099 account mapping in your QuickBooks file as this is an important component you will need to set in place to track your contractors and 1099 obligations to prepare for the end of the year. The worst thing is to get to the end of January and have to make a dozen phone calls to vendors to get their information right!

Once again, I hope this has helped you set up and run your business more efficiently and that you have taken away some valuable information. Let me know if you have any questions!

Keep Reaching!

Mark

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