Managing Employees and 1099 Contractors in QuickBooks Online

Managing payroll is one of the most important aspects of your business. If not done right, it could negatively impact your employees since they may not be paid the right amount. It could also result in interest and penalties if payroll taxes are not filed and paid on time.

There are four main aspects of managing payroll: setting up your employees with the proper deductions and benefit elections, processing payroll by ensuring the hours paid are correct and on time, generating payroll reports to gain an insight into total payroll costs, and filing payroll tax forms and making payments on time. In this chapter, we will cover the information required to properly set up payroll, how to subscribe to an Intuit payroll subscription, payroll reports that will provide you with insight into payroll costs, and the importance of filing payroll tax forms and making payments on time.

If you do not understand how payroll works...

Setting up payroll

The most important aspect of ensuring an accurate payroll is to set up the payroll properly before you run your first payroll. Setting up a payroll involves gathering information about your employees, such as their names, mailing addresses, and Social Security numbers. As an employer, you will need a federal tax ID number and a business bank account for payroll checks and payroll taxes. You will need to determine what benefits you will offer employees, how often you will pay employees (for example, weekly, bi-weekly, or monthly), and the payment method you will use (for example, paper check or direct deposit).

Pro Tip: It is best practice to manage payroll out of a separate checking account from all other operating expenses. That way, you ensure the funds for the payroll taxes remain in the account until you remit payment to the state and federal government.

In the following sections, we will provide you with a checklist of information you need...

Generating payroll reports

By now, you know that QBO includes a library of preset reports that provide business owners with insights into every aspect of their business. There are several summary and detailed reports you can generate to gain insight into your payroll costs, payroll deductions and contributions, vacation and sick leave, and payroll taxes. If you have the Core plan, these reports will help you to complete payroll tax forms and make payroll tax payments to the local tax authorities.

Pro Tip: It’s important to note that if you have not signed up for a payroll subscription plan, you will not see the payroll reports covered in this chapter. These reports are only available to payroll subscribers.

Follow these steps to generate payroll reports:

1. Click on Reports on the left navigation bar, as indicated in Figure 14.4:

Figure 14.4: Navigating to the Reports Center

2. Scroll down to the Payroll section and you will...

Filing payroll tax forms and payments

Employers are required to file payroll tax forms and make payroll tax payments at both the federal, state, and sometimes local levels. The due dates will vary by employer and are generally based on the dollar amount of the payroll and other factors specific to your business. The good news is that all QBO Payroll plans will take care of calculating, paying, and filing payroll taxes at the state and federal levels. As discussed, the Core plan is the only one that does not automatically take care of the local tax authority.

There are a few key reports that you should generate to help you understand the total cost of payroll to your business. These reports are also shown in Figure 14.5:

• Payroll Tax Liability: This report provides you with the details of how much payroll tax you are required to pay and how much you have already paid to state and federal tax authorities for a specified period of time.
• Payroll Tax Payments: This...

Managing 1099 contractors in QuickBooks Online

If you hire an individual to perform services for your business and they are not an employee, they are considered an independent contractor, also known as a 1099 contractor. Payments to 1099 contractors must be tracked so that you can report this information to the IRS at the end of the year.

To ensure payments are tracked properly, you will need to set up contractors in QuickBooks, add an account to post all payments to, pay contractors with a paper check (or an electronic fund transfer (EFT), or debit/credit card), and provide a 1099 form to all the contractors who meet the threshold at the end of the year. If the total payments to a contractor equal $600 or more, you must issue a 1099 form and report this information to the IRS. Failure to track and report payments to 1099 contractors could lead to penalties and fines.

Pro Tip: To determine what constitutes a 1099 vendor vs an employee, be sure to visit http://irs.gov...

Setting up 1099 contractors

It’s important to set up 1099 contractors correctly in QuickBooks to ensure payments are tracked for 1099 reporting purposes. Within the last year, there have been significant improvements made in QBO to streamline the process of setting up and tracking payments to 1099 contractors. In previous years, you would have to set up a contractor in the Vendor Center and flag the vendor as a 1099 contractor. In the most recent version of QBO, there is now a Contractors Center that allows you to collect the information normally provided on a W-9 form electronically. A W-9 form is similar to a W-4 form for an employee. It includes the vendor’s name, mailing address, business entity type (sole proprietor, partnership, S-Corp, or C-Corp), tax ID number, and signature.

To set up a new contractor, you simply send an invitation to them, which requires them to create a user ID and password. Once they do so, they can complete the W-9 form online. Once...

Tracking and paying 1099 contractors

The simplest way to keep track of payments to 1099 vendors is to create an account called Contractor labor expense. This account should be added to your chart of accounts list and used to post all 1099 payments. For more information on adding accounts to the chart of accounts, refer to Chapter 4, Customizing QuickBooks for Your Business.

You can pay 1099 contractors within the Contractors Center. Follow the steps below to set up a payment to a contractor:

1. Navigate to the Contractors Center (Payroll | Contractors).
2. The following screen will display:

Figure 14.11: Paying contractors within the Contractors Center

3. In the far right column, click on the arrow to select the payment method (Pay with direct deposit, Write check, Create expense, or Create bill). Please note that if you would like to pay contractors with direct deposit, you will need to enter their payment details (bank account and bank routing...

1099 year-end reporting

1099 year-end reporting consists of printing and mailing 1099 forms to contractors who meet the $600 threshold and reporting this information to the IRS by January 31^st each year.

This date is subject to change, so be sure to visit http://irs.gov each year to confirm the due date. Similar to a W2 form or Wage and Tax Statement for an employee that includes the amount paid in wages for a calendar year, the 1099 form includes the amount you have paid to a contractor within the calendar year.

This form is used by independent contractors to report their earnings for the year on their tax returns. Failure to provide this information to the IRS and the contractors could result in fines and penalties.

When you are ready to generate 1099 forms, the process is very simple. First, you review the accuracy of your information and the basic contact information for each contractor. Then, you review the payments that have been flagged as 1099 payments. If this...

Summary

To recap, you now know what information is required to set up employees, and what payroll reports are available so that you can gain insight into your total payroll costs, and we discussed the importance of filing payroll tax forms and submitting payroll tax payments on time. Be sure to consult with a CPA, HR professional, or payroll expert to ensure payroll is set up properly. Otherwise, you run the risk of encountering errors, which could result in steep penalties.

In addition to payroll, we have also discussed how to set up 1099 contractors in QuickBooks, how to track payments that have been made to 1099 contractors, the various ways you can pay 1099 contractors, and how to report and file 1099 forms at the end of the year. If you hire individuals such as an attorney or a bookkeeper to provide services to your business, you now know how to set them up in QuickBooks and track payments that are made to them throughout the year. You also know that the threshold for reporting...