Most people know they have to give independent contractors a 1099. Here are some other expenses eligible for a 1099: Interest paid on loans, rent, and household employees. A W-9 should be collected before paying these expenses.
Without a W-9 on file, you are obligated to retain 28% of payments to vendors and send the withholding to the Feds.
1. Review all expense accounts that are likely to have 1099 eligible vendors.
2. Ensure all eligible vendors are flagged for 1099s: Go to Vendor Center > Edit vendor > See checkbox Eligible for 1099.
3. Run a 1099 summary report for the current year. Ignore thresholds. If you do not have accounts mapped to 1099 boxes yet, choose show all accounts. This report will show you which vendors are missing a tax ID number. Request W-9s from these vendors.
4. When you receive the W-9s back, follow the directions for 1099s for eligibility. If a vendor is not eligible for a 1099 (corporations and non-profits for instance) uncheck the ‘eligible for 1099’ box in the vendor set up. Create a vendor type called ‘Corp – No 1099’ or similar.
You can create a custom report in QuickBooks for Corp – No 1099 vendors. This will help remind you why some vendors are not on the 1099 summary list.
You need the W-9 data on hand to create 1099s. If you have not collected W-9s before payment was made, make sure you collect them before year end.
Send out requests for a completed W-9 to all vendors who are subject to 1099 rules. Remember to include a deadline in your request, such as 1 week from date of request, to ensure you collect all your W-9s before 1099s are due.
If you send requests via paper mail, you may want to include a self addressed stamped envelope to encourage quick replies.
If you send requests via email, ensure you provide vendors with the option to send forms back via paper mail. Include your address in the email in an easy to cut & paste format.
Create Good Practices
Create an on-boarding process for vendors. Ensure you do not have to work hard at the end of the year and/or in January. Create a process to collect W-9s as soon as you start a relationship with a new vendor. Do not pay until you have a W-9 in hand.
Work with your lawyer to create solid contractor agreements for your subcontractors. Do they need liability insurance? Certifications? Confidentiality and non-disclosure agreements? All of these things along with the W-9 should be part of your vendor on-boarding process.