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| Set Up Your Subcontractors in QuickBooks
Few contracting businesses will succeed without an accurate, efficient subcontractor accounting system. That's where QuickBooks comes in: giving your business the tools to manage your subcontractor relationships. QuickBooks lets you:
- Accurately bill customers for subcontractors' work, including adding markups
- Pay subcontractors on time and the correct amounts
- Precisely track job costs and keep good tax records
Before you can do all of that, however, you first need to set up your subcontractors in QuickBooks. Future articles in this series will cover subcontractor invoicing, time tracking, and purchase orders.
Create Subcontractors as Vendors
QuickBooks treats subcontractors like other vendors created in your Vendor list. The Vendor list stores information about the people and companies you do business with, such as the phone company, roofers, or your tax board.
1099 vs. non-1099 subcontractors
QuickBooks divides subcontractors into 1099 independent contractors and non-1099 contractors. Generally speaking, the IRS requires you to send 1099-MISC forms to unincorporated subcontractors — including sole proprietors and partnerships — paid more than a specific amount per year, currently pegged at $600. Incorporated subcontractors, in contrast, do not receive a 1099-MISC form.
QuickBooks tracks all 1099-related payments. At year's end QuickBooks can prepare a summary of and print the 1099-MISC and 1096 forms (the summary of all 1099 forms).
Quick Tip: IRS 1099-MISC instructions and form
For more on 1099-MISC requirements and instructions, see the Internal Revenue Service's:
2005 Form 1099-MISC
An Example
For example, in January you paid Jeremy Sanchez — an electrician who works for himself as a sole proprietor — $2,500 for work done on a house. You also paid Johnson Brothers Plumbing Inc. $5,000 for work on the same project. In this example you'd create Sanchez as a 1099 vendor in your Vendor list while making Johnson Brothers Plumbing Inc. a regular vendor.
Add 1099 Subcontractor
Creating 1099 subcontractors in QuickBooks follows a three-step process:
Set up QuickBooks for 1099 Tracking
If you haven't already done so, enable 1099 tracking in QuickBooks:
- From the Edit menu, choose Preferences, and then select Tax: 1099 from the list on the left.
- Under the Company Preferences tab, select Yes for "Do you file 1099-MISC forms?"
- Link the 1099 categories you report to the IRS to the QuickBooks accounts you track them in, and then click OK. (For more on 1099 categories, read "1099 categories" in your QuickBooks Help file.)
- Set up the appropriate vendors to be eligible for receiving 1099-MISC forms.
Add an Independent Subcontractor to the Vendor List
Adding a 1099 subcontractor to your Vendor list is easy: first add them as a vendor, then make them a 1099 vendor.
- From the Lists menu, choose Vendor List.
- From the Vendor menu button, choose New.
- In the Vendor field, enter the name of the subcontractor as you'd like it to appear on your Vendor list. For example, if the vendor is an individual and you list individuals by last name first, that's how you should enter the name.
- If you have an outstanding balance for money you owe to this subcontractor, enter the Opening balance and "as of" information.
- Enter the information requested on the Address Info tab and the Additional Info tab.
- (Optional) Click Next to save the vendor information and enter another subcontractor's name.
- Click OK to save the vendor information and close the window.
Make the Subcontractor a 1099 Vendor
After adding the 1099 subcontractor to your Vendor list, you next designate them as a 1099 vendor in QuickBooks.
- From the Vendors menu, choose Vendor List.
- Select the subcontractor for whom you want to file 1099-MISC forms.
- Choose Edit from the Vendor menu button.
- On the Address Info tab, make sure:
- The subcontractor's legal name appears in the First Name, M.I., and Last Name fields.
- The subcontractor's address contains the two-letter state abbreviation and the zip code.
- Click the Additional Info tab.
- Enter the subcontractor's tax ID number. If the subcontractor is a sole proprietor, enter the subcontractor's Social Security number. Otherwise, enter the subcontractor's nine-digit tax identification number.
- Select the "Vendor eligible for 1099" checkbox.
- Click OK.
Quick Tip: QuickBooks 1099 Features
Each time you make a payment to a 1099 subcontractor, QuickBooks automatically adds the amount to the total you must report on the subcontractor's 1099-MISC form. You can view your 1099-related payments by creating 1099 reports. After verifying that the reports include the right subcontractor and cover the right accounts, you can print 1099-MISC forms for your subcontractor on preprinted forms designed for your printer.
Add a Non-1099 Subcontractor
For subcontractors who do not require 1099-MISC forms, add them to the Vendor list at any time.
- From the Lists menu, choose Vendor List.
- From the Vendor menu button, choose New.
- In the Vendor field, enter the name of the subcontractor as you'd like it to appear on your Vendor list. For example, if the subcontractor is an individual and you list individuals by last name first, that's how you should enter the name.
- If you have an outstanding balance for money that you owe to this subcontractor, enter the Opening balance and "as of" information.
- Enter the information requested on the Address Info tab and the Additional Info tab.
- (Optional) Click Next to save the subcontractor information and enter another subcontractor name.
- Click OK to save the subcontractor information and close the window.
That's all there is to it. Next time you will learn to track work performed by subcontractors who submit invoices.
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