Send 1099s from your QuickBooks Online

In this page you can learn the essentials about form 1099s and how to send them using your QuickBooks Online account

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Introduction to Form 1099 NEC and MISC For Contractors in California

As tax season approaches, small businesses and individuals face the annual challenge of managing their finances and ensuring tax compliance. In today’s fast-paced world, leveraging technology like QuickBooks Online can simplify this daunting task. In this guide, we’ll explore an example for a contractor in Santa Barbara who uses QuickBooks Online for their bookkeeping.

In September of 2019, Governor Newsom signed Assembly Bill (AB) 5 into law. The new law addresses the “employment status” of workers when the hiring entity claims the worker is an independent contractor and not an employee.
1.Q.What is AB 5 and what does it do?
 A.AB 5 is a bill the Governor signed into law in September 2019 addressing employment status when a hiring entity claims that the person it hired is an independent contractor. AB 5 requires the application of the “ABC test” to determine if workers in California are employees or independent contractors for purposes of the Labor Code, the Unemployment Insurance Code, and the Industrial Welfare Commission (IWC) wage orders. The California Supreme Court first adopted the ABC test in Dynamex Operations West, Inc. v. Superior Court (2018) 4 Cal.5th 903. Among other things, AB 5 and later AB 2257 added a new article to the Labor Code addressing these issues (sections 2775-2787).

2.Q.What is the ABC test?
 A.Under the ABC test, a worker is considered an employee and not an independent contractor, unless the hiring entity satisfies all three of the following conditions:
  • The worker is free from the control and direction of the hiring entity in connection with the performance of the work, both under the contract for the performance of the work and in fact;
  • The worker performs work that is outside the usual course of the hiring entity’s business; and
  • The worker is customarily engaged in an independently established trade, occupation, or business of the same nature as that involved in the work performed.

This form is traditionally used for reporting miscellaneous income. It covers a variety of payments made in the course of a business, such as rent, prizes, awards, and other types of income that do not fall under non-employee compensation.

File Form 1099-MISC for each person to whom you have paid during the year:

  • At least $10 in royalties or broker payments in lieu of dividends or tax-exempt interest.
  • At least $600 in:
    • Rents.
    • Prizes and awards.
    • Other income payments.
    • Medical and health care payments.
    • Crop insurance proceeds.
    • Cash payments for fish (or other aquatic life) you purchase from anyone engaged in the trade or business of catching fish.
    • Generally, the cash paid from a notional principal contract to an individual, partnership, or estate.
    • Payments to an attorney.
    • Any fishing boat proceeds.

In addition, use Form 1099-MISC to report that you made direct sales of at least $5,000 of consumer products to a buyer for resale anywhere other than a permanent retail establishment.

Introduced more recently, the 1099-NEC form is specifically designed to report non-employee compensation. This is particularly relevant for businesses that hire freelancers, independent contractors, or any service providers who are not on their payroll but have been paid $600 or more over the financial year. This includes all the payments paid during the year. You are responsible for gathering their tax information needed for 1099 prior to giving the non-employee their payments.

QuickBooks simplifies the process of managing these forms. It allows you to track payments to contractors throughout the year, ensuring that you’re prepared when it’s time to issue 1099 forms. QuickBooks can also help categorize different types of payments, making it easier to determine whether a payment falls under the 1099-MISC or 1099-NEC category.

You are not required to file information return(s) if any of the following situations apply:

  • You are not engaged in a trade or business.
  • You are engaged in a trade or business and
    • the payment was made to another business that is incorporated, but was not for medical or legal services or
    • the sum of all payments made to the person or unincorporated business is less than $600 in one tax year

If, as part of your trade or business, you made any of the following types of payments, use the link to be directed to information on filing the appropriate information return.

  • For each person to whom you have paid at least $600 for the following during the year (Form 1099-NEC):
    • Services performed by someone who is not your employee (including parts and materials)
    • Cash payments for fish (or other aquatic life) you purchase from anyone engaged in the trade or business of catching fish
    • Payments to attorneys (including law firms or other providers of legal services)

When are 1099s due?

They are due Jan 31st, but if you find any 1099s that you should have sent out and you missed the deadline, file them as soon as you can and request the penalty to be removed. 

You must report independent contractor information to the EDD within 20 days of either making payments totaling $600 or more or entering into a contract for $600 or more with an independent contractor in any calendar year, whichever is earlier. 

EDD Reporting Requirement

Businesses and government entities (defined as a “service-recipient”) are required to report specific information to the Employment Development Department (EDD) on independent contractors (defined as a “service-provider”). The information provided is used to locate parents who are delinquent in their child support obligations.

You are required to report independent contractor information if you pay compensation or enter into a contract with an independent contractor and the following statements all apply:

  • You are required to file a federal Nonemployee Compensation (Form 1099-NEC) or a Miscellaneous Information (Form 1099-MISC) for the services performed by the independent contractor.
  • You pay the independent contractor $600 or more or enter into a contract for $600 or more.
  • The independent contractor is an individual/sole proprietor or single-member LLC. Link to EDD website
Identifying and timely filing the essential forms in California is a never ending puzzle every contractor faces

Common Questions

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