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Handling 1099 Sub-Contractors Through Payroll

Some companies have chosen to make deductions not only on direct employees which are handled through the Infinity POWER Payroll module, but deductions that would technically be processed on individuals that are treated as 1099 Sub-Contractors and processed through the Infinity POWER Accounts Payable module where 1099s are normally printed.

The problem arises, however, in the fact that the Accounts Payable module is only capable of reporting the "net" amount of funds that are issued to a vendor in a given calendar year.  Therefore, if a company writes checks totaling $14,000 to an individual, that is what their 1099 will report.

What if, for instance, that individual has a state requirement that every time you, as a company, write them a check, you must deduct 10% of the gross amount of the check or a fixed amount (i.e. $150)?  You could issue a credit memo to the vendor's account for this deduction, but the net amount of the check would be what would be reported on a Federal 1099 form. 

For instance, a gross $1000 check with a $100 deduction for child support would equal a $900 net check amount.  You would, as the employer, have to write a check to the sub-contractor for the $900 and a separate check to the state for the $100.  That would meet the state's requirement for collecting the child support payment but would not meet the Federal Government's requirements for what you really paid that vendor, which was $1000, not $900.

To handle both requirements properly, instead of paying this sub-contractor through the Accounts Payable module, you need to set them up as a "special" employee.  You can create a unique "Department" (assuming you have the Department feature turned on) to track these "special" types of "employees" which would easily keep them separate from your normal and regular employees or you may simply use an Employee Number that easily identifies them as a special employee.  For instance, if you started all of these kinds of Employees with the letter "Z," they would always fall at the end of your employee listings and would be easy to find.  (i.e. Z100, Z101, Z102, etc.)

There are several basic steps that you will need to configure to define an employee correctly to allow "state and federal deductions" and allow for the printing of a 1099 form from the Payroll module.  First, you will need to insure that you have the special 1099 form that has been created for the Payroll module.  This hasn't been a standard form that has been shipped with the Infinity POWER software prior to 2011.

The name of the form that is needed is PR1099.frm.  This file must reside in your program directory (i.e. c:\power).  If you do not have this form, please send an e-mail to dpasupport@dpro.com and request one be sent to you.

Next, you need to add two new Tax Tables to your existing Tax Table files.  To do this, load the Infinity POWER programs and select the Payroll module under "Systems."  Then, select the option "Set Up and Maintenance."  Next, choose the option "Set Up Tax Tables" and click on the "Add" button.


The following screen will appear:

Enter the firstTax Table Number as FED-I for the new Federal Table you are creating for "Independent Contractors." You may enter any description you want but make sure that you define no dollar amounts for tax rates and that you do not click on any of the options to adjust FIT, FICA or SIT.  Enter your "Suspense" account number for the GL Unemployment Accounts and Accruals since the system will be looking for a valid GL Account Number.  When you are done, your screens should look like the following:

When you click on the "Details" button, enter no information on the following screen.

Save the Federal Table and do the same thing to create a second table for your STATE Tax Table.  You can name this Table to match your state that you are residing in.  If you are in Florida, for example, name the Table "FL-I" to keep your naming structure consistent.  Every employee has to have one Federal and one State Tax Table assigned to them.  You do not want to use the regular Federal and State Tax Tables for this procedure.

If you follow the earlier procedures for creating a Federal Table, your state Tax Table should look like the following two screens:

When you click on the "Details" button, enter no information on the following screen.

The next step is to create the Special Pay Types for the "Earnings" amounts that the sub-contractor will be paid and the special "Deduction" codes that must be deducted from their check.  These might include "Child Support" payments to the state or "IRS Garnishments" as good examples.

To do this, select the Payroll module under "Systems."  Then, select the option "Set Up and Maintenance."  Next, choose the option "Set Up Special Pay Types" and click on the "Add" button.

The following screen will appear:

You can set up as many of these special pay types for earnings as you desire.  You can also name them whatever makes sense for your organization.  Remember to change the "Type" to Earning.  Then, click "OFF" all of the adjustments to FIT Wages, Social Security Wages, Medicare Wages and all of the rest down the left side of the screen.  You don't want any of the dollar amounts being affected.

Keep it as a "Normal Earning and Deduction" under the "W-2 Form Status" and as far as the General Ledger Account goes, make sure that you are allocating the expense to the proper account number that you want to charge for this specific individual.  By clicking the "down arrow" button, you may scroll through your entire General Ledger chart of accounts to review the accounts and select the account that is most appropriate for this person.

If you have defined "Departments" and want to allocate this expense to a Department, you may also set up the department on this screen as well.  Click on "Save" to complete the set up of this Earning code and repeat as often as necessary.

Next, you will define the "Deduction" Special Pay Types.  Using the same menu option, add another special pay type.  However, this time when you select the type, choosed "Deduction" instead of "Earning" as seen on the following screen.

Notice again that none of the Adjust FIT Wages or any of the other options on the left side of the screen are clicked on.  Set the "W-2 Form Status" to "Normal Earnings and Deductions" and define the General Ledger account to be a liability account that you will pay the funds to that you are deducting from the Employee/Sub-Contractor's checks.  In this case, it would be the State of Florida for Child Support Payments.

Click to "Save" this Deduction and continue to add any other types of deductions that may be necessary.

Once all of the Earnings and Deductions Special Pay Types have been created, you can now go to the Payroll option "Set Up and Maintenance," and then "Set Up Employees."  Add the employee(s) that need to be processed through the Payroll module because they have a 1099 status but have garnishments that need to be deducted from the checks that are issued to them.

The following screens illustrate how you would normally set up a regular employee, but using the special Tax Tables defined earlier and the special Pay Types you have created for this purpose. 

Following the normal steps defined in the Payroll Manual for "Setting Up Employees" on all fields except for the changes defined in this special section. Standard fields will still be completed in the same manner as shown below.  Notice in this example, we simply used a special employee number of "Z-101" to separate these kinds of employees from the rest of our standard employees.

When you click on the "Tax Table" button, the following screen will appear.  Make sure to define the special Federal and State table defined in this section for the employee.


Click "Save" to keep this information on this employee's record.  Next, click on the "Pay Types" button to apply any deductions that should be taken each time a check is issue to this sub-contractor/employee.

There are several ways to configure a recurring Special Pay Type for Employees.  This is covered in more detail in the manual under the section under the "Set Up Employees."  If you simply have a fixed amount to deduct each time you issue a check to this sub-contractor/employee, follow the steps shown in the screen above.  Click the box for "Permanent" to be on, make the type of deduction to be "Fixed" and enter the amount to be deducted each pay cycle as shown.  Then, enter the "Maximum Amount Per Check" to be deducted, the "Maximum Amount of Money" to be deducted within the year, and what the starting remaining balance is for any count down purposes, if known.  Click to "Save" this screen when done.


Make sure you have completed the minimum amount of entry under the "Personnel" button as shown below. 

You must enter a "Birth Date" and enter whether they are an "Hourly" or "Salary" employee and define their "Base Rate of Pay."  Select their Pay Cycle from the pull down menu.  The two most important options that you MUST click on are on the bottom right of the screen which are the "Exempt Social Security" and "Exempt Medicare" options.  Otherwise, when you run a pay cycle, the system will attempt to deduct FICA and Medi-wages from each check.  The rest of the information is optional. Click to "Save" the information on this screen.

Finally, you must enter their information to be printed on a W-2 even though it will ultimately be on a 1099 form by clicking on the "W-2" button.  The system will not print the information at all if these fields are not completed.  Click to "Save" this screen.

Once all the information for the sub-contractor/employee has been entered, click to "Save" the compilation of data.

In the next phase, you can use any of the standard options to make Payroll runs and issue checks.  Most likely, since this is a sub-contractor, they may not be paid on a consistent schedule as is normally the case with most employees.  If so, then the most convenient option for paying these individuals is to use the "Write Single Check" menu option.


Once you have selected the sub-contractor/employee, you may keep the default pay data you have defined for them or override their hours and/or the Pay Types by clicking on either button. Notice on the following screen how there are not deductions from the gross amount of wages other than the $150 Child Support Deduction.  There are no deductions for Federal Taxes, FICA or Medicare.

Throughout the year, you may continue run checks for these kinds of vendors as frequently as desired.  At the end of the year, when a 1099 is needed for printing, you would follow these steps.

Select the Payroll module from the "Systems" menu option and choose "Reports."  Next, select "Tax," "W-2" to get to the point of printing a tax form.  Although you need a 1099 for this sub-contractor, you will still use the W-2 Printing menu option to get what you need.  As stated at the beginning of this section, you MUST have the form file "PR1099.frm" loaded on your system for you to print the 1099 MISC form that you will need.  The standard form file form Accounts Payable will not work for this option.

When you select this option, the following screen will appear:

Select the Beginning and Ending Sub-Contractor/Employee for which you need to print a 1099 form. Click on the "Start" button.  The following screen will appear:

Where the default form is "W-2," in the "Suggested Form box, enter the number 1099.  This tells the system to use the form file PR1099.frm instead.  This is how you will get your 1099 form from the Payroll module.  You may order your standard Tax Forms each year from the only approved supplier of business forms for Data Pro Accounting Software at DPA Forms at 800-660-8605 or www.dpaforms.com.



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Last Updated
11th o January, 2011

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