How to Pay Independent Contractors with Direct Deposit in QuickBooks

Published 01/25/2010 |

For one of my clients, we have a few contractors which I pay every other week a check to for their services. I was wondering if I could pay them through Direct Deposit. In talking with a friend of mine about this subject, I tested my theory by paying me my fee using DD last week and it seemed to work okay. What I did was setup me up as an employee and unchecked all of the taxes, i.e., Medicare, Social Security, and FUTA, and selected "No withholdings" for Federal and State taxes. Is this the correct way of doing the contractors? It seemed to work for me on my check last week. The money made it to my account okay. Thanks for your help.

As you've discovered, it is possible to remove all payroll tax deductions from a paycheck. However, the payment information will transfer over to your payroll tax forms and cause errors. Even more importantly, QuickBooks will generate a W-2 instead of a 1099 for them. Definitely not a good idea.

I recommend switching to Intuit Online Payroll, which allows you to pay your contractors with direct deposit without affecting your payroll tax forms. We offer it for only $25.99/mth for up to 10 employees/contractors, and you can try it out for free until April 2010. We also offer 1099 efile for only $25 for up to 50 forms. Call us at 800-707-0940 for more information.

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Ruth Perryman - QuickBooks Specialist Written by +Ruth Perryman, CMA, CFE, CFM, MBA

Ruth is the president of The QB Specialists, Inc. and has provided QuickBooks help to thousands of businesses around the world since 1996. She is an Intuit Solutions Provider, an Advanced Certified QuickBooks ProAdvisor, and a member of the Intuit Trainer/Writer Network. She is also certified in QuickBooks Point of Sale and QuickBooks Enterprise Solutions.

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