California Independent Contractor Reporting

Beginning January 1, 2001, any California business or government entity that is required to file a Federal Form 1099 MISC must report specific information to EDD regarding the independent contractor providing services.  This requirement is the result of Senate Bill 542.  This information is to be submitted within 20 days of making payments that total $600 or entering into a contract with the independent contractor for $600 or more, whichever is earlier.  This requirement only applies to independent contractors that are individuals.  Therefore, independent contractors who are partnerships or corporations will not be affected.  For the actual form, please visit http://www.edd.ca.gov/taxrep/txicrfs.htm

As you can imagine, this can be somewhat complex and burdensome for many small business.  It is not an easy task within QuickBooks either.  As contracts for more than $600 are entered into, the easiest solution is to submit the form immediately.  For other situations where the $600 in payments threshold will be applicable, below is one alternative for tracking the information.

1. For each vendor that falls into this category, use the vendor type of "1099 contractor."
2. Also, set up a custom field for the vendor list labeled "DE 542."
3. Mark the vendor as eligible for 1099 and enter the appropriate tax identification number.
4. If a contract has been signed for more than $600, report the vendor information and update the DE 542 custom field with the year (2001 for example).
5. If a contract is not in effect, continue with the following steps.
6. Confirm that the appropriate accounts are chosen in Edit > Preferences > Tax:1099 > Company Preferences.
7. Generate the Report > Vendors and Payables > 1099 summary > change date to this fiscal year to date.
8. Create a custom report from Report > List > Vendor Phone List > Modify Report > add the column for the custom field "DE 542;" change the date to "this calendar year to date;" and filter for vendor type "1099 contractor."
9. As the vendor balance on the 1099 summary report exceeds $600, report the information as required on for DE 542 then edit the vendor to include the year that has been reported (i.e. 2001).  The customized vendor phone list serves as the master listing of who has been reported.

More information on this topic

Misc. Transactions