If you are an owner of a business and have hired a subcontractor for some specific services, then you may or may not require withholding the federal income taxes from the payment. It depends on two situations:
- Usually, the subcontractors are responsible to pay their taxes at their levels. In that case, you don’t need to withhold the taxes in the payment.
- But in situations where the IRS notifies you to withhold the taxes, in that case, you will need to withhold the federal income taxes from the payment.
In this article, we will inform you of all the steps that are required to do so. So let us begin:
Book withholding tax in QuickBooks
Please follow the below-mentioned steps carefully:
- Open QuickBooks on your computer.
- In the menu bar please go to ‘Lists’ option.
- From the drop-down list, please select ‘Chart of Accounts’ option.
- Click on the option that says – ‘Account.’ You can find it at the bottom left of the window.
- You will now see a pop- up menu. Please select ‘New.’
- A new window titles- ‘Add New Account’ will open.
- From the drop-down box please click on ‘Other Account Types.’
- Then choose ‘Other Current Liability’ option.
- Select the ‘Continue’ button.
- In the ‘Name’ box please type- ‘Backup Withholding.’
- Click on ‘Save’ button.
- Click on ‘Close’ button.
- Now in the menu bar please click on ‘Edit’ option.
- From the drop-down list please choose ‘Preference.’
- Look for the option that says- ‘Tax 1099’ from the left column of the window.
- Select ‘Company Preference’ tab.
- Choose- ‘Box 4: Federal Tax Withheld.’
- Select ‘Account.’
- Now you need to choose ‘Backup Withholding’ option from the drop-down list.
- Now please click on- ‘Box 7: Non- employee Compensation’ option.
- Here in the ‘Account’ drop-down list, you need to choose the account you use to pay 1099 subcontractors.
- Select ‘OK’, this will save the changes which you just made.
How to enter the ‘Withholding Amount’
- Select ‘Banking’ from the menu bar.
- Click on ‘Write Checks.’
- In the Checks windows select ‘Expenses’ option.
- Click on the down-arrow in 1st line of the ‘Account’ column.
- Chose the account that use to pay subcontractors.
- Enter gross payment amount in the ‘Account’ column.
- Click on the drop-down arrow on the 2nd line of ‘Account’
- Click on ‘Backup Withholding’
- Feed the withholding amount in the ‘Account’ column as a negative amount.
- Fill the other required details like the date and the name of the subcontractor.
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