Thanks for getting back to us, @khite. 

You can set up your contract employee as a vendor. Then, create an Other Current Liability account to track the money you paid for state taxes when creating a check. However, I'd still suggest consulting your accountant to confirm which account you'll use to ensure your books and taxes are accurate. 

Here's how to add an account: 

1. Go to the Lists menu at the top. 
2. Select Chart of Accounts. 
3. Choose the Chart of Accounts button at the bottom, then click New. 
4. Under the Other Account Types drop-down, choose Other Current Liability account. 
5. Click Continue. 
6. Enter the Account Name and other details. 
7. Add an Opening Balance if applicable.
8. Click Save & Close. 

You can check out this article for more information: Chart of Accounts. 

Then, make sure to turn on the 1099-MISC feature by performing the steps provided by JonPril_L above. Once done, you can set him/her up as a vendor. Here's how: 

1. Go to the Vendors menu at the top. 
2. Select Vendor Center. 
3. Choose the New Vendor drop-down arrow, then click New Vendor.
4. Enter the vendor's name. 
5. On each tab, enter information as needed.
6. You can edit the vendor to add more information later.
7. Click OK.

For more information, here's a great article you can refer to: Set Up A 1099 Vendor and Print Forms. 

This will get you going, @khite. 

I'm here anytime you have other concerns. Have a good day.