How to Exclude Paypal Payments From Your 1099s in QuickBooks Online

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When filing 1099 forms in QuickBooks Online you may notice Paypal payments you made to vendors showing up.

These types of transactions get reported by PayPal on a 1099-K that they issue.  You do not need to report them on a 1099-MISC or 1099-NEC. 

Quick Instructions:

  1. Find PayPal Payments
    1. Click Expenses -> Vendors in the left-hand menu
    2. Find or search for the vendor you made payments to using PayPal
    3. Enter PayPal in the No. field (Ref. No. within the transaction)
  2. Track Payments for 1099
    1. Click Expenses -> Vendors in the left-hand menu
    2. Select the vendor
    3. Click the Edit button in the upper-right-hand corner 
    4. Check the “Track payments for 1099” box
    5. Click Save
  3. File Your 1099s in QBO
    1. Click Taxes -> 1099 Filings in the left-hand menu
    2. Click the Continue your 1099s button
    3. Review your company info screen
      1. Double-check your information matches tax documents
      2. Click next
    4. Categorize payments to contractors screen
      1. Check off “Non-employee compensation”
      2. Select accounts you want included in the 1099-NEC box 1
      3. Click Next
    5. Review your contractor’ info
      1. Click Next
    6. Check that payments add up
      1. Double-check the numbers on the screen are correct
      2. Click Finish preparing 1099s
      3. Select E-file or Mail your forms

How to Find PayPal Payments

To find payments you made to vendors using PayPal click Expenses in the left-hand menu then select Vendors.

Finding vendors in QuickBooks Online

Find or search for the vendor you made payments to using PayPal. 

In the list of transactions for that vendor, you’ll want to make sure any PayPal payments have “PayPal” in the NO. field.

Enter PayPal in the No. field for vendor payed through PayPal

In the transaction this is the Ref. no. field:

Enter PayPal in the Ref. No. field for any vendor transactions paid using PayPal

Track Payments for 1099

You should also make sure that any vendor whose payments should be included in a 1099 are being tracked.

To do this from the Expenses -> Vendors screen. Select the vendor then click the Edit button in the upper right-hand corner.

Finding vendors in QuickBooks Online

Make sure the “Track payments for 1099” box is checked. Then click the Save button.

Check off Track payments for 1099

How to File Your 1099s in QuickBooks Online

To file your 1099s in QuickBooks Online click on Taxes in the left-hand menu and then select 1099 filings.

How to get to the 1099 filings from the main menu in QuickBooks Online

Click the Continue your 1099s button.

Continue your 1099s in QuickBooks Online

The first screen is Review your company info. Here you should double-check that all your company information matches your tax documentation. Click the Next button to continue.

Review company info when filing 1099s in QuickBooks Online

On the Categorize payments to contractors screen check off “Non-employee compensation.” Then select which accounts you want to be entered into the 1099-NEC box 1. 

Categorize payments to contractors when filing 1099s in QuickBooks Online

NOTE:  Any accounts that you select to use for NEC will not be available for MISC. You can see in the screenshot below that Contractors (which I selected for 1099-NEC box 1) is grayed out:

Click next to continue to the Review your contractors’ info page. This page shows you anyone who you’ve checked off as having a 1099.

Click next to continue to the Check that the payments add up screen. This page shows you, for the accounts you selected for NEC: the total payments, how much is included in NEC, how much is excluded, and the 1099 total.

Check that payments add up in QuickBooks Online 1099s

If everything is correct click the Finish preparing 1099s button. 

You can then choose to E-file or print and mail your forms.

E-file or Print your 1099 forms in QuickBooks Online

If you have any questions about whether you should file 1099s or how to file 1099s please refer to the IRS:

Information Return Reporting (if/when you should file)

About Form 1099-NEC, Nonemployee Compensation

About Form 1099-MISC, Miscellaneous Income

 

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