Beginning with tax year 2011, the IRS requires you to exclude from Form 1099-MISC any payments you made to a 1099 vendor by credit card, debit card, gift card, or a third-party payment network such as PayPal. (For the purposes of these instructions, we'll call these types of payments nonreportable payments.) Instead, these payments are reported by the card issuers and the third-party payment networks on Form 1099-K. Payments you made by cash, check, direct deposit, or electronic funds transfer are considered reportable payments and are still included on Form 1099-MISC.

For more information about the IRS requirements, visit the IRS Final Regulations on Payment Card Reporting web page.

What do I need to do in QuickBooks?

1. Determine whether you made any nonreportable payments to 1099 vendors during the tax year. You can do that in either of the following ways:

   • From the Vendor Center, select a 1099 vendor, show All Transactions, and select a date range for the reporting period.

   or

   • Create a 1099 Detail report by choosing Reports > Vendors & Payables > 1099 Detail.

   Look for nonreportable payments such as credit card charges, check transactions that represent credit or debit card charges (indicated by a notation in the check number or memo fields), bill payments made by debit or credit cards, payments made from accounts that represent PayPal or other third-party payer) or any general journal entries that represent nonreportable payments. Note that you should only consider payments made from accounts that you have mapped to boxes on Form 1099-MISC.

2. If you have any 1099 vendors that you paid exclusively by nonreportable payments, you should not create 1099-MISC forms for them. To remove them from 1099 processing, edit the vendor's record and uncheck the Vendor eligible for 1099 box on the Additional Info tab.

3. If you have 1099 vendors that you sometimes paid by nonreportable payments, you need to exclude those nonreportable payments from the 1099-MISC forms for those vendors, as follows:

   1. Total the nonreportable payments for a vendor, and subtract the nonreportable payments from the total payments for that vendor. The result is the total of reportable payments.

   2. If the amount of reportable payments for a 1099 vendor is less than the IRS reporting threshold amount, you do not have to prepare Form 1099-MISC for this vendor. Remove the vendor from processing as in step 2 above.

   3. If the amount of reportable payments for a 1099 vendor exceeds the IRS reporting threshold amount, create a journal entry for the vendor that offsets the nonreportable amount:

      • Date the journal entry with the last day of the tax year.

      • On the first line of the entry, specify an account (such as "Opening Balance Equity") that is not mapped to a 1099 box. Create a debit to this account in the amount of the vendor's nonreportable payments. Be sure to include the vendor's name in Name column.

      • On the next line (or subsequent lines if you paid the vendor from multiple accounts), enter the account from which you made nonreportable payments and create a credit to this account in the amount of those nonreportable payments.

        Note that these credit entries reduce what is reported on Form 1099-MISC and must total the amount of the first debit entry.

4. Create your Forms 1099-MISC for the year as usual.

5. If you created journal entries to exclude nonreportable payments, void those entries once you have finished your Form 1099-MISC reporting (sent forms to the vendors and submitted forms to the IRS) so they do not impact your financial statements going forward.