I need help categorizing a bank return for a payroll, where the account was closed. The contractor closed the account and did not tell anyone, until 2 payments were made

I’m here to help you categorize the bank return payments so you can track your payroll transactions accordingly, @ReviveLife. 

Yes, the returned payments aren’t income. You’ll have to categorize it under an expense account to offset the money out transaction. Here’s how:  

1. Go to Transactions. then select Bank transactions.
2. In the For review tab, look for the returned payment.
3. Click the date of the transaction and select Categorize.
4. In the Account drop down, select the correct expense account (for guidance, I recommend reaching out to your accountant).
5. Click Add.

For reference, you can check this article: Categorize online bank transactions in QuickBooks Online.

In addition, we recommend you reconcile your bank accounts regularly to make sure your bank and credit card statements are always balanced. You can check this guide: Reconcile an account in QuickBooks Online.

If you need further assistance with categorizing your bank accounts or any other QBO concerns, please let me know. You can count on me. Take care always.