1099 Reporting with ACH payments made through QuickBooks Merchant Services

Payments processed through third-party applications for vendors are excluded from the calculations for 1099-NEC and 1099-MISC, Mellie2023. We can record an expense transaction to prevent the checks from being counted. Let me explain further the grounds for the exclusion and the steps involved in making the entry.

In response to your first question, payments to vendors using QBKS Merchant Services, including credit card, debit card, gift card, or PayPal transactions, are not included in 1099-NEC and 1099-MISC computations. Since these transactions are processed via a third-party payment system, they'll be documented to 1099-K. Therefore, financial institutions or processing companies report those payments for you.

For your second question, use a CC account from the Chart of Accounts for the expense entry on your Checks. By doing so, it will be excluded and prevent double reporting on 1099 forms. Please know that choosing this payment method does not exempt it from being included in your 1099 reports.

Additionally, you can run the 1099 Summary report to confirm the exempted payments. Refer to the Where can I find the payment information? section and click QuickBooks Desktop.

Once everything looks good, check out this resource for guidance on preparing and filing 1099s in the program: Create and file 1099s with QuickBooks Desktop. 

Securing a correct record of the payments involved in your business is vital to ensure compliance with IRS rules. Let me know if you need more information on these. Thank you for being proactive about your tax compliance.

@Mellie2023  To the first point, generally speaking, if you're receiving a 1099 in this context, you should have your own business in one form or another.

As a result, they'd be expected to have a merchant provider for any electronic payments they receive, be that a business Paypal or otherwise, rather than receiving it into their personal Paypal or otherwise.

Because of this, you can generally consider all electronic payments to be exempt from 1099s for your own reporting purposes; it's not your job to make sure they're not trying to hide their income.

To the second point, unless they changed something when I wasn't looking, simply putting cc or eft or debit or one of a couple dozen similar abbreviations or codes in the Check Number field would filter the relevant 'check' out of the 1099 source pool.

This is similar to how entries made with the Credit Card Charge function are automatically excluded from 1099s; QB actually knew what they were doing back when these systems were first designed.