We have a 1099 contractor that wants to have state backup withholding taxes taken out. When I set up a other current liability account (like I have for federal backup withholding) and set it up as tax line mapping 1099 - state taxes withheld it is telling me that it is the incorrect account to use with that tax line mapping?
First, you'll need to create a bill or check to record the expense transaction including the vendor withholding with a negative amount (attached screenshot).
Once done, when mapping an account in the QuickBooks 1099 Wizard window, the expense transaction will show on the Box 7 and the other current liability account will show on the Box 16. Also, to ensure your IRS threshold is updated, you can select the Show IRS 1099-MISC filing thresholds below and click Reset to IRS threshold (attached screenshots).
For additional reference, you can check these articles to learn more about 1099: