1099-NEC and Vendor Credit amounts not included

I did create a 'fake' bill that used an fake bank holding account as the item, but it is also excluded from reports.

I will need to do more testing to figure out what happens when I create a bill and then credit it out of the account and then re-bill it in 2021. I think that QB is going to report the payments on the 1099 twice.

Based on how it works, using expense accounts, I expect it to.
I find all of this disconcerting because if what I read is true, 1099's are based on a money transaction, not an accounting transaction (IE what the money was for, except in as much as the 1099 wants it quantified.), so it should not be basing the 1099 report on Bills, but on banking transactions.

More to follow, if I figure this out.

Hi there, @Sepp.

Thank you for the detailed insights. I can share with you some information about how QuickBooks 1099s work with vendor payments.

Federal 1099s only map expense accounts. With overpayment, it is posted to your Accounts Payable. Therefore, the credit amount won't display on your form. The amount will be included when it's applied to a future bill. If it's applied in 2021, then the payment is posted in that tax year.

For more tips about creating and preparing your 1099s, I recommend opening these links:

• Create and file 1099s with QuickBooks Desktop
• 1099 E-File: QuickBooks Desktop setup, troubleshooting, & FAQs

If you have any follow-up questions, please let me know by adding a comment below. I'm more than happy to help. Have a good one!

I have received clarification from multiple sources that indicate that the intent of the 1099 forms is to record the 'cash' transactions - ie money that has changed hands - not the reason for the transaction.

Given that QB only allows us to attribute billed transactions to the 1099 report and you please provide backup that supports the position to omit vendor credit transactions, or pre-payments from the 1099 form?
Not only does the report exclude the transactions, I can't find a way to include them.
Perhaps I missed a setting.

Thanks for coming back, Sepp. 

The payments are taxable and associated with the vendor, however, some don't have to be reported in the 1099-MISC. For more details on this one, check out the Exception section Page 2 of the Forms 1099-MISC guide link. We'd recommend reviewing the payment methods of the payments.

1. Go to Vendors at the top menu.
2. Select Vendors Center.
3. Highlight the vendor profile and double-click the bill payment.
4. Make sure the BANK ACCOUNT used is a bank account.
5. Click Save & Close and select Yes to confirm the action.

Then, go back to the 1099 Wizard and continue the process. Make sure to map the expense accounts correctly by following the steps in the Create and file 1099s with QuickBooks Desktop article. 

If some of the vendor payments are not included, let's try opening another company file to check if you're having a problem with only one file and not the program itself. Let me show you how:

1. In your QuickBooks, go to the File menu at the top left.
2. Choose Close Company.
3. In the No Company Open window, click the drop-down arrow in the Open a sample file icon.
4. Choose a sample file and click on it.

If it works, there may be a damaged data in your software. You can check out the Fix data damage on your QuickBooks Desktop company file. article to troubleshoot the issue. You can also repair QuickBooks Desktop to fix any damaged components in the software.

If the problem persists, I'd suggest contacting our Technical Support Team. They'll pull up your account in a secure environment and help you with this one. You may send a message via chat, call us at a time convenient to you, or we’ll get in touch with you instead. To ensure we address your concern, our representatives are available from 6:00 AM to 6:00 PM on weekdays and 6:00 AM - 3:00 PM on Saturdays, PST. See our support hours and types for more details about this one. Here's how to reach them: 

1. Click the Help icon on the top menu. 
2. Choose QuickBooks Desktop Help. 
3. Tap Contact us.
4. Select Search for something else and enter your concern in the Tell us more about your question: field. 
5. Tap Search. 
6. Choose Start a Message or Get Phone Number to connect with our support. 

Visit our Tax forms page for more insight s about adding and managing your tax forms.

I'd like to know how things going after contacting our support agent, as I want to ensure this is resolved for you. Feel free to reply to this post and I'll get back to you. You have a good one. 

Hi RCV,

I do not think there is a problem with the company file.
To condense the problem:
We have a vendor that we prepay deposits to before an invoice is issued. Basically a pre-payment before services are rendered. In this case, we have a large credit balance with that vendor at the end of 2020.
Since there is no "expense", there is bill to pay.

Per your lines: 
    3. Highlight the vendor profile and double-click the bill payment.
    "Make sure to map the expense accounts correctly"

QB is working how you expect.
I think the problem is that QB doesn't handle 1099-NEC payments the way the IRS and my accountant are expecting. As my accountant referenced this code:
1.6014-1(h) - https://www.law.cornell.edu/cfr/text/26/1.6041-1

• (h) When payment deemed made. For purposes of a return of information, an amount is deemed to have been paid when it is credited or set apart to a person without any substantial limitation or restriction as to the time or manner of payment or condition upon which payment is to be made, and is made available to him so that it may be drawn at any time, and its receipt brought within his own control and disposition.
  
  
  

To me, that reads that when the payment is made, regardless of reason, it should be reported on a 1099.
QB is not able, as far as I can see, to attribute transactions to a 1099 report unless they are expensed.
The problem with any work-arounds is that when the actual invoice was paid, that would then again be reported. (Unless I can pay a bill from an expense-credit account?)

I don't at the moment see how to make QB work how I and my accountant expect. Although his comment was that he never uses the QB reports for this and he manually figures out what the amounts should be. That to me leaves small business owners in a difficult position given that they probably don't dive into the books as much as I do and understand what is the correct amount to report.

I am open to suggestions or a different way to interpret the code?
I have read other forum posts that also raise this concern.

https://quickbooks.intuit.com/learn-support/en-us/reports-and-accounting/why-do-vendor-credits-appli...

https://quickbooks.intuit.com/learn-support/en-us/other-questions/prepayment-to-vendor-and-1099-ques...

Honestly, I think the solution would be to offer users a way to include all payments in a 1099 report, not just expense accounts, but it would, to meet the intent of the IRS text above, limit the report to actual 'cash' transactions not the dates credits were used to pay bills.

Sepp

Hello there, @Sepp. 

Allow me to chime in and share additional details about the credit balance of your vendor. As mentioned by my colleague RoseMarjorieA, if the vendor credit using an Income Account, then this will not report and will not be shown as payment in 1099. You should only use an Expense Account and map this account in box 7. 

To get this sorted out, you'll need to allocate it to an expense account, so that you can prepare your 1099. Then you can eliminate the credit, so when you receive the invoice from a vendor, you can now allocate the prepayment. 

I still suggest consulting your accountant. They can help you allocate credit to an expense account to ensure that your books are accurate. 

However, if the issue persists, you can contact our Customer Support Team. They can access your account securely, and further investigate this matter. Just follow the steps shared by RCV on how how to contact them.

You can read this article about 1099-MISC dates and deadlines. If you have more questions about this form, you can refer to this article: Common questions about 1099s.

I’m here if there’s anything else that you need help with. Take good care!

Dear Joesem,

First off, your recommended action, to create a transaction to create a 'correct' report is not good workaround because it requires remembering, in 12 months, that certain transactions were reversed and must be yet again reversed to create the proper totals in the reports. (because the bills paid with the credit transactions would be incorrectly reported in 2021).
This is not suitable, nor reliable or appropriate. It creates a set of books that would not match the filings and requires too much information for a user to remember.

I would like clarification on Intuit's position on this.
Either it disagrees with my evidence & code reference above, i.e. the way the report works is correct and provides the reference that it uses as the basis for the report, or it admits that the report does not provide what we are required to file.

Absent an answer, the 1099 report function is effectively useless and it creates a liability for my company if we got audited - both as a company that reports 1099 and one the receives 1099s, which could show receipt of funds in the wrong calendar year, triggering an audit because the amounts don't match our reported income.

Your work around also pre-supposes that I know there is a credit balance. In this case, because the amount was very high, it caught our attention, but in many cases, of a few hundred or so and with many 1099 forms, it would not get caught.

Obviously for this year it is moot as the deadline has passed and we filed by doing manual reviews of every vendor. But it certainly does not inspire faith in QB.
I have spent several hours troubleshooting what QB is doing within other areas and I find it tedious when it should be easily resolved with better design, options and feedback to the user.

Why can't QB allow the report to include an option to show ONLY & ALL payments to a vendor in a calendar year, as opposed to those only expensed? Leave the current report as it is, but allow for the option.
It's almost as if you want it to be like the Sales Tax report, which shows ALL, then breaks it down into this was taxed, this was not. It shows you the whole, and then the breakdown.
(And FYI: that is another major issue with QB: It doesn't allow sales taxes to be annualized on a custom calendar - NYS is March 1 to Feb 28/29. And EVERY TIME I RUN A REPORT, the dates need to be changed, which just a huge waste of time).

Here is ALL the transactions, here the part you have expensed. Here are the 'cash' transactions, here are the credit transactions.

Sepp.

Dear Joesem,

I was just reviewing the links in your last post - the first one does not work for me and the second one has this line:

Do I need to file a 1099-MISC?

You're required by U.S. tax law to file a 1099-MISC form for anyone that you paid $600 or more in the previous year. Unlike the 1099-NEC, the payments found on a 1099-MISC are geared towards vendors, attorneys, and other individuals who are not a proper contractor.

That does not read "expensed" to me.

It is also my understanding that attorneys, as well as many other professionals, require a retainer deposit to start work, which would indicate a deposit or credit payment before an invoice?
Or is the assumption that a customer would automatically expense anything paid to an attorney before they got an itemised invoice?

Sepp.