Issue with Quickbooks Can Cause Under-Reporting of 1099 Income

An issue with the 2014 version of Quickbooks 1099 creation module has led to the under-reporting of some 1099 payments (and so 1099 income on the 1099 recipient’s side).

quickbooks 1099 under reporting

The issue is that in the newest version of Quickbooks, the 1099 creation function may ignore any payments made with check numbers that exceed a certain number of alphanumeric characters, or some other undisclosed algorithm. Where this becomes a problem is when the “checks” are actually electronic payments that are made and tracked through the check function, and the check number manually assigned to such payments is over a certain length, or violates the unstated ‘check number’ rule that the 1099 generator uses.

In a specific instance, a business was paying their contractors and vendors with Paypal, and some of the “checks” in the QuickBooks payment function had a check number of “PP” (for ‘Paypal’), and some had a check number of “Paypal”.

“When it came time to generate the 1099s for those payments, the QuickBooks 1099 function ignored any payment with a check number of ‘Paypal’, while including those with just ‘PP’,” explained a spokesperson for the 1099-creating company. “Had we not caught it, we would have under-reported the income to our 1099 contractors by thousands of dollars.”

It is unclear whether the 1099 function was ignoring the checks designated “Paypal” because of a character limit (such as under 5 characters or less) alone, or because of some restriction on letter-only (without any numerals) check numbers.

What is clear is that this seems to be an undocumented limitation that can wreak havoc for a small (or large) business when it comes to calculating and generating their 1099s.

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