You must enter the gambling winnings one place or the other. Gambling winnings must be separated out from other money you may have added to PayPal and also withdrew.
It will be a manual calculation you must do to account for same money in and out of your PayPal account above and beyond any winnings. The winnings are taxable and the tax law does not allow an adjustment for the money spent on gambling unless you can itemize your deductions. The purpose of this is for you to prove there was money included in the 1099-K that was not winnings and not required to be added to your income.
If the standard deduction is much higher (most common), then the gambling losses are not used period. Let me know if this is still not clear.
@STPETEJACK
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