If it is a refund then it should not be considered income. The best approach would be to contact PayPal and ask they why a 1099-K was issued and verify if this was for a refund and not for some other business.
If it is for a refund, then you should enter is as income and then make an additional entry to reverse it so that you don't have to pay taxes on the refund amount and this way you can report the 1099-K issued to you since a copy of that would have been provided to the IRS as well.
To report your 1099-K from PayPal and not have it included as income follow these steps:
- Log in to your TurboTax account if it is not open.
- Select the Wages & Income tab.
- Scroll down to Less common income click Show more.
- On the page Let's Work on Any Miscellaneous Income click on Other reportable income.
- On the page Any Other Taxable Income? select yes.
- On the page, Other Taxable Income enter PayPal 1099-K Personal for the description and the amount.
- Select continue and answer No on the next page.
Next, you will have to offset your PayPal 1099-K. Follow these steps to offset your 1099-K:
- Log in to your TurboTax account if it is not open.
- Select the Wages & Income tab.
- Scroll down to Less common income click Show more.
- On the page Let's Work on Any Miscellaneous Income click on Other reportable income.
- On the page Any Other Taxable Income? select yes.
- On the page, Other Taxable Income enter PayPal 1099-K Personal for the description and the amount as a -number for example -1,200.
- Select continue and answer No on the next page.
This process will report the income form the 1099-K in the first entry and then "back-it-out" as personal in the second entry
