QuickBooks calculates wages and/or payroll taxes incorrectly
Problem
QuickBooks is calculating percent (%) based taxes such as Federal Unemployment (FUTA), Social Security, Medicare, State Unemployment Insurance (SUI) and State Disability Insurance (SDI) incorrectly. These tax amounts may appear on paycheck as:
- Tax amount shows $0.00.
- Tax amount collected is wrong (over or under collected).
- Tax item does not show at all on paycheck.
- Tax amount continues to collect after annual limit has been reached.
Assumptions
- You have an active Payroll Subscription.
- You have the most recent QuickBooks software release and Tax Table updates.
Expected Outcome
This is a general troubleshooting article that will help you determine the source of payroll tax calculation errors and provide steps on how to fix these errors
Details
Payroll Wage and Tax calculations are derived from the payroll data and transactions you entered in QuickBooks. To ensure accurate calculation of wages and tax amounts, your employees and payroll items should be set up correctly.
It is a recommended practice to run payroll reports on regular basis to review your employee(s)' payroll data so you can catch mistakes before the tax filing season.
If the tax calculation error exists only on a specific paycheck:
Learn How QuickBooks calculate payroll taxes. This may explain why paycheck shows the tax amount as $0.00 or under collected.
Having a 0 amount or a different amount than usual on a paycheck, does not always indicate erroneous calculation. More often than not, it is because QuickBooks is just working as designed. Below are some example scenarios:
Federal and State Income Tax (FIT and SIT) calculations are based on the following:
- agency's wage and tax calculation table which is updated by the Tax Table.
- amounts collected are also affected by filing status, number of allowances
- changes in pay frequency (creating extra paycheck outside of normal pay schedule)
- creating paycheck with wages that has lesser or larger amount than what employee normally gets in a pay period
Additional Medicare starts calculating on paycheck, only after the employee has reached $200,000.00 in wages for the current year.
To fix a paycheck that has wrong tax calculation, see steps below:
Do a tax table update before doing one of the following:
- Revert the paycheck if you are still in the process of creating the paycheck.
- Delete the paycheck if you have not issued it to the employee.
- Void the paycheck if you have already issued the paycheck. When recreating the paycheck, any difference in net amount can be adjusted on next payroll.
If your employee's quarter (qtd) or year to date (ytd) wage and/or tax information is wrong, see steps below
Verify accuracy of taxes setup in the employee profile. See steps below:
- Click Employees menu> Employee Center.
- Double-click the Employee's name.
- Click the Change Tabs drop-down arrow and select Payroll and Compensation Info. QuickBooks 2013: Click Payroll Info tab.
- Click the Taxes button on the right.
- Click the Federal, State and/or Other tab and ensure that employee is marked appropriately for taxes Subject to. If there is an error, edit the employee record.
IMPORTANT: Editing tax items that employee is subject to in the middle of the year, will not auto correct prior payrolls. Correcting employee's wage and tax amount for quarter or year to date will require manual adjustment.
If you have Assisted Payroll, contact Assisted Payroll support for any wage and tax correction.
Verify the taxes settings for payroll items used on your employees' paychecks. See instructions below:
- From menu bar in QuickBooks, click Lists > Payroll Item List.
- Double click the payroll item and click next twice to view the Tax Tracking type selected and how it affects your payroll tax forms.
If you are unsure what tax tracking type to use, consult your accountant or the tax agency.
Verify from payroll item list that your tax items have the correct tax rates.
- Look at the amount column of your payroll item list and review accuracy of the rate assigned to each tax item.
- If the rate is incorrect, double click the tax item and click Next until you get to the rate window.
- Change the rate and click next until Finish. For incorrect SUI rate, see Change SUI rate.
If you have Assisted Payroll, contact Assisted Payroll support if you need to adjust payroll taxes that are filed by Intuit on your behalf.
If payroll items and employees are set up correctly yet you are unable to determine the cause of discrepancy, proceed with steps below.
Review your Payroll Data to locate the dicrepancy and identify the source:
- Payroll Checkup is a diagnostic tool that walks you through review of employee records, payroll item set up and wage and tax amounts and suggests solution for each discrepancy that it identifies. For instructions, see Run a Payroll Checkup.
Important: If you have Assisted Payroll do not run the Payroll Checkup. - Payroll Detail Review Report can help you identify the source of the discrepancy. This report lists all transactions that affect an employees' wages and tax amounts. You will be able to see paychecks, liability adjustments and/or year to date adjustments that were entered in QuickBooks for your employees. To create this report, see Payroll Detail Review report.
Fix employee's quarter or year to date tax and wage discrepancies by following the steps below:
- If you used payroll checkup or payroll setup Data Review to identify the discrepancies:
- Print your payroll discrepancy report (from payroll checkup results). You will need this as reference.
See example of employee's wage and tax Data Review discrepancy below.
- Enter manual liability adjustment for each tax item that has a discrepancy for each quarter affected. You will need to do this for each affected employee.
- For instructions, see Entering wage base and tax adjustment to correct employee's quarter (qtd) or year to date (ytd) total.
- Print your payroll discrepancy report (from payroll checkup results). You will need this as reference.
- If you used payroll detail review report to locate discrepancy:
- Filter your report to display the affected employee.
- If the error is caused by a single transaction such as paycheck or liability adjustment, you can void and recreate transaction with correct information.
- Print your report. You will need this to reference when entering correcting adjustment for this employee.
- Enter manual liability adjustment for each tax item that has a discrepancy for each quarter affected. You will need to do this for each affected employee. For instructions, see Entering wage base and tax adjustment to correct employee's quarter (qtd) or year to date (ytd) total.
Note: Changes to wage and tax data on tax form you have already filed may cause amendment. Consult your accountant if amendment is needed.
Mary2/15/2013