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    Calculate a local town tax only on wages earned in that town

    Article ID: 1000813

    Overview

    Towns sometimes create a local tax on construction projects, sometimes known as an occupational tax. This article explains how to create a local tax and make it calculate only on the wages for work done in a particular town. It also explains how to show the correct local tax figures in boxes 18 and 19 of Form W-2.

    Expected Outcome

    The correct local (occupational) tax figures will show in boxes 18 and 19 of the W-2 form.

    Assumptions

    You know which local tax agencies you are subject to.

    Details

    To calculate a local or occupation tax, you must create a payroll item for wages earned in the town that are subject to the tax. You must also create an Other Tax item to calculate the tax. Finally, you must edit the W-2 form manually, using the figures in the Payroll Summary report.

    To create a payroll item for wages earned in the town that are subject to the local or occupational tax:

    1. Choose Lists > Payroll Item List.
    2. Right-click the list and select New.
    3. Select Custom Setup and click Next.
    4. Select Wage and click Next.
    5. Select Hourly Wages (if hourly) and click Next.
    6. Select Regular Pay (if regular pay) and click Next.
    7. Enter a name for the item; for example, [Town Name] Hourly Wages. Click Next.
    8. Leave the Expense account as Payroll Expenses (unless you want to track payroll expenses differently).
    9. Click Finish.

    To create an Other Tax item to calculate the local or occupational tax:

    1. Choose Lists > Payroll Item List.
    2. Right-click the list and select New.
    3. Select Custom Setup and click Next.
    4. Select Other Tax and click Next.
    5. Select User-Defined Tax and select Tax is paid by the employee (as long as the tax is actually paid by the employee). Click Next.
    6. Enter the name of this tax; for example, [Town Name] Occupational Tax. Click Next.
    7. Enter the name and identification/account number of the agency to which this tax is paid, and select the appropriate payroll liability account (usually listed in Payroll Liabilities. Click Next.
    8. Click the drop-down arrow for the Tax Tracking Type and select from the list. The description of your choice and it's effect on the W-2 form is listed below the drop-down arrow. Click Next.
    9. Select Calculate this item based on quantity and click Next.
    10. Enter the default rate (almost always a percentage) and limit (if applicable) for this tax and click Next.
    11. Leave Taxable compensation at default and click Next.
    12. Leave Pre-tax compensation at default and click Next.

    To enter the correct figures in boxes 18 and 19 of Form W-2:

    1. Choose Reports > Employees & Payroll > Payroll Summary.
    2. Click the Dates drop-down arrow and select This Calendar Year (not This Calendar Year-to-date).
    3. Click Modify Report at the top left.
    4. Click the Filters tab.
    5. Select Choose Filters > Payroll Item.
    6. Click the Payroll Item drop-down arrow and select the payroll item for wages earned in the town that you created earlier.
    7. Click OK.
    8. Print the Payroll Summary report.
    9. Choose Employees > Payroll Tax Forms & W-2s > Process Payroll Forms.
    10. In QuickBooks 2013 and earlier: Click Federal form, and click OK.
      In QuickBooks 2014: Skip to the next step.
    11. Open the W-2 form. (In QuickBooks 2014: After selecting the form, click File Form.)
    12. Box 18 is blank and box 19 reflects the amount of local (occupational) tax withheld.
    13. Take the wages from the printed Payroll Summary report and enter them manually into box 18 of the W-2.
    14. You can now print the corrected W-2 form.

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