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How QuickBooks calculates payroll taxes

Learn how QuickBooks calculates taxes to understand the tax amounts reported on an employee's paycheck or the year-to-date (YTD) payroll report.

  • Payroll wage and tax calculations in QuickBooks are derived from the payroll data and transactions you entered. For QuickBooks to properly calculate correct 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 employees' payroll data so you can catch mistakes before the tax filing season.
  • You can use the Payroll Detail Review Report (go to the Reports menu, then select Employees & Payroll > Payroll Detail Review) to verify your employees' year-to-date (YTD) wage and tax calculations. To fix calculation errors, check the Related Articles section.

QuickBooks Calculation Method What you may see
QuickBoooks uses the more accurate percentage method and tax tables that are annualized (rather than weekly, biweekly, or monthly).

It also calculates your payroll taxes on year-to-date amount instead of per transaction.

QuickBooks may enter correcting adjustment amounts on the next paycheck if the employee was under or over collected on flat-rate taxes.

You may notice differences between calculations by QuickBooks and printed wage bracket taxes from agency publications. Both methods are correct and acceptable to the agency.

See IRS Pub 15 for FIT Withholding tables.

For the State Withholding calculation table, check your State Agency's calculation method.

The tax table:
  • automatically adjusts many flat-rate taxes.Examples:
    • Social Security
    • Medicare (for Additional Medicare tax, check the User Guide for QuickBooks)
    • Federal Unemployment (FUTA)
    • State Unemployment (SUI - wage base limit only, SUI rate is unique to your business)
    • State Disability (except for HI and NY)
    • Predefined local taxes
  • handles rounding discrepancies and retroactive tax rate changes for flat-rate taxes including FICA, FUTA, SUI, and SDI taxes (some SDI taxes are flat-rate).

Non-retroactive tax rate changes aren't adjusted.

It also determines the rates and wage limits for Federal, State, and rate-defined local taxes.

QuickBooks stops collecting tax amounts when employee reaches the wage base limit for that tax item.

Additional Medicare starts calculating on paycheck, only after the employee has reached $200,000 in wages for the current year.

Employee who has reached wage base limit will show amount of &0.00 on paycheck for that tax item.

Example: FUTA wage base limit is 7,000/year. Employee wages in excess of 7,000 will show $0.00 amount for FUTA on paycheck.