How to adjust W2 for 139B Federal Income Tax Exclusion for volunteer fire fighters?

Thank you for visiting the Community regarding your payroll concern, McClerk.

It's essential to maintain correct records of payroll items, such as your contributions and deductions. This is to ensure the data on your tax forms, especially your W2s are in order.  Let me direct you to the appropriate support that will guide you on how to effectively handle the $600 exclusion. 

It's vital to identify how the payroll item is tracked in payroll, including the tax tracking type to keep accurate and balanced data on the W2 form. I advise consulting with a tax adviser who can provide comprehensive insights into the process and assist you in recording the specified amount. When you have the information handy, follow these simple steps to set up the item:

1. In your company, go to the Lists menu and choose Payroll Item List. 
2. Click the Payroll Item button and select New.
3.  Choose Custom Setup and Next.
4. Select the item you want to configure. Common types include compensation, insurance benefits, retirement benefits, vacation pay, as well as other additions and deductions.
5. Press the Next button and follow the prompts to enter information for the type of item you selected. 
6. Follow the onscreen instructions.
7. Click Finish when you're done.

For additional resources, the following links will walk you through the process of adding retirement and insurance items: 

• Set up, change, or delete employee-paid payroll deductions
• Set up or change a retirement plan

Additionally, these resources will assist you in updating your employees' profiles, rectifying your obligations, and managing the W2 forms:

• Edit or change employee info in payroll
• Adjust payroll liabilities in QuickBooks Desktop Payroll
• File your W-2 and W-3 forms

If you have any other questions or concerns about making corrections to the information on your W2 forms, feel free to drop a comment below and tag my name. I'll be delighted to respond to them. Have a wonderful weekend ahead! Best regards, McClerk.

Can you go in-depth a little bit more as to how to set these items up to exclude the first $50 of earnings each month for these firefighters?

Is there a way to have this applied retroactively for the paychecks already received in 2023?

Allow me to dive into this thread to assist you further, @McClerk.

With the steps provided by my peer above, let’s assume that you’re done creating the payroll item to track your payroll transactions. To add this to be excluded from your employee’s first earnings of the month, we can add this pay item to their profile to take effect.

Since they’re only set to be excluded on the first salary, we can remove them when running the second or next payout from your employee’s profile and repeat the same process on the next month. This item should appear in their paychecks. Here’s how you can add the item to the employee profile:

1. Go to the Employees menu, and navigate to the Employee Center.
2. Select your employee, and locate the Payroll Info.
3. In the section for Additions, Deductions, and Company Contributions, add the pay item.
4. Enter the amount per period and the limit.
5. Select OK.

In QuickBooks, these changes won’t retroactively apply to your previous paycheck. Therefore, you may need to consult your accountant for further assistance in managing the prior payroll.

Additionally, QuickBooks offers a variety of payroll reports. This will give you a more thorough picture of the gross pay, deductions, and tax data for your employee over a specific time frame. For a comprehensive list of available payroll reports and instructions on how to get them, please visit this article: Run payroll reports.

You can always post if you have more concerns about managing your paycheck or any QuickBooks-related matters. I’m just a post away, and take care!

What payroll item type should be selected for this?  It is really an exclusion from tax not a deduction, the employee should still get the money, they just shouldn't have FICA tax on it, and it should not appear on their w-2 under their gross income.  

Thanks for joining the thread, @SFFPD.

I'll add additional information about handling your W-2 forms.

We can create another payroll item in QuickBooks Desktop. You can choose the Addition (Employee Loan, Mileage Reimbursement) payroll item type for the amount exempted from federal taxes. Then, uncheck the federal taxes. You can refer to the screenshots below for your visual reference:

Once done creating the item, edit those paychecks for last year and then put them in the item you created. Alternatively, we can create a liability adjustment to zero out the box 1. I'll show you how:

1. Go to the Employees menu, then Payroll Taxes and Liabilities.
2. Click Adjust Payroll Liabilities.
3. In the Date and Effective Date fields, select the last paycheck date of the affected month or quarter.
4. From the Adjustment is for section, select Employee Adjustment to correct your employee’s YTD info. Then select the employee's name.
5. Select the payroll item you want to adjust under the Item Name column. Then, enter the amount of adjustment.
6. Choose the Accounts Affected, then OK.
7. Click OK to save the changes.

Check out this guide for detailed insights about this process: Adjust payroll liabilities in QuickBooks Desktop Payroll.

If you use QuickBooks Desktop Payroll Assisted, contact us if you need to make an adjustment for a previously filed tax form or payment.

In addition, I've got a link here that provides articles about managing your payroll reports for future use: Run payroll reports.

Fill me in if you have other QBDT-related concerns, specifically payroll. We're always here to guide and assist you whenever you need help.