How to setup an employee do not hold any Federal and State tax witholding in QBO? Employee lives overseas and claims FEIE (Foreign Earned Income Exclusion) ?

I'd be glad to help you set up an employee that do not hold federal and state tax withholding in QuickBooks Online, str_dsgn.

You can mark them as tax-exempt in the employee's profile. Let me show you how:

1. Click Payroll in the left panel and choose Employees.
   
2. Select the employee's name.
3. Under Employee Details, click on the pencil icon beside Pay.
4. Click on the pencil icon under the question What are (employee's name) withholdings?
   
5. Scroll down until you reach the Tax Exemptions section and click on the drop-down arrow.
   
6. Tap the taxes the employees are exempt from.
   
7. Hit Done.

To know more about this process, check out this article: Employee payroll tax exemptions. On the same link, you'll find some pointers about the exemptions status of foreign employees as well as filing W-4 in QuickBooks Online.

I'll be sharing with you this article: Payroll 101. It contains more information about the different types of compensation as well as on what are the types of federal forms you need to file. Also, this will provide you a sample breakdown of a paycheck.

I'm just a few clicks away if there's anything else you need. I need to make sure able to exempt your employee. Have a good one.

I don't see the tax exemptions you mentioned at step 6.  see screenshot attached.

https://www.screencast.com/t/iX7SaoCAdEGI

Thanks for keeping us updated, str_dsgn.

Base on the screenshot you've provided, it looks like you're using QuickBooks Online Payroll Full Service. That said, you'll need to get in touch with our Full Service Payroll support to help you with the payroll setup.

Before that, you might want to check out this article for a list of related links that can help you set up and process payroll: QuickBooks Online Payroll Full Service Hub.

Here's how you can reach us:

1. Go to the Help menu at the upper right.
2. Select Contact Us.
3. Enter your concern.
4. Click Let’s talk.
5. Choose Get a callback. 
6. Type in your contact info.
7. Select Confirm my call.

You can check out this article for our contact information. Click on the QuickBooks Online (QBO) drop-down to see the most updated support schedule: Support hours and types.

Get back to me if you need further help while working with W2's or anything about QuickBooks. Have a nice day.