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Border Collie Boy Part 2
Level 2

Problem with payroll tax item

I just discovered that our payroll tax item for state unemployment has been inappropriately including the sick pay component of employee compensation as taxable.    Is there a way to adjust this payroll tax item so that it doesn’t include sick pay?  When I go to the Taxable Compensation screen within the series of Edit Payroll Item screens, Quickbooks will not let me deselect Salary-Sick Pay and gives me the error message that "this type of compensation is always taxable in Quickbooks".  I guess I could set up a separate Payroll Tax Item for state unemployment and use a Tax Tracking Type of None but I’m hoping there’s a better solution.

 

Any help would be greatly appreciated.

Solved
Best answer July 26, 2020

Best Answers
BigRedConsulting
Community Champion

Problem with payroll tax item

RE: I just discovered that our payroll tax item for state unemployment has been inappropriately including the sick pay component of employee compensation as taxable. Is there a way to adjust this payroll tax item so that it doesn’t include sick pay?

 

Yes, QB does this for all SUI items. It isn't smart enough to exclude sick pay.  There isn't a way to adjust it.  Still, this isn't usually an issue in the end as employees usually make enough for the year so that their regular pay would have generated the max tax.

 

I've heard that the tax works this works this way in WA state, and that even the state's own payroll system for paying their employees calculates tax on their sick pay.

View solution in original post

4 Comments
AileneA
QuickBooks Team

Problem with payroll tax item

Hello, @Border Collie Boy Part 2

 

Thank you for posting in the Community. Let me share some insight into payroll tax items. It uses to track individual amounts on a paycheck and accumulate year-to-date (YTD) wage and tax amounts for each employee. There are payroll items for compensation, taxes, other additions and deductions, and company-paid expenses. 

 

Yes, you can set up another payroll item for state unemployment, Here's how: 

 

  1. From the Lists menu, select Payroll Item List.
  2. At the lower left side, click Payroll Item. The press New.
  3. Press Custom Setup, and click Next
  4. Under Payroll item type choose the item and hit Next
  5. Input the name of payroll item and press Next
  6. Enter the name of Agency and Account number to be paid.  
  7. Select None for Tax tracking type and Next.
  8. Mark check the Taxes and Next
  9. Under Calculate based on quantity, select the appropriate calculation. Then Next.
  10. Enter the necessarily information in the field and click Finish once done. 

 

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Note: Setting up a payroll item with a tax tracking type of Other can potentially cause problems with W-2 reporting, so be sure to check with your accountant before choosing this solution. 

 

For more detailed steps and information about Payroll tax item, you can check out this article: Set up payroll items for new state taxes.  

 

I will also include these handy articles for additional reference: 

 

 

Drop me a comment below if you have any other questions about setting up payroll item in QuickBooks Desktop. I'll be happy to help you out. Wishing you and your business continued success. Take care always!

BigRedConsulting
Community Champion

Problem with payroll tax item

RE: I just discovered that our payroll tax item for state unemployment has been inappropriately including the sick pay component of employee compensation as taxable. Is there a way to adjust this payroll tax item so that it doesn’t include sick pay?

 

Yes, QB does this for all SUI items. It isn't smart enough to exclude sick pay.  There isn't a way to adjust it.  Still, this isn't usually an issue in the end as employees usually make enough for the year so that their regular pay would have generated the max tax.

 

I've heard that the tax works this works this way in WA state, and that even the state's own payroll system for paying their employees calculates tax on their sick pay.

View solution in original post

Border Collie Boy Part 2
Level 2

Problem with payroll tax item

Thanks for the reply but I was hoping for a way to adjust the categories of compensation that are taxed by state unemployment.  As my question stated, I was already familiar with how to set up a separate payroll item with a Tax Tracking type of None.

 

A later reply gave me the answer to my question, however, which was that QB does not have the functionality to edit the state unemployment payroll item.

 

Regardless, I appreciate that you responded to my question.

 

Border Collie Boy Part 2
Level 2

Problem with payroll tax item

Thanks for the reply but I was hoping for a way to adjust the categories of compensation that are taxed by state unemployment.  As my question stated, I was already familiar with how to set up a separate payroll item with a Tax Tracking type of None.

 

A later reply gave me the answer to my question, however, which was that QB does not have the functionality to edit the state unemployment payroll item.

 

Regardless, I appreciate that you responded to my question.

 

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