SIMPLE IRA contributions/deductions are done pre-tax for the employee's check (right?). We did one for one of our employees - paid her an amount of which most of it was for a SIMPLE IRA withholding. The amount calculated and withheld by QBO for taxes used the entire (wages + SIMPLE contrib) amount to calculate and withhold local taxes. Thus, too much was withheld. I thought QBO PR treated SIMPLE contributions as pre-tax so that the withholding tax for local (as well as fed and state) should only be on the wages part. Can anyone explain....am I wrong? Or tell me how to fix it (for next year) Thanks.
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Thanks for your reply, Fishing.
You are right. I was able to confirm that YES, the local service tax (LST) DOES come out AFTER the other payroll taxes. Well I guess that's how it is.
For anyone else out there, Fishing is also right in saying that Federal Income Tax is the ONLY withholding that is done pre-tax on the SIMPLE plan - Medicare and FICA and state taxes (and local) are paid on the entire amount of the paycheck, including the amount for the SIMPLE withholding.
thanks -
Hello there, @DS127.
Yes, before other taxes and deductions are calculated, pre-tax insurance, such as SIMPLE IRA, is first deducted from gross pay. The funds are deducted from your paycheck before your income is subjected to tax, reducing your taxable income for the current year and potentially saving your money immediately. However, you will be required to pay taxes on the money when you withdraw it during retirement.
Since the local withholding tax is withholding an amount from the retirement plan contribution, let's ensure the employee's deduction is correctly configured in QBO. We can verify this by following these steps:
If you've confirmed the accuracy and already processed a paycheck, I highly recommend you contact our Payroll Support for they're the ones who can securely review your account and can do a screen share when necessary for payroll correction.
Additionally, I've included these articles for your future reference regarding payroll:
Just post your questions here if you still have queries about your payroll service. I'll reply to you as soon as possible.
Thanks Kiazzymae.
I had done all of that before and yes, the Deductions and Contributions item is correct. I suppose will have to call QBO PR which I was trying to avoid.
The other issue, in case someone else is reading this, is we have a Local Service Tax charged by the municipalities of a flat $52/year. I'm unable to set that up in the employees' paychecks as a pre-tax deduction even though it is fully tax deductible.
Thanks for your quick reply!
--Bonnie
Hello @DS127,
Thank you for sharing more details about your situation. I completely understand the need to avoid the hassle of additional phone calls and ensure your payroll is set up correctly and efficiently. Let's dive into the solutions together.
Firstly, it's great to know you've already set up your SIMPLE IRA contributions correctly. Since they should indeed be pre-tax deductions, if the system isn't recognizing this setup, our QBO Payroll Support team can dive deeper into your payroll configuration. Reach out to them to fine-tune your setup and clarify any discrepancies.
About your Local Service Tax of $52/year, it’s essential this gets handled correctly on your employees' paychecks. Here’s a simple yet powerful step-by-step guide to ensure this tax deduction is set up properly in QuickBooks Online. To set up your employee's local tax:
By following these simple steps, you'll ensure your payroll is precise and compliant with local tax regulations.
Additionally, please feel free to visit this handy article to help you manage pay schedules in QBO: Set up and manage payroll schedules.
Rest assured, these efforts will streamline your payroll process. If you need additional assistance or have more questions, just reach out through the thread. Your QuickBooks experience is our top priority.
Thank you. I have no problem setting up the Local EIT. The issue is with an additional local tax, called Local Service Tax. QBO makes me set it up in "Deductions and Contributions" with no way to show it as a pre-tax deduction. I'm surprised no one else has had this problem.
@DS127 Not familiar with the tax you're referring to specifically, but I'd be surprised if it was meant to be a pre-tax deduction.
Pre-tax deductions would lower the gross pay, and thereby Box 1 of the W-2, for the employee in question.
Unlike retirement plans with pre-tax deductions for employee contributions, where they pay income tax on the income when they withdraw it from their retirement account later in life, a pre-tax deduction like that would just be taken out of the equation, something the IRS isn't generally fond of.
That's why other local taxes, like User Fee, tend to come off the net (after-tax) pay, not the gross (pre-tax) pay.
That's also why you normally see social security and medicare still calculating on the full gross pay on a variety of retirement plans.
Thanks for your reply, Fishing.
You are right. I was able to confirm that YES, the local service tax (LST) DOES come out AFTER the other payroll taxes. Well I guess that's how it is.
For anyone else out there, Fishing is also right in saying that Federal Income Tax is the ONLY withholding that is done pre-tax on the SIMPLE plan - Medicare and FICA and state taxes (and local) are paid on the entire amount of the paycheck, including the amount for the SIMPLE withholding.
thanks -
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