403(b) pre-tax payroll

Roth 403(b) plans, like other Roth plans are after-tax, meaning there is no tax reduction at the time you create the paycheck for the employee.

The Roth plans are opposite of the standard non-Roth plans:

Standard plans: The money put into the plans sheltered from income tax and then is taxable when withdrawn  later during retirement.

Roth plans:The money put into the plan is fully taxed and then is not taxed when withdrawn later during retirement.

This is reflected in your quote from the IRS: "Salary contributed to a Roth account taxed currently [on the paycheck] but is tax-free (including earnings) [on the original contributions] when distributed [during retirement]."

Thanks for taking the time to scour our Community space for potential solutions, Gma Sonshine.

We appreciate you contacting our Assisted Payroll Support Team to get this sorted out. The supported retirement plans for 403 in QuickBooks Desktop are the following:

• 403(b) /403(b) catch-up
• After-tax Roth 403(b)

To learn more about retirement plans, check out these articles:

• Understand retirement plan contribution limits
• Set up a retirement plan

On the other hand, the option to remove the Federal or State taxes in QuickBooks Desktop is unavailable. With this said, I'd recommend sending this request straight to our product engineers through feedback. Sharing features and options that you would like implemented is how our engineers look for new product updates. Here's how:

1. Go to the Help menu.
2. Select Send Feedback Online, then choose Product Suggestion.
3. Enter your request.
4. Once done, click Send Feedback.

We also encourage you to consult your tax advisor on how to properly handle this one in QuickBooks Desktop. If you need to see QuickBooks tracks employees' deductions, you can payroll reports. To learn more about it, please check here: Customize payroll and employee reports.

Let me know if you have other payroll concerns. Just leave a comment below and I'll get back to you.

@RCV  RE: On the other hand, the option to remove the Federal or State taxes in QuickBooks Desktop is unavailable.

Well, it is actually available except if someone is using Assisted payroll, and then it's not.

But in any case, there is no reason to change the taxability of this payroll item as the defaults are correct, which you should know - being a QuickBooks payroll expert that you must be to be here answering questions.

That is why the Assisted payroll customer can't change the taxability. Which you should know. And it is why the non-Assisted payroll customer will get big ugly warning when they change the taxability. Which you should know.

There is no reason to send the customer off to put in a suggestion for something that is currently working correctly. Which you could have pointed out to the customer instead of insinuating there might be something wrong.

You mentioned that:   

The supported retirement plans for 403 in QuickBooks Desktop are the following:

• 403(b) /403(b) catch-up

That is not correct.  403(b) by itself is not taxable.  QB deducts taxes.  So 403(b) is actually NOT supported by QB.  Which is my issue.  

So I do not accept this response as resolved.  

The defaults are not correct.  As a 403(b) for a non-profit organization is non-taxable.  And yes, I'm using Assisted payroll.  Which I really don't understand why there isn't a work-around when this is a legitimate request.  Even legal...

RE: As a 403(b) for a non-profit organization is non-taxable.

Yes, when adding a standard 403(b) contribution item to the paycheck, income taxes are reduced.

But not for a Roth 403(b), which does not reduce any taxes, as it is an after-tax deduction.

Contributions to Roth plans do not reduce taxes withheld from paychecks or your total tax due when you file your taxes. They are not tax shelters in that way, which is why you can't change the taxability of the item and make it reduce taxes.

1. NOT a Roth, so that information doesn't help me.  

I appreciation the desire to help me, but it sounds like there is NOT a solution for my problem, but to move my client to another payroll service.  Actually, I will move all my clients.   

@Gma Sonshine 

RE: I appreciation the desire to help me, but it sounds like there is NOT a solution for my problem,

I think we may have lost track of the problem in this thread. At least, I can't see one.

What specifically do you see as the problem? What are you trying to do that you can't do?

A 501(c3) church client has set up a 403(b) NON-TAXABLE contribution account for their pastors.  Pastors can contribute to this account via payroll pre-tax.  QB will not allow me to run the 403(b) without taking out taxes.  This is pre-tax dollars.  I am using QuickBooks Accountant Desktop 2022 version, with Assisted Payroll.  QB says there is no work around and their suggestion was to to check with my accountant to make sure IRS is correct.  That is one of the most ridiculous things I've heard from them.   IRS citation is in the first post.  

This is not a 403(b) ROTH, so please don't mention that again.  

RE: A 501(c3) church client has set up a 403(b) NON-TAXABLE contribution account for their pastors.

I'll take this to mean the deduction should reduce income taxes, which the standard 403(b), just like a 401(k) will do.

RE: QB will not allow me to run the 403(b) without taking out taxes. 

When using a standard 403(b) item, the federal and most state income taxes will be reduced, but they'll still likely calculate something on the check. Other taxes are not impacted.

RE: This is not a 403(b) ROTH, so please don't mention that again.  

Well, what is sounds like to me is that the item is actually set up as a Roth 403(b). This is because what you describe is exactly how a Roth 403(b) behaves: It does not impact/reduce any taxes.

If you edit the payroll item and review the tax setting, is it a "Roth 403(b)", or a standard "403(b)"?

Based on what you're saying, it should not say Roth 403(b) when you edit it.

If it's a standard "403(b)", then the taxability slide should look like this for Federal Withholding and probably your state as well. Most state withholding taxes, but not all, will be selected:

Most other taxes won't be, which is appropriate.

What do you see when you edit your payroll item?

Suggestion:  Don't use the pre-set 403(b), etc. new payroll item feature.

Make a new "Custom Setup" payroll item and customize it to process that however you want it to for withholding taxes, posting to certain liability account, etc.