How can I refund an employee for local taxes withheld in error? I would like to run a special payroll for this purpose and cancel out the error so the W2's are correct.

Thank you for visiting the Community space, @dylanwanke. I'm here to share some insights about how you can refund an employee for  taxes withheld.

First off, you'll need to add a new payroll item. This is helpful for tracking reimbursement separately.

Here's how:

1. From the Lists on the menu, select the Payroll Item List.
2. Select the Payroll Item button and select New.
3. Click the Addition item type. Then select Next.

Next, we can set up the new item:

1. Create an expense account to keep track of travel or mileage amounts. If this will be an advance to the employee, choose an asset account.
2. Set the Tax Tracking type to None so that the amounts do not report on tax forms. Then select Next.
3. For amounts paid per mile/kilometer, select the Based on Quantity checkbox. Then select Next.
4. Choose to calculate net pay. Then select Next.
5. Enter a Default Rate and select Finish.

Then, we can perform a payroll checkup. This way, QuickBooks will recalculate your payroll data.  

1. Go to the Employee menu and select Payroll Setup.
2. Select Data Review.
3. Under the question "Would you like QuickBooks to help you check your payroll data?," select Yes.
4. Click Continue. 

To learn more about these, you can check out these articles:

• Create a non-taxable reimbursement payroll item
• Reimburse an employee

Furthermore, I highly suggest you to reach out your accountant for further guidance in recording the payroll adjustment.

For future reference, feel free to check out these articles  in case you need ways on how to keep track of your payroll details and in filing your payroll taxes:

• Run payroll reports
• Pay and file payroll taxes online

If you have other questions about handling tax, just hit the Reply below. We're available 24/7 to help. Keep safe.

This really doesn't explain how you would "back out" the local withholding withheld in error. I am struggling with the same issue. I set up the reimbursement, created the check but there is no way to reverse the withholding out so it nets zero for the year.

Thank you for joining the thread, @Deskjockey.

I want to make sure this issue is taken care of, and I'd like to redirect you to the best support group available to get this addressed right away.

Reversing taxes or withholding from a payroll check needs to be reviewed by our QuickBooks support team for payroll correction. That said, I recommend contacting them to help you correct the paycheck. To reach them, you can follow the steps below:

1. Sign in to your QuickBooks Online account.
2. Click the Help button.
3. In the QuickBooks Assistance chatbox, select Talk to a human and choose I still need a human.
4. Select Contact Us.

You might want to run payroll reports in your QuickBooks Online. This helps you manage your payroll and keep track of employees' expenses.

Should you need any assistance processing payroll, I'm available here to help any time! Wishing you all the best, @Deskjockey.