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Refund an employee for a deduction that was overwithheld

SOLVEDby QuickBooksQuickBooks Desktop Payroll4Updated April 21, 2021

This article explains how to refund an employee for a deduction such as 401(k), health insurance or wage garnishment that was over withheld or exceeded the annual limit.


To refund a deduction on the employee's next paycheck:

This reverses the liability due and adds the amount back to the employee's gross or net wages so their earnings are taxed properly and their Form W-2 is correct.

Entering this type of transaction or correction on a paycheck will not cause an amendment as long as you are correcting current year payroll.

If you already paid the liability in QuickBooks Desktop:

Note: Do not make full adjustment if the amount of the adjustment is larger than the wages on the paycheck. If this happens, allocate the adjustment over multiple paychecks.

  1. On the paycheck, under Other Payroll Items, use the same Employee Deduction payroll item to enter a positive amount that equals the amount exceeding the annual limit.
  2. When you see the message: Deductions are normally entered as negative numbers. "Are you sure you want to enter a positive deduction on this paycheck?" click Yes.
  1. If the payment was created but not printed, delete the payment so the amount owed is returned to the Pay Schedule Liability area.
  2. If the payment was sent to the agency, you or the employee must request a refund from the agency.

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