Understand how your payroll taxes are calculated

As a small business owner, payroll is one of your most important tasks. But it can be time-consuming. With QuickBooks Payroll, taxes are calculated automatically. Not only does it save you time, but it also helps you focus more on your business. Review this article to learn more about how ‌taxes are reported on your employees' paychecks and payroll forms.

Prerequisites

To have taxes calculated for your, you need a QuickBooks Online Payroll or QuickBooks Desktop Payroll subscription.

Payroll is where you manage contractors and employees, track employee benefits, and stay in compliance with tax and legal requirements.

If you want QuickBooks to calculate payroll for you, sign up for QuickBooks Online Payroll.

Federal Income Tax (or withholding)

Federal income taxes are based on several factors, including:

1. Employee’s W-4 info: : The W-4 form tells you how much tax to take out.
2. Pay frequency: How often you pay your employees, such as weekly or every two weeks.
3. Gross wages: The total amount you pay your employees before taxes are taken out.
4. Calculation method (Percentage or wage bracket method): QuickBooks uses different methods for online and desktop versions.

• QuickBooks Online Payroll: uses the percentage method, annualized.
  • With the percentage method, FIT amounts can change during the year if you give your employees bonuses or other pay on top of their regular wages.
• QuickBooks Desktop Payroll: uses the wage bracket method.
  • With the wage bracket method, FIT amounts are based on the IRS Pub 15-T wage bracket tables for each paycheck.

State Income Tax (or withholding)

State Income Tax calculation varies by state. Check out your state’s withholding website for details.

• $0.00 withholding: Sometimes, federal or state income taxes will show $0.00. This is normal if:
  • Your employee's gross pay is too low,
  • Your employee claims Exempt on their W-4.

Other taxes

The following taxes have set rates determined by the IRS, state, or local tax agencies:

• Social Security
• Medicare, Medicare Additional Tax
• Federal Unemployment (FUTA)
• State Unemployment (SUI) and tagalongs
• State Paid Family Leave
• State Disability 
• Local taxes

How QuickBooks handles tax updates

• QuickBooks Online Payroll: Tax updates are automatic.  There isn’t anything you need to do.
• QuickBooks Desktop Payroll: You’ll need to get a tax table update whenever prompted in QuickBooks

Related links

• Understand the federal income tax on your paycheck
• IRS Publication 15-T
• State withholding agency websites