Understand how your payroll taxes are calculated

Learn how QuickBooks Online Payroll and QuickBooks Desktop Payroll calculate taxes. So you'll understand the taxes reported on your employees' paychecks and payroll forms.

As a small business owner, payroll is one of your most important tasks and 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.

Understand how QuickBooks calculates payroll taxes

Federal Income Tax (or withholding)

Federal income taxes are based on several factors:

1. Employee’s W-4
2. Pay frequency
3. Gross wages
4. Percentage or wage bracket method 

QuickBooks Online Payroll

Uses the percentage method, annualized.  This means that FIT amounts may fluctuate during the year if you give your employees bonuses or other pay in addition to their regular gross wages. 

QuickBooks Desktop Payroll

Uses the wage bracket method. This means that FIT amounts are specific for each paycheck based on the IRS Pub 15-T wage bracket tables. 

State Income Tax (or withholding)

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

Note: Federal or state income taxes will sometimes show $0.00. This is normal if your employee’s gross wage is too low, or they claimed Exempt. To understand minimum thresholds for federal withholding, check out IRS Publication 15-T. For state withholding, check out your state withholding agency website.

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.