Fix a payroll item with incorrect tax tracking type in QuickBooks Desktop Payroll

Learn how to correct a payroll item that has an incorrect tax tracking in QuickBooks Payroll, so that your employee's paychecks are accurate.

If you used a payroll item with the wrong Tax Tracking Type or you customized its taxability, you’ll need to set up a new payroll item, then update the employee's payroll. This process is also known as "an in and an out".

This process should only be used for wage, addition, deduction, and company contribution payroll items. If you want to make corrections for FIT, Social Security, Medicare, FUTA, SIT, or SUI, check out, Adjust payroll liabilities.
Note: If you use Assisted Payroll and need help with liability adjustments, contact us.

Step 1. Correct the payroll items

1. Go to Lists, then select Payroll Item List.
2. Double-click the payroll item that's set up incorrectly.
3. Edit the payroll item name by adding Do Not Use to the end of the incorrect item's name, so that it won’t be used for future payroll.
4. Select Next until Finish appears, then select Finish.
5. Select the Payroll Item ▼ dropdown, then New.
6. Set up a new payroll item for wage, addition, deduction, or company contribution to replace the wrong one. Make sure to select the correct Tax Tracking Type and taxability.

Step 2. Create a payroll summary report

1. Create a payroll summary report for the current calendar year to determine the YTD amount of the incorrect payroll item for each employee. 
2. Write down the amount or print the report. You’ll need this information in Step 3.

Step 3. Use the old and new payroll items on a paycheck

Corrections must be done on a paycheck with enough wages to cover additional taxes. If the YTD amount of the incorrect item is more than the amount of your employee's wage, you’ll need to make corrections on more than one paycheck.

1. Go to Employees, then select Payroll Center.
2. Select Start payroll (scheduled or unscheduled).
3. Enter a checkmark next to the employee you want to edit, then select Open Paycheck Detail.
4. Enter your employee's wages in the Earnings section.
5. Clear all payroll items in the Other Payroll Items section (you'll add them back later).
6. In the Other Payroll Items section, enter the following details:
   1. On the first line, select the incorrect payroll item with Do Not Use at the end, then enter the year-to-date amount you want to adjust in. If it’s a wage, addition, or company contribution item, enter the amount as negative. If it’s a deduction item, enter a positive amount.
   2. On the second line, select the correct payroll item, then enter the year-to-date amount you want to adjust out. If it’s a wage, addition, or company contribution item, enter the amount as positive. If it’s a deduction item, enter a negative amount.
7. Add other payroll items, as needed.
8. Select Save & Close.
9. Repeat steps 3-8 for each affected employee.
10. Continue processing payroll as normal.

Step 4. Inactivate the old payroll item

1. Go to Lists, then Payroll Item List.
2. Right-click the payroll item that's set up incorrectly. Select Make Payroll Item Inactive. You can’t delete the payroll item because it’s been used on a paycheck.