Handling St. Louis City Earnings Tax in QuickBooks & W-2 Reporting Issues

You are right, FNSTLTUG. QuickBooks does not support reporting Other Deductions in Box 19 of the W-2, as this section is intended solely for local, city, or other state income taxes, not general deductions or adjustments. 

Other Deductions in QuickBooks generally accommodate non-tax deductions from employees' paychecks, like garnishments, union dues, or health insurance premiums, which are not required to be reported in Box 19.

Since QuickBooks Online (QBO) currently does not automatically handle deductions specific to certain wage types, your method of manually calculating the 1% earnings tax is correct. However, to ensure this appears in Box 19 of the W-2 form, we can adjust the type of payroll item you are using.

Here are the steps to appropriately categorize the deduction for W-2 reporting:

1. Create a Local Tax Item:
   • Instead of setting up the St. Louis City Earnings Tax as an Other Deduction, create a new Payroll Item specifically for this local tax.
   • If a deduction is incorrectly set up as an "Other Deduction" instead of a "Local Tax," QuickBooks will not process it as a tax, and consequentially, it will not appear in Box 19 on the W-2. Instead, it will only be reflected in the deduction sections of employee pay statements.
2. Assign the Payroll Item:
   • Apply this payroll item to the relevant employees to withhold the 1% tax on their City Wages.
   • Since QuickBooks does not automatically segregate wages based on work location, you will need to continue manually tracking and calculating the hours worked within St. Louis city limits versus outside.
3. Review and Adjust W-2 Setup:
   • Ensure the local tax item is designated to show in Box 19 on the W-2 forms.
   • Generate a payroll summary report to verify accurate tax calculations.

It's essential to accurately select categories and types for deductions and taxes in QuickBooks, as the system sorts and handles payroll items based on these settings, important for proper W-2 reporting.

By creating a Local Tax payroll item specifically for the St. Louis City Earnings Tax, QuickBooks should automatically handle the W-2 reporting requirements more effectively, reducing the need for manual adjustments at year-end.

Furthermore, you may benefit from these resources, as they provide essential insights and guidance for tax filing:

• Pay and file your local taxes in QuickBooks Online Payroll
• Manage your payroll items in QuickBooks Online Payroll
• Set up, change, or delete employee-paid payroll deductions
  
  

 Lastly, if the setup becomes too complex, consider consulting with a QuickBooks expert or accountant. They can offer a deeper dive into your settings and ensure compliance with local tax laws.

It's admirable you're actively managing the St. Louis City Earnings Tax for eligible employees in QuickBooks Online. We appreciate your efforts to streamline this process and are here to provide any additional clarifications you might need.

Dear JorgetteG,

Thank you so much for your detailed response! I truly appreciate the time and effort you put into clarifying the situation.

I wanted to let you know that I don't appear to have the ability to create and label a payroll deduction as "local tax." While I do have the option to select local taxes, it seems that QuickBooks suggests these based on the proximity of my business and employee addresses. When I select the local tax in question, it calculates the 1% earning tax based on the total gross pay, but unfortunately, the amount cannot be adjusted to reflect the applicable wages.

Would this be a limitation of Payroll Core, or would I likely encounter the same issue with Premium or Elite versions as well?

Thank you again for your assistance, and I look forward to hearing from you.

Dear JorgetteG,

Thank you so much for your detailed response! I truly appreciate the time and effort you put into clarifying the situation.

I wanted to let you know that I don't appear to have the ability to create and label a payroll deduction as "local tax." While I do have the option to select local taxes, it seems that QuickBooks suggests these based on the proximity of my business and employee addresses. When I select the local tax in question, it calculates the 1% earning tax based on the total gross pay, but unfortunately, the amount cannot be adjusted to reflect the applicable wages.

Would this be a limitation of Payroll Core, or would I likely encounter the same issue with Premium or Elite versions as well?

Thank you again for your assistance, and I look forward to hearing from you.

Dear JorgetteG,

Thank you so much for your detailed response! I truly appreciate the time and effort you put into clarifying the situation.

I wanted to let you know that I don't appear to have the ability to create and label a payroll deduction as "local tax." While I do have the option to select local taxes, it seems that QuickBooks suggests these based on the proximity of my business and employee addresses. When I select the local tax in question, it calculates the 1% earning tax based on the total gross pay, but unfortunately, the amount cannot be adjusted to reflect the applicable wages.

Would this be a limitation of Payroll Core, or would I likely encounter the same issue with Premium or Elite versions as well?

Thank you again for your assistance.

I appreciate your attentiveness in sorting out your local tax calculations, FNSTLTUG. I'm here to discuss this further and provide a resolution for your situation.

Please know that QuickBooks automatically calculates deductions and local taxes based on the address you've set up. The platform is compliant with your tax agency's regulations. For more information, check out this link: Understand how your payroll taxes are calculated.

On the other hand, if your local taxes are deducted inaccurately from your employees, you can run the Payroll Summary report to verify the total amount of tax discrepancies. With this, you can seek assistance from an accounting professional to guide you appropriately.

After that, contact our Customer Support Team to adjust your entries accordingly. This way, you'll retain precise records for your W-2 filings.

For reference, I'm adding this resource you can review to manage inaccurate tax withholdings: Handle over-withheld or under-withheld employee-paid taxes.

I'm also attaching this article, which entails insights about local tax filings and payments: Pay and file your local taxes in QuickBooks Online Payroll.

If you have more questions about handling your local taxes in QuickBooks, hit the Reply button. We are always here for you.