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How are these items calculated? (Employee Summary)

The Employee Summary shows the employee-paid payroll taxes and other items (such as withholding, 401(k) deductions, Social Security, Medicare, or wage garnishments) that determine the employee's net pay. The information in this table appears on the employee's pay stub.

Sometimes, the amounts on the paycheck might be different than expected. For example, QuickBooks may adjust Social Security or Medicare calculations by a penny or stop calculating FUTA for the employee.

For general information on Payroll taxes and detailed information on payroll taxes and fees go to the Go onlinePayroll Tax Compliance page.

Common questions about paycheck calculations

How does QuickBooks calculate amounts on a paycheck?


QuickBooks uses the installed tax table (provided with the payroll update), the payroll item setup, and the employee's setup to calculate paycheck amounts. So, the amounts should be correct if you have the most recent tax table and you set up your payroll and employees correctly.

Federal and state payroll taxes


How does QuickBooks calculate withholding amounts?


QuickBooks calculates federal and state withholding amounts using:

  • The employee's marital status, deductions, and withholding information from the employee's federal (Form W-4) and state (if required) withholding allowance certificates. You record this information in the employee record when you set up the employee in QuickBooks.

  • The payroll tax tables published by federal and state payroll tax agencies.

Payroll tax tables in, for example, the federal Circular E, Employer's Tax Guide (Publication 15) are manual tables. QuickBooks uses a computer calculation method. However, the results should be similar, within $1-$5. Both methods are correct and acceptable to tax agencies.

Why are my withholding taxes zero ($0.00) or too high/low?


If none of your taxes are being calculated, you may not have an active subscription to a QuickBooks Payroll service. Without a subscription to a QuickBooks Payroll service, you need to calculate your taxes manually. For QuickBooks to automatically calculate your payroll taxes, you must subscribe to one of the QuickBooks Payroll Services.

If, however, you have an active QuickBooks Payroll subscription and your federal or state withholding is zero ($0.00), the paycheck may be for a small amount or may be for an employee claiming a large number of allowances or deductions. Both situations are common, but if the lack of withholding is unexpected, review the employee's allowances and deductions in the employee record. How do I review the employee's record?

To review the employee record before you create the paycheck:

  1. Click Cancel to close the Preview Paycheck window.

  2. In the Enter Payroll Information window, right-click the employee name, and then click Edit Employee.

  3. In the Edit Employee window, go to the Change tabs list and click Payroll and Compensation Info.

  4. Click Taxes.

  5. Verify the employee's federal and state filing status and allowances and make any necessary adjustments.

  6. Close the Edit Employee window. Any changes you make on the employee record will be reflected on the paycheck.

Many taxes seem too high/low.


Check any payroll items you added recently to be sure they were set up correctly. For example, if a new deduction is fully taxable, it reduces the amount on which taxes are calculated. Similarly, if a new addition is taxable, it increases taxes because it raises the dollars on which taxes are calculated. How do I check the tax setup on a payroll item?

To check the tax setup of a payroll item:

  1. Go to the Lists menu and click Payroll Item List.

  2. Select the payroll item you want to check.

  3. Click the Payroll Item button and then click Edit Payroll Item.

  4. Click Next in the Edit Payroll Item wizard until you open the Taxable compensation window.

  5. Review the settings; the settings in this window affect the tax amounts QuickBooks calculates on paychecks.

    To see the default tax setup for this item, click Default. Any differences may be causing a calculation issue on the employee paycheck.

Why don't calculated amounts match the printed tax tables?


You may notice differences between calculations by QuickBooks and printed wage bracket taxes. QuickBooks uses the more accurate percentage method and tax tables that are annualized (rather than weekly, biweekly, or monthly) to calculate its figures. Small discrepancies of less than $1.00 for any single state or local tax, and up to $6.00 for federal tax, are correct and acceptable to the agency. Go onlineShow me an example

Can I add/remove a tax from the paycheck?


You cannot add or remove a tax directly on the paycheck. If a payroll tax or other item is either missing or unexpectedly added to a paycheck, check the employee's record to see if the correct taxes are selected. This is the only way to include most taxes on a paycheck (except for custom taxes). How do I review the employee's record?

To review the employee record before you create the paycheck:

  1. Click Cancel to close the Preview Paycheck window.

  2. In the Enter Payroll Information window, right-click the employee name, and then click Edit Employee.

  3. In the Edit Employee window, go to the Change tabs list and click Payroll and Compensation Info.

  4. Click Taxes.

  5. Verify the employee's federal and state filing status and allowances and make any necessary adjustments.

  6. Close the Edit Employee window. Any changes you make on the employee record will be reflected on the paycheck.

Social Security and Medicare


How does QuickBooks calculate Social Security and Medicare?


QuickBooks calculates these flat-rate taxes on the year-to-date (YTD) amount instead of per transaction.

Why do Social Security or Medicare amounts vary by pennies?


QuickBooks calculates these flat-rate taxes on the year-to-date (YTD) amount instead of per transaction. This sometimes results in variance from check to check, keeping your total deduction within a fraction of a cent.

Example of the calculation method:

Medicare tax for current pay period

Medicare tax for next pay period

$ 1217.5 x 1.45% =

$ 17.65375 rounded to

$ 17.65

$ 1217.5 (previous wages) +

$ 1217.5 (current wages) =

$ 2435 x 1.45% = $ 35.3075

rounded to $ 35.31 (total tax) -

$ 17.65 (previous tax) =

$ 17.66

What if Social Security and Medicare amounts vary by a significant amount?


If the tax is off by a significant amount, there are a few possibilities:

  • The wages used to calculate the tax (known as Income Subject to Tax) are wrong because one or more payroll items are set up with the wrong taxability.

  • The previous YTD amount is "out of balance" where the YTD wage base multiplied by the tax rate doesn't result in the YTD Tax deduction in QuickBooks. (Run the Payroll Detail Review report to see the numbers used to calculate the tax amounts.) Typically, QuickBooks is correctly attempting to catch up, and the tax look too low or too high. The next paycheck for this employee should look normal.

  • The amount is actually correct, but doesn't meet your expectations. Be careful when adjusting the amount as you may be perpetuating a previous payroll setup or YTD data error.

Wage Limits


Why does QuickBooks calculate tax after the wage base limit has been met?


Certain taxes have different wage base limits that determine the maximum wage that is subject to be taxed for the year. For example, the wage base limit for Social Security is $106,800 (2009 tax year). Once the employee's wages reach the limit, neither the employee nor the employer owes any Social Security for the employee for the rest of the tax year. Determine the current wage base limit for a payroll tax

QuickBooks typically stops calculating when the employee wage reaches the wage base limit. However, in certain situations, QuickBooks still calculates tax on paychecks even after the gross wage limit for that tax has been met.

Resolve problems in your payroll data

Many times, you can resolve issues in the Employee Summary section of the paycheck by reviewing and resolving issues in your payroll data.

You can review and resolve many issues in an employee's record before you finish creating the paycheck. How?

To review the employee record before you create the paycheck:

  1. Click Cancel to close the Preview Paycheck window.

  2. In the Enter Payroll Information window, right-click the employee name, and then click Edit Employee.

  3. In the Edit Employee window, go to the Change tabs drop-down and click Payroll and Compensation Info.

  4. Click Taxes.

  5. Verify the employee's federal and state filing status and allowances and make any necessary adjustments.

  6. Close the Edit Employee window. Any changes you make on the employee record will be reflected on the paycheck.

See also

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