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Setting up a user-defined local payroll tax

If you need to set up all of your payroll (compensation, benefits, employees, taxes, and payroll history), use the Payroll Setup interview. Shortcut

You need to set up a payroll item for each local payroll tax that you pay. QuickBooks includes a few local taxes on its list of common miscellaneous state and local taxes. For all other local taxes, you can set up a user-defined, other tax payroll item.

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

  2. Click the Payroll Item button and then click New.

  3. Choose Custom Setup then click Next.

  4. Click Other Tax and click Next.

  5. Click the drop-down list and choose User-Defined Tax.

  6. Do one of the following:

    • If the tax is withheld from employee wages, select Tax is paid by the employee.

    • If the tax is paid by the company, select Tax is paid by the company.

  7. Click Next.

  8. Follow the onscreen instructions to complete the display name on paychecks and tax agency information.

  9. On the Tax tracking type window do one of the following:

    • If the tax is withheld from employee wages, choose Loc. 1 Income Tax or Loc. 2 Income Tax. This tax will be reported as a local tax on W-2 forms of employees subject to the tax.

    • If the tax is paid by the company, choose Co. Paid Other Tax.

  10. Click Next.

  11. On the Calculate based on quantity window, select the checkbox only if this tax is based on days or hours worked.

  12. On the Default rate and limit window, follow the onscreen instructions.

    Important tip about entering an annual limit

  13. On the Taxable compensation window, be sure all compensation items subject to this tax are selected.

  14. On the Pre-tax deductions window, be sure that the only items selected are the ones that are deducted from wages before the tax is calculated. Check with your accountant or local tax agency if you are not sure what effect your deductions have on this tax.

  15. Click Finish.

See also

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