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Home » QuickBooks Payroll Not Deducting Taxes? Here’s What to Do

QuickBooks Payroll Not Deducting Taxes? Here’s What to Do

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Is your QuickBooks payroll not deducting taxes even after having an active payroll subscription and updated file? This is a common issue that can arise due to many factors, like incorrect employee setup or an outdated QB.

It usually arises unexpectedly and, in some cases, right after upgrading the QuickBooks Desktop version. To learn more about why payroll stops taking taxes out of checks and how to resolve it, keep reading this troubleshooting guide until the end.

If taxes are not getting deducted while processing payroll, it can create a lot of financial mess. This issue can affect the paycheck processing and lead to an incorrect amount on the paychecks. If you need expert assistance in fixing this issue, reach out to our support team at 800-580-5375

Primary Reasons Why QuickBooks Payroll is Not Deducting Taxes 

There are several reasons why QuickBooks is not withholding federal taxes. Knowing about these reasons can help you understand this issue better. The below-mentioned reasons are why QuickBooks payroll is not deducting taxes – 

  • The employee, tax, or payroll item setup in QuickBooks might be incorrect.
  • The total annual salary of the employee is exceeding the salary limit.
  • Your QuickBooks Desktop version might be discontinued or lacking the latest updates.
  • The QuickBooks payroll tax tables are missing the latest updates.
  • The gross wages of the employees’ last payroll are too low, and the employees do not meet the taxable wage base.
  • The employee has a “Do Not Withhold” status for federal and state income taxes, and the filling status is incorrect.
  • Your QB payroll subscription status might be inactive, which can be another reason why QB payroll is not deducting taxes.

These are the primary reasons why QuickBooks does not deduct taxes while processing payroll. Now, let’s move to the next section and learn how to fix this issue effectively.

Effective Solutions When QuickBooks Payroll Taxes are Not Being Taken Out 

You won’t be able to process the payroll correctly if your QuickBooks is not deducting payroll taxes. Thus, you must resolve this payroll issue as soon as possible. To fix this issue effectively, follow the troubleshooting solutions given below –

Solution 1 – Update QB and Payroll Tax Tables and Revert the Paychecks

An outdated QB or payroll tax table can be why payroll is not taking taxes out of the payroll check. To fix this issue, make sure QuickBooks and the tax table have the latest updates. Then, revert the paychecks by following the step-by-step process below –

Step 1 – Download QBDT Updates

Implement the steps given below to update QB Desktop to the latest release –

  • Open QBDT, move to the Help menu, then choose Update QuickBooks Desktop, and select Update Now.
  • Further, mark the Reset Updates checkbox and click Get Updates.
Process of updating QuickBooks
  • After downloading the updates, reopen QuickBooks Desktop to install them by clicking Install Now.

Once done, move to step 2 to download payroll tax table updates.

Step 2 – Update QB Payroll Tax Table

After installing the QuickBooks Desktop updates, download the payroll tax table updates using the instructions below –

  • Launch QuickBooks Desktop, open the Employees menu, select Get Payroll Updates, and click Download Entire Update.
Process of getting payroll update
  • Further, click Update and wait for the informational window to appear, indicating that the download process is complete.

After the tax tables are updated, revert your employee’s paycheck in step 3.

Step 3 – Revert the Employee’s Paycheck

You need to revert the employee’s paycheck using the instructions below to refresh the payroll info and for the taxes to calculate –

  • Open the Employees tab in QuickBooks, then choose Pay Employees, and select Scheduled Payroll.
  • Next, click Resume Scheduled Payroll, then right-click on the employee you wish to undo the changes for and select Revert Paychecks.
Learn to create paychecks
  • Find the yellow highlight, which will indicate that the employee has a pending paycheck, then click Open Paycheck Detail.
  • Lastly, enter the details of the payroll and hit Save & Close.

Note: If you have already issued the employee’s paycheck, void or delete it and start all over again. 

After reverting the paychecks, check if QuickBooks is properly deducting the taxes. If QuickBooks is still not deducting the taxes from the QB payroll, move to troubleshooting solution 2.

Solution 2 – Review the Employee’s Tax Setup and Filing Status 

If the employee’s filing status in the federal form W-4 is set to Exempt or Do not withhold, the taxes won’t be deducted from their paycheck. To fix this issue, you need to edit the filing status using the instructions below –

  • Go to the Employees menu in QB, then choose Employee Center. Double-click each employee’s name one at a time.
  • Select Payroll Info on the left and make sure that the Pay Frequency is correct.
  • Click the Taxes button, then go to the Federal tab and review the Filing Status and Allowances fields.
Federal Tax Exemption
  • If the employee’s filing status displays as Exempt or Do not withhold, make the necessary corrections, then hit OK twice.

After editing the filing status, rerun payroll and check if QuickBooks is deducting taxes correctly. If QuickBooks payroll taxes are not being deducted, move to the next solution.

Solution 3 – Check the QB Payroll Subscription Status 

If your payroll subscription is inactive, QuickBooks won’t calculate the taxes accurately. This can lead to problems while deducting the said taxes from the QB payroll. To fix this issue, revalidate the payroll service key with the help of the instructions below –

  1. Launch QuickBooks, go to the Employees menu, then click on My Payroll Service.
  2. Select Manage Service Key, then go to the QuickBooks Service Keys page and click Edit.
QuickBooks License Number
  • Remove the service key listed, then re-enter the correct service key, then click Next until Finish appears.

Once done, rerun QB payroll and check if QuickBooks correctly calculating and deducting the taxes. If QuickBooks payroll is not deducting taxes even after validating the subscription, move to the next solution.

Solution 4 – Review the Employee Withholding Report 

Sometimes, incorrect year-to-date or quarter-to-date wage or tax information can also cause issues while processing payroll. When you find QuickBooks payroll is not deducting taxes, you can fix it by reviewing this information. You can check the taxes of all the active employees in the withholding report using the instructions below –

  1. Select Reports, then head to the Employees and Payroll section and click Employee Withholding.
  2. Further, tap on the Customize Report tab, then choose the columns as per your requirements.
  3. In the Display List section, click the Items you want to display on your report, then choose OK to save the changes.
  4. Next, ensure that your employees are set up accurately for state, local, and federal taxes.
  5. To edit the information, go to the Employee Info window, select the Employee’s name, and the employee information window will appear on the screen.
  6. Select Payroll Info, go to the Taxes tab, and click on the Federal, State, and/ or Other tab.
  7. Lastly, ensure that the employee is marked correctly for taxes and end the process.

Once done, rerun QuickBooks payroll and check if the tax deduction problem in QB persists. If the issue persists, move to solution 5 and check the annual limit.

Solution 5 – Check if the Annual Limit for the Employee has been Reached

If your QuickBooks payroll did not deduct taxes, run the tax and wage summary report to check the annual limit. You can face issues while deducting or withholding taxes if QuickBooks is touching this limit. To fix this, review the annual limit and change it using the instructions below –

  • Select Lists and click Payroll Item List from the top menu bar, then right-click on the payroll item that you wish to modify.
Here is Payroll Item List
  • Choose Edit Payroll Items, then scroll down to the Next screen until the Limit Type screen appears.
Here is how to edit payroll item
  • Further, verify that the box at the bottom has no issues.
    • If there are no issues with the limit the employee’s payroll should stop calculating at that limit.
    • However, if the limit is not correct, you need to update the amount.
  • Now, under the Limit Type section, verify that you have chosen the right option from the following –
    • Annual – Restart every year
    • Monthly – Restart every month
    • One-time limit
  • If the option isn’t correctly chosen, you can change the default limit or Limit Type selection to suit your preferences, then click Finish.

Once after reviewing the annual limit and changing it as as required, rerun the QB payroll and check if the issues while deducting taxes persists.

Conclusion 

We hope this detailed guide helped you fix the issues while deducting taxes in QB payroll. However, if these solutions are ineffective and QuickBooks payroll is not deducting taxes even after implementing the troubleshooting solutions, you might need expert assistance. You can reach out to our team of QB professionals at 800-580-5375 to get the best guidance in resolving the issue.

FAQs

1. What are the employee documents I need to calculate payroll taxes?

You require the following employee documents to complete payroll tax calculation in QB –

• Form W-4: Employee’s withholding certificate.
• Direct deposit authorization form.
• State W-4, if applicable.
• Form I-9: Employment Eligibility Verification.

2. How do you record payroll deductions in QuickBooks?

You can set payroll deduction items in QuickBooks in the following manner –

• Go to Lists, then select Payroll Item List, and click the Payroll Item dropdown.
• Click New, select Custom Setup, then hit Next.
• Select Deduction, click Next, then enter the name of the deduction, and select Next again.
• If applicable, select or add the plan administrator’s name and the account number, then click Next.
• Select the applicable Tax tracking type, but if dedication is after-tax, select None.
• Select Next three times, then for None tax tracking type, select net pay in the Gross vs. net window.
• Further, hit Next, and leave the Default rate and limit fields blank unless these apply to all of your employees. Remember, the rate and limit fields will be added only when the item is added to the employee profile.
• Lastly, select Finish and end the process.

3. What are the signifying symptoms when QuickBooks payroll stops deducting taxes?

If you are encountering issues in QB payroll wherein the taxes are not deducted, you will notice the following symptoms –

• The total sum might appear as zero.
• You will find the collected sum while processing paychecks incorrect.
• Some tax-related components might become invisible on the paycheck.

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