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QuickBooks Payroll Not Calculating Taxes
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Why is QuickBooks Payroll Not Calculating Taxes? Solved!

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Is your QuickBooks payroll not calculating taxes? Sometimes, users find that their QuickBooks is not withholding taxes from employees’ paychecks.

If that is the case, you need to fix this right away before you run payroll. This way, you can ensure compliance with government regulations. In this blog, we will discuss different reasons why QB might not be calculating payroll taxes and how to troubleshoot it. Alright then, let’s get started without further ado.

Self-troubleshooting the QB issues can be time-consuming and tedious. Therefore, we recommend you delegate the matter to a QB ProAdvisor. Dial 800-580-5375 and speak to a ProAdvisor!

Reasons Why QuickBooks is Not Deducting Payroll Taxes

QuickBooks doesn’t withhold federal taxes from employee paychecks sometimes. Let us look at different reasons why this happens:

  • The taxes weren’t calculated correctly because of how the employee, tax, or payroll items were set up in QB Desktop.
  • The total salary of the employee exceeds the annual wage limit, or the annual wage limit is set too low.
  • The total wages of the employee were too low in the last paycheck.
  • The QuickBooks payroll and tax table is out of date and needs an update.

Troubleshooting QuickBooks Payroll Not Calculating Taxes

In this section, we will conduct comprehensive troubleshooting to ensure QuickBooks starts calculating payroll taxes. Go through the steps listed below and follow the instructions given.

1.     Update QuickBooks Desktop

To eliminate the possibility of a bug or product shortcoming causing QuickBooks payroll not calculating taxes issue, first, update QuickBooks Desktop. This brings the latest product enhancements and bug fixes.

Once done, restart QuickBooks Desktop and continue with the troubleshooting steps.

2.     Check the Status of Payroll Subscription.

QuickBooks will not calculate payroll taxes in case your payroll subscription is not active. Therefore, check the status of your payroll subscription.

  • Open QuickBooks Desktop and sign in as an admin user.
  • Choose Employees and select the Payroll Center.
  • Tap on the Payroll tab.
  • Choose Manage my account in the Subscription Status section.
  • Now, see your subscription details under Product Information.

If your subscription is inactive, you will need to revalidate your payroll subscription with an active service key.

You can find the correct service key from the email you received when you purchased QB Payroll. Get that ready before you follow the steps below.

Here is how you can revalidate your payroll subscription:

  • Open QuickBooks Desktop and sign in as an admin user.
  • Choose Employees and select My Payroll Service.
  • Tap on Manage Service Key.
  • Go to the QuickBooks Service Keys page and choose Edit.
  • Note the service key is listed somewhere else, such as the old service key.
  • Now, fill in the correct service key.
  • Tap on Next until you see Finish.
  • Choose Finish.

Once done, proceed to update QB payroll.

3.     Update QuickBooks Payroll

If your QuickBooks is not updated to the latest tax rates, you will end up calculating incorrect taxes. Therefore, make sure to update QuickBooks Payroll. This also resolves common payroll errors like PS038, 15XXX, PSXXX, etc.

Note: If you are using QuickBooks Online Payroll, the tax table rates will automatically be updated.

Download entire payroll update

Here is how to update payroll in QuickBooks Desktop.

  • Open QuickBooks Desktop.
  • Tap on Employees and choose Get Payroll Updates.
  • Click on Download Entire Update.
  • Choose Update.
  • A confirmation window will tell you when the payroll update is downloaded.

After you have updated QB Desktop and payroll, revert paychecks to refresh the payroll information and calculate the taxes. Here is how to revert the paychecks on QuickBooks Desktop:

  • Navigate to the Payroll Center and tap on the Pay Employees tab.
  • Choose Resume Scheduled Payroll or Start Unscheduled Payroll.
  • Check and verify if the dates are correct.
  • If you see that the employee’s name is highlighted in yellow, right-click on it. Choose Revert Paychecks.
  • Tap on Open Paycheck Detail. Fill in the hours or salary amount.
  • Now, check if the payroll taxes are being calculated.
  • Finally, continue to create the paychecks.

However, if QuickBooks payroll is still not calculating taxes, continue to the next steps.

4.     Check if the Employee is Eligible for Taxes

If the employees’ wages are too low, or they have many dependents or are tax exempt, they might not be eligible for the taxes. In that case, QuickBooks will not deduct payroll taxes from employee’s paychecks.

Therefore, check the employee’s wages and their Filing Status to eliminate QuickBooks payroll not calculating taxes issue.

5.     Check How Your QuickBooks Calculate Taxes

What basis does your QuickBooks use to calculate taxes – amount, hours, or neither? Let us check and ensure payroll computation settings are correct:

  • Open QuickBooks and tap on Lists.
  • Choose Payroll Item List.
  • Now, right-click the payroll item you want to make changes to.
  • Tap on the Edit Payroll Item.
  • Tap on Next until you reach the Calculate Based on Quantity.
  • Now, you can set the basis on which the taxes should be calculated – hours, quantity, or neither.
  • Tap on Next until you see Finish.
  • Finally, choose Finish.

Now, another thing we need to check is the annual limit and whether the employees have already achieved it.

  • Open QuickBooks and choose Lists.
  • Tap on Payroll Item List.
  • Now, right-click the payroll item you want to change.
  • Choose Edit Payroll Item.
  • Tap on Next until you reach the Limit Type window.
  • Now check if the set limit is correct or too low. QuickBooks stops calculating taxes at this limit.
  • Select the corresponding checkboxes under Limit Type accordingly and change the default limit as required.
  • Finally, select Finish.

6.     Review Employee Tax Information

QuickBooks needs certain information to calculate and withhold taxes, which is available in the employee’s federal W-4 form.

The tax withholding depends on the following information:

  • Sources of income
  • Taxable wage
  • Marital status
  • Number of dependents
  • How frequently the employee is paid.

Is the QuickBooks payroll not calculating taxes? If that is the case, ensure that the employee tax information is correct.

7.     Ensure Employee’s Taxes are Set Correctly

You need to check and make sure that the employee’s taxes are set up correctly. Here is how you can check the employee tax information:

  • Open QuickBooks and click on Employees.
  • Tap on the Employee Center.
Employee Center
  • Select the name of the employee.
  • Check and verify that the Pay Frequency is right.
  • Choose Taxes.
  • Click on the Federal tab.
  • Verify that the details are in the Filing Status and Allowances field. Make any changes if required.
  • Select OK.

In case you wish to start fresh and fill in the tax information, here is how you can do that:

  • Open QB and choose Employees.
  • Click on Employee Center.
  • Tap on Payroll Info and select Taxes.
  • Choose the Federal tab.
  • Tap on the W-4 Form dropdown menu.
  • Select the right form.
  • Fill in the right employee information in W-4.
  • If the employee has claimed to be exempt on their W-4, you need to select them as such. To do so, click on the Filing Status dropdown menu and select Exempt.
  • At the end, tap on OK.

Once done, revert paychecks in QuickBooks.

  • Open the Payroll Center.
  • Choose the Pay Employees tab.
  • Click on Resume Scheduled Payroll or Start Unscheduled Payroll.
  • Check the dates are correct.
  • Right-click on the employee’s name, which is highlighted in yellow, and tap on Revert Paychecks.
  • Select Open Paycheck Detail. Provide the hours or salary amount.
  • See if the payroll taxes are being calculated.
  • Proceed to create the paychecks.

However, if the issue persists, continue to the next solution listed below.

8.     Check for Pending Paychecks

Is the QuickBooks payroll not calculating taxes even after carrying out the above solutions? That can be because the employee already has a stuck or pending paycheck.

  • For that, tap on Employees.
  • Choose View Payroll Run Status.
  • Choose a payroll from the Recent payrolls field.
  • Now, tap on the View Payroll Run Status dropdown menu.
  • Click on Selected Payroll.
  • Now, you will be able to check the status of the paychecks.

There is another way you can fetch all the stuck paychecks.

  • Tap on Edit, and choose Find.
  • Click on the Advanced tab.
  • Navigate to the Advanced tab and click on the Choose Filter section.
  • Choose Detail Level.
  • Tap on Summary Only.
  • Return to the Filter list.
  • Scroll down and tap on Online Status. Choose Online to Send.
  • Finally, tap on Find.

If a paycheck is stuck, you can toggle or edit it to ensure QuickBooks payroll calculates taxes.

9.     Delete and Recreate Unissued Paychecks

If you have a pending paycheck that has not been issued to the employee yet, you can delete it. After that is done, recreate the transaction from fresh.

  • Open QuickBooks Desktop and tap on Employees.
  • Go to the Employee Center.
  • Choose the employee in question.
  • Double-tap the paycheck to open it.
  • Now, select the Delete button.
  • Finally, click on OK.

Now, create a new paycheck via unscheduled payroll.

  • Tap on Employees and choose the Payroll Center.
  • Go to the Pay Employees section. Choose Start Unscheduled Payroll.
start scheduled payroll
  • Now, choose the employee in context.
  • Tap on Open Paycheck Detail.
  • Check if QuickBooks payroll is calculating taxes correctly.
  • Finally, tap on Save and Close.

Conclusion

Now we know why is QuickBooks payroll not calculating taxes and how you can resolve this. Be sure to follow the steps in order and if you have a query, reach out to a QB ProAdvisor. If you are still having a problem calculating payroll taxes, let a ProAdvisor help you.

Dial 800-580-5375 and speak to a QuickBooks ProAdvisor right now.

Top Queries from QuickBooks Users

Why is QuickBooks not calculating payroll taxes?

QuickBooks will not calculate payroll taxes if the employee’s total wages this year have exceeded the annual wage limit or if your QuickBooks subscription has expired. Moreover, if the employee’s wages are too low or they have too many dependents, QB won’t calculate taxes.

What does revert paycheck mean in QuickBooks?

Reverting paycheck undoes the payroll data that you saved before editing or updating the information. Therefore, after you make changes to employee tax information or install payroll updates, select Revert paycheck.

Why is QuickBooks not deducting CPP?

Canada Pension Plan (CPP) is only calculated for employees of the age group 18 to 70. Therefore, check the employee information and ensure that their date of birth is filled out correctly.

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