QuickBooks® Payroll, 1099 and Income Tax
Year-end Procedures Guide
2011 Edition
National Association of
Certified Public Bookkeepers
Kaysville, UT
Copyright© 2011 National Association of Certified Public Bookkeepers
This guide or parts thereof may not be reproduced in another document
or manuscript in any form without the permission of the publisher.
QuickBooks is a registered trademark of Intuit, Inc.
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QuickBooks Payroll, 1099 and Income Tax Year-end Procedures Guide 2011
Table of Contents
Section
Description
Page
100
Payroll Setup ..........................................................................................................
Payroll Options .......................................................................................................
QuickBooks Payroll Setup.......................................................................................
QuickBooks Employee and Payroll Centers ............................................................
1
1
10
18
101
Payroll Preparation and Reporting ..........................................................................
Paying Employees ..................................................................................................
Maintaining Employee Information ..........................................................................
Maintaining General Ledger Payroll Accounts.........................................................
Calculating, Paying, and Adjusting Payroll Liabilities...............................................
Preparing Payroll Tax Forms ..................................................................................
Processing “After-the-Fact” Payroll .........................................................................
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19
35
35
37
49
70
102
Income Tax and 1099 Preparation and Reporting ...................................................
Income Tax Preparation and Reporting...................................................................
1099 Preparation and Reporting .............................................................................
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76
82
Appendix.................................................................................................................
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Payroll Setup 1
Payroll Options
100.1 One of the first decisions companies using QuickBooks have to make is how to process
payroll. Companies using QuickBooks have several options for payroll processing:
a. Use the QuickBooks payroll feature while subscribing to one of the Intuit Payroll
Services.
b. Process payroll manually.
c. Contract with third-party payroll services.
Practitioners should understand each of the preceding options so that they can help their
QuickBooks clients assess which option best fits their needs. The following paragraphs discuss
advantages and disadvantages associated with each method of payroll processing.
100.2 QuickBooks Payroll Feature The QuickBooks payroll feature can be used to:
• Maintain employee information.
• Calculate wages for both salaried and hourly employees.
• Calculate nontaxable deductions.
• Track sick and vacation time.
• Accumulate payroll liabilities.
• Create checks to pay employees and payroll liabilities.
• Calculate year-to-date totals and print the applicable totals on Forms 940, Schedule A
(Form 940), Form 941, Schedule B (Form 941), Forms 943, 943-A, 944, 945-A, W-2,
and W-3. 2 Payroll tax forms are not available with QuickBooks Basic Payroll. (See the
discussion beginning in paragraph 101.74.)
• Use time data entered into electronic timesheets (Timer) to process payroll (via
QuickBooks Pro, Premier, and Premier-Accountant).
Paragraph 100.21 provides guidance on turning on the QuickBooks payroll feature. In addition,
Appendix 2 provides a checklist for setting up payroll in QuickBooks.
100.3 The primary limitation of the QuickBooks payroll feature is that it generally does not
calculate federal or state payroll taxes or include payroll tax forms unless the user subscribes to
one of the Intuit Payroll Services. (See paragraph 100.4.) Users that do not subscribe to one of
the services must calculate and enter payroll taxes manually for each paycheck each pay period
and prepare payroll tax forms manually.
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100.4 Intuit offers several payroll services—QuickBooks Basic Payroll, QuickBooks Enhanced
Payroll, QuickBooks Enhanced Payroll for Accountants, QuickBooks Assisted Payroll, Intuit
Online Payroll, and Payroll for QuickBooks Online. 3 Paragraph 100.20 begins a discussion on
recommending an appropriate payroll option to clients. The major differences between the
services are as follows:
• QuickBooks Basic Payroll. With this service, the user maintains the payroll function inhouse. It is recommended for small businesses with 1–3 employees. No tax forms are
included with this service. (For additional discussion, see paragraph 100.6.)
• QuickBooks Enhanced Payroll. The user also maintains the payroll function in-house
with this service. However, it includes more advanced features including federal and
state payroll tax forms, net-to-gross calculations, and workers compensation tracking
and reporting. (For additional discussion, see paragraph 100.6.)
• QuickBooks Enhanced Payroll for Accountants. This service is designed for
practitioners who process payroll for multiple clients. Practitioners can process payroll
for up to 50 clients under one subscription. Users can also perform after-the-fact payroll.
(See discussion at paragraph 101.120.) It also includes the advanced features including
federal and state payroll tax forms, net-to-gross calculations, and workers compensation
tracking and reporting. (For additional discussion, see paragraph 100.6.)
• QuickBooks Assisted Payroll. With this service, the user outsources portions of the
payroll function to Intuit. (For additional discussion, see paragraph 100.12.)
• Payroll for QuickBooks Online. Payroll for QuickBooks Online works within QuickBooks
Online Edition and users can calculate wages, deductions and federal withholdings, and
prepare Forms 940, 941, 944, W-2, and W-3. Direct deposit is available with Payroll for
QuickBooks Online.
• Intuit Online Payroll. Intuit Online Payroll is a payroll-only solution; it integrates with
QuickBooks and QuickBooks Online. Intuit Online payroll users can calculate wages,
deductions and federal withholdings and prepare Forms 940, 941, 944, W-2, and W-3.
Direct deposit is available with online payroll.
100.5 The primary advantage of subscribing to one of the payroll services integrated with
QuickBooks is that they calculate payroll taxes using the most current federal and state tax
information. Some of the services also generate current payroll tax forms for their subscribers.
As discussed in paragraph 100.17, users who do not subscribe to one of the Intuit payroll
services may calculate and enter payroll tax deductions manually for each paycheck each pay
period. Users who subscribe to any of the Intuit payroll services should turn on the QuickBooks
payroll feature and set up payroll as discussed in paragraph 100.21.
100.6 The QuickBooks Basic Payroll, QuickBooks Enhanced Payroll, and QuickBooks
Enhanced Payroll for Accountants payroll services allow subscribers to download updated
federal and state payroll tax tables via the internet throughout the year as tax regulations
change. QuickBooks then uses the downloaded tables to calculate payroll taxes automatically.
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To ensure current information is used each pay period, subscribers should go online to obtain
current payroll updates each time they pay employees. Subscribers should select “Get Payroll
Updates” from the “Employees” menu in QuickBooks, and then click on “Update” to download
the current payroll update. Payroll updates provide current tax tables, tax regulations, and
payroll tax forms. (QuickBooks Basic Payroll does not include payroll tax forms.)
100.7 In addition to calculating payroll taxes, the QuickBooks Enhanced Payroll and
QuickBooks Enhanced Payroll for Accountants payroll services also allow subscribers to
generate the most current versions of the following federal payroll tax forms:
• Form 940, Employer’s Annual Federal Unemployment (FUTA) Tax Return including
Schedule A, Multi-State Employer and Credit Reduction Information.
• Form 941, Employer’s Quarterly Federal Tax Return.
• Schedule B (Form 941), Employer’s Record of Federal Tax Liability.
• Form 943, Employer’s Annual Federal Tax Return for Agricultural Employees, including
Form 943-A, Agricultural Employer’s Record of Federal Tax Liability.
• Form 944, Employer’s Annual Federal Tax Return, including Form 945-A, Annual
Record of Federal Tax Liability.
• Form W-2, Wage and Tax Statement.
• Form W-3, Transmittal of Income and Tax Statements.
100.8 The QuickBooks Enhanced Payroll and QuickBooks Enhanced Payroll for Accountants
payroll services also provide the following features:
• The Ability to Generate State Payroll Tax Forms. Subscribers can generate state forms
for over 40 states. QuickBooks users can check the availability of their state form at
www.quickbooks.com/taxforms.
• The Ability to Track, Report and Calculate Workers Compensation. Subscribers can
track workers compensation costs, classification codes, and rates.
• The Ability to Compute Net-to-gross Calculations. Subscribers can write a check for a
specific dollar amount and QuickBooks will calculate the gross check amount.
• The Ability to Input Hours for Multiple Employees on a Single Screen.
• The Ability to Calculate Automatic Overtime. Subscribers can track overtime and
double overtime.
• The Ability to Track Healthcare Savings Accounts. Subscribers can set up Healthcare
Savings Accounts for their employees.
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• The Ability to Sort Employees by Pay Period or User-defined Classes.
• The Ability to Record Client Payroll Data in QuickBooks After-the-fact. This feature is
available with QuickBooks Enhanced Payroll for Accountants subscription. (See
discussion at paragraph 101.120.)
• The Ability to Record Payroll Reports for Clients. This feature is available with
QuickBooks Enhanced Payroll for Accountants subscription.
100.9 Subscribers to the QuickBooks Basic Payroll, QuickBooks Enhanced Payroll, and
QuickBooks Enhanced Payroll for Accountants payroll services are charged an annual fee. For
an additional fee, these services also provide for direct deposit of employees’ paychecks into
their bank accounts. Direct deposit of paychecks is discussed further beginning in paragraph
101.21. 4
100.10 QuickBooks allows practitioners and other users to process payroll for one to three
companies with separate federal identification numbers using a single QuickBooks Basic Payroll
or QuickBooks Enhanced Payroll subscription per registered copy of QuickBooks. Practitioners
who process payroll for more than three companies with separate federal identification numbers
should subscribe to the QuickBooks Enhanced Payroll for Accountants payroll service. This
service allows them to process payroll for 1–50 companies with a single subscription.
Practitioners can set up a subscription to process payroll for multiple companies using one copy
of QuickBooks as follows:
• Open the company file to be added by selecting “Open Company” from the “File” menu.
• Select “Payroll” and then “Use My Existing Payroll Service” from the “Employees”
menu. (If the company already has an existing payroll subscription, select “My Payroll
Service” and the “Change Payroll Service Options” from the “Employees” menu.)
• Follow the onscreen instructions. 5
Payrolls for multiple companies can be processed using a single QuickBooks Basic Payroll or
QuickBooks Enhanced Payroll subscription; however, the direct deposit service requires a
separate subscription for each company using direct deposit. Practitioners subscribing to the
QuickBooks Enhanced Payroll for Accountants payroll service can process direct deposit for
multiple companies with a single direct deposit subscription.
100.11 Practitioners who process payroll or print forms using their clients’ QuickBooks files
should purchase their own copy of QuickBooks and a QuickBooks Enhanced Payroll for
Accountants subscription. However, practitioners who do not actually process payroll for their
QuickBooks clients can review and adjust clients’ QuickBooks payroll data without subscribing
to one of the services. In that case, clients should purchase their own subscription and send
their QuickBooks files to the practitioner to review and adjust. The practitioner can run payroll
reports, review prior paychecks, adjust payroll liabilities, and record journal entries without a
payroll service subscription. (See discussion on after-the-fact payroll at paragraph 101.120.)
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100.12 In addition to providing the services included in the QuickBooks Basic Payroll,
QuickBooks Enhanced Payroll, and QuickBooks Enhanced Payroll for Accountants payroll
services, the Assisted Payroll Service:
• Deposits federal and state payroll taxes (in compliance with EFTPS requirements).
• Prepares and electronically files federal and state payroll tax forms, including Form W3.
• Prepares W-2 forms for employees.
• Provides a toll-free number for payroll technical support.
The subscription fee for the QuickBooks Assisted Payroll Service varies based on the number of
employees, payroll frequency, and the number of states in which the business files payroll
taxes. QuickBooks users should call (800) 316-1365 for Assisted Payroll Service price quotes.
Direct deposit of employees’ paychecks also is available to QuickBooks Assisted Payroll
Service subscribers for an additional charge.
100.13 Subscribers to the QuickBooks Assisted Payroll Service enter payroll data into their
QuickBooks company files and transmit the data to Intuit via the internet by selecting “Send
Payroll Data” from the “Employees” menu. Payroll data must be transmitted to Intuit by 5:00
p.m. (Pacific Time) at least two banking days before the paycheck date. Intuit electronically
notifies the subscriber upon receipt of the payroll file, and then processes the file and updates
the subscriber’s general ledger accounts in QuickBooks. After the payroll file has been
processed, subscribers actually print their own paychecks rather than waiting for them to be
delivered by the payroll service. Intuit withdraws funds from the subscriber’s bank account one
banking day before the paycheck date and subsequently deposits payroll taxes and files the
applicable payroll tax forms. Intuit sends the subscriber a copy of the federal and state payroll
tax forms filed each quarter. Intuit also prints the subscriber’s W-2 forms at the end of the year
and mails them to the subscriber for distribution to employees. Intuit assumes complete
responsibility for accurate and timely federal and state payroll tax filings and payments based on
the data supplied by the subscriber. Intuit guarantees to pay any payroll tax penalties if the
information transmitted by the subscriber is accurate and timely and the subscriber’s bank
account has sufficient funds for tax payments.
100.14 To subscribe to QuickBooks Basic, Enhanced, or Assisted Payroll, users should choose
“Payroll” and then “Order Payroll Service” from the “Employees” menu. This will open the
QuickBooks Payroll website. Select the option that best fits the company’s needs and follow the
on-screen prompts. 6 The QuickBooks Basic or Enhanced Payroll applications may be
completed online; however, to subscribe to QuickBooks Assisted users must contact Intuit. See
paragraph 100.15.
100.15 Assisted Payroll Service subscribers should contact Intuit at (866) 820-6378 to receive a
PIN number. The entire sign-up process can take two to four weeks to process the required
application and forms. However, new subscribers can use QuickBooks to automatically
calculate payroll taxes for up to 60 days while completing the process. One of the primary
advantages to using the Assisted Payroll rather than another outside payroll service is that all
payroll transactions are automatically posted in QuickBooks. As discussed in paragraph 101.6,
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QuickBooks users that use third-party payroll services must manually post all payroll
transactions to QuickBooks.
100.16 Manual Payroll Processing QuickBooks users can decide not to utilize the QuickBooks
payroll feature to calculate payroll using one of the Intuit Payroll Services discussed in
paragraph 100.4, but still use QuickBooks to enter and maintain payroll information calculated
manually. To activate the QuickBooks payroll features without signing up for one of the services,
users should type “manual payroll” in the Help screen. Then click on the link. This will enable
the user to manually enter payroll taxes into the “Preview paycheck” window as discussed in
paragraph 101.6.
NOTE Users of QuickBooks 2008 should choose “Payroll” and then “Learn about
Payroll Options” from the “Employees” menu. This will open the QuickBooks
Payroll website. Click “Learn more” following the sentence “Information on how
to enter payroll information into QuickBooks if you don’t use QuickBooks
Payroll” and then click the “Click here to enable manual paycheck entry in
QuickBooks” link.
100.17 QuickBooks users that choose to calculate payroll taxes manually rather than
subscribing to one of the Intuit Payroll Services should obtain current tax tables (including tables
for midyear tax changes) and wage limits (on taxes such as FICA and FUTA) from the IRS and
applicable state and local tax agencies. Each pay period, QuickBooks inserts a tax amount of
zero for each federal and state payroll tax item. Users must replace the zero tax amounts with
the manually calculated amounts for each employee each pay period. (See further discussion in
paragraph 101.58.) Since federal, state, and local payroll tax information can change at various
times throughout the year, users should routinely contact the applicable tax agencies for any
changes.
100.18 Even QuickBooks users who do not utilize the QuickBooks payroll feature should set up
payroll expense accounts and subaccounts, as well as payroll liability accounts, in the chart of
accounts. When QuickBooks is used to process payroll, payroll amounts are posted
automatically to the general ledger payroll accounts. However, when users prepare payroll
outside QuickBooks, the payroll information for each pay period must be summarized and
recorded in the general ledger via journal entries, as discussed beginning in paragraph 101.6.
100.19 Third-party Payroll Services Businesses using QuickBooks may decide to use
practitioners or third-party payroll services to process payroll rather than using the QuickBooks
payroll feature manually or signing up for one of the Intuit Payroll Services. QuickBooks users
contracting with a third party to process payroll should not use the QuickBooks payroll feature. If
the payroll feature is turned off, QuickBooks users still should set up and maintain employees
on the “Employee List” to track the checks written to each employee. When the payroll feature is
turned off, the “Employee List” maintains only basic employee information, such as name,
address, phone number, social security number, email address, employee type, and hire and
release dates, as well as any custom information defined by the employer. In addition,
QuickBooks users not using the payroll feature should set up payroll expense and liability
accounts and subaccounts, as discussed in paragraph 100.18.
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100.20 Recommending An Appropriate Payroll Option Clients often ask their practitioners
for a recommendation on which payroll option is right for their business. The previous
paragraphs discuss the basic differences between each of the payroll options. However,
practitioners can provide a valuable service, if, in addition to understanding the differences, they
can also recommend the right solution to their clients. The right payroll option will depend on
several factors, including, the client’s level of sophistication, the level of control they want, the
complexity of their payroll benefits, and the number of employees. Exhibit 1 gives the
practitioners a starting point from which to begin the process of recommending a payroll option;
however, a thorough evaluation of the client’s needs should be made.
Exhibit 1
Comparison of Payroll Options
Payroll Option
Manual Processing
Features
Appropriate for
Not Recommended for
• Clients process
own payroll
• Clients with small
budgets
• Clients with more
than 1-2 employees
• Clients generate
payroll tax forms
• Clients with payroll
expertise
• Clients with
complex payroll
needs
• Clients make own
payroll deposits
• Clients who prefer to
retain control
• Clients without
problems processing
payroll or filing taxes
on time and without
errors
• Clients with access
to current IRS tables
Payroll for
QuickBooks Online
(QuickBooks
Online Edition
users only)
• Clients process
own payroll
• QuickBooks Online
subscribers
• Clients generate
payroll tax forms
• Clients with payroll
expertise
• Clients make own
payroll deposits
• Clients who prefer to
retain control
• QuickBooks
provides current
federal tax
information
• Clients without
problems processing
payroll or filing taxes
on time and without
errors
• Users of desktop
versions of
QuickBooks
• Clients that need to
track workers
compensation
• Direct deposit
7
Payroll Option
Features
Appropriate for
Not Recommended for
available
Intuit Online
Payroll
• Clients process
own payroll
• Clients with some
payroll expertise
• Clients print
payroll tax forms
• Clients who wish to
have access to payroll
anytime, anywhere
• Clients make own
payroll deposits
• Clients do not
have to use
QuickBooks
software
• Intuit provides
current federal tax
information
• Clients who wish to
share data with others
• Clients who wish to
download payroll
information to
QuickBooks or
QuickBooks Online
• Direct deposit
available
• Downloads to
QuickBooks and
QuickBooks Online
QuickBooks Basic
Payroll
• Clients process
own payroll
• Clients with 1–3
employees
• QuickBooks
provides current
federal tax
information
• Clients who wish to
have their accountants
handle payroll tax
forms
• Clients who want
to generate payroll
tax forms from within
QuickBooks
• Client can
generate payroll
reports for their
accountants
QuickBooks
Enhanced Payroll
• Clients process
own payroll
• Clients with payroll
expertise
• Clients generate
payroll tax forms
• Clients who prefer to
retain control
• Clients make own
• Clients without
problems processing
8
Payroll Option
Features
payroll deposits
• QuickBooks
provides current
federal tax
information
Appropriate for
Not Recommended for
payroll or filing taxes
on time and without
errors
• Clients with more
complex payroll needs
• Clients that need to
generate state payroll
tax forms
• Clients that need to
compute net-to-gross
calculations
• Clients that need to
track, report, and
calculate workers
compensation
QuickBooks
Assisted Payroll
• Clients retain
some control over
payroll
• QuickBooks
handles payroll
deposits, tax filings
and year-end Form
W-2s
• QuickBooks
provides live
payroll technical
support
• Clients with some
payroll expertise
• Clients who prefer to
retain some control
• Clients without
problems processing
payroll on time and
without errors
• Clients who have
missed filing or tax
payment deadlines
• Clients who do not
wish to process yearend Form W-2s
____________________
QuickBooks Payroll Setup
100.21 When a company is created, the full set of payroll features is enabled if users answer
“Yes” to the question “Do you have employees?” and check the box “We have W-2 employees”
in the “EasyStep Interview.” If the company has no employees or QuickBooks will not be used to
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track payroll, users should answer “No” to the question. To manually turn off or turn on the
payroll features, choose “Preferences” from the “Edit” menu and select the “Payroll &
Employees” icon that appears on the left of the “Preferences” screen. On the “Company
Preferences” tab, click “Full payroll” to enable all the payroll features or “No payroll” to turn off all
payroll features in QuickBooks. If the company will use the Intuit Payroll Services Complete
Payroll option, click “Complete Payroll Customers.”
100.22 If the QuickBooks “full payroll” feature is selected, the following tasks will need to be
completed to set up payroll (The amount of time it takes to complete each task varies according
to the size of company and the payroll service option chosen.):
a. Gather the necessary information.
b. Sign up for a payroll service or choose to process payroll manually. (See further
discussion at paragraph 100.14.)
c. Use the Payroll Setup Interview to:
• Enter payroll items (including liability payment schedule frequency).
• Enter employee information.
• Enter year-to-date payroll amounts.
d. Specify payroll preferences.
e. Set up payroll schedules.
f. Review Payroll Data
NOTE QuickBooks streamlines the payroll setup process by using a “Payroll Setup
Interview” to help users set up their payroll items, including compensation and
benefits, enter employees and year-to-date payroll amounts, and set up pay
schedules and pay liabilities schedules.
Appendix 2 includes a payroll setup checklist that covers each of the preceding tasks.
100.23 Gather the Necessary Information Payroll setup is easier if all of the information
needed is on hand before the setup process begins. Appendix 1 includes a list of information
users should have before setting up payroll.
NOTE QuickPayroll data does not work with QuickBooks. To convert from QuickPayroll,
print the following reports from QuickPayroll and manually set up the payroll
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information in QuickBooks.
• Payroll item listing.
• Employee contact list.
• Employee withholding report.
• Payroll summary report.
QuickPayroll was discontinued on December 31, 2009.
100.24 Sign Up For A Payroll Service or Choose to Process Payroll Manually. Employers
must decide whether they want to process payroll manually or sign up for one of Intuit’s payroll
services. (See the discussion beginning at paragraph 100.1 on the different payroll processing
options. See the discussion beginning at paragraph 100.14 on how to subscribe to a payroll
service. See the discussion beginning at paragraph 100.16 on manual payroll processing.)
100.25 Payroll Setup Interview To start the “Payroll Setup Interview,” select “Payroll Setup”
from the “Employee” menu. 7 Follow the onscreen prompts to:
• Enter payroll items (including liability payment schedule frequency).
• Enter employee information.
• Enter year-to-date payroll amounts.
The following paragraphs explain what information should be entered into the Interview and also
describes how to enter the information manually.
100.26 Enter Payroll Items. QuickBooks expresses all payroll transactions—whether they are
paychecks, payroll tax payments, or adjustments—in terms of payroll items. It uses those
payroll items to track individual paycheck amounts and accumulated year-to-date wages and tax
amounts for each employee. There are payroll items for:
• Compensation.
• Benefits.
• Taxes.
• Other additions and deductions.
• Employer-paid expenses.
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100.27 Users should follow the onscreen prompts to set up payroll items such as salary, hourly
wage, insurance and retirement benefits, etc. Users should also set up scheduled tax payments
when prompted. Users can edit existing payroll items or create additional payroll items manually
by selecting “Payroll Item List” from the “Lists” menu, clicking the “Payroll Item” button, choosing
“Edit” or “New,” and following the onscreen prompts. Users can set up scheduled tax payments
manually by selecting “Payroll Taxes and Liabilities” and then “Edit Payment Due
Dates/Methods” from the “Employees” menu.
100.28 Enter Employee Information. Information about each employee must be entered before
payrolls can be processed. 8 Such employee information includes the employee’s name,
address, social security number, etc., and the employee’s pay rate and pay frequency.
Employee information is entered as follows:
a. Define Employee Defaults. When a new employee is added to QuickBooks, certain
payroll information appears in the input screen by default. That information may then be
accepted or changed before the employee is entered. If several employees will be
entered, it may be desirable to modify the default information that appears so that
minimal changes will be needed as employees are added. The following information can
be set up as employee defaults:
(1) Salary or wage payroll items (with or without rates).
(2) Payroll schedule.
(3) Pay frequency.
(4) Class (if applicable).
(5) Whether to use time data to create checks.
(6) Additions, deductions, and company contributions that appear on paychecks.
(7) Whether employees are covered by a qualified pension plan.
(8) Taxes—federal, state, and other/local.
(9) Sick and vacation time.
To define the employee defaults manually, click “Employee Center” on the toolbar, then
click “Change New Employee Default Settings” from the “Manage Employee Information”
button. Enter the appropriate information common to most employees and click “OK” to
record the employee default setup.
NOTE The order in which payroll items are entered in the “Employee Defaults” window
or the “Review or Change Paycheck” window can affect the amount QuickBooks
calculates for each item and for taxes. If any of the payroll items are based on a
percentage of gross pay, the order in which payroll items are added is important
because some of the items increase the gross pay, while others have no effect on
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it. Items that increase gross pay are commissions and additions to gross. An
example of an item that decreases gross pay is employee contributions to an
IRA. Following is an example of why order is important: Mike has a salary of
$1,500.00, a flat commission of $300.00, and contributes 5% to an IRA. If the
commission item is entered first, QuickBooks calculates the 5% IRA on a gross of
$1,800.00 ($1,500.00 + $300.00); therefore, his net before taxes is $1,710.00
($1,800.00 − $90.00). However, if the IRA item is entered first, QuickBooks
calculates the 5% IRA on a gross of $1,500.00; therefore, his net before taxes is
$1,725.00 ($1,500.00 − $75.00 + $300.00).
b. Add Employees to the “Employee List.” Each employee’s name and payroll
information must be entered before payroll can be processed. To do so manually, click
“Employee Center” on the toolbar and click the “New Employee” button (or click the “Edit
Employee” button to change the information of an employee who has already been
entered). Then, provide the following information:
(1) Personal Info Tab—
• Personal —Enter the employee’s name as it should appear on his or her W-2 form and
as it should appear on checks (if different), social security number, gender (if required for
the employee’s state), and date of birth.
• Address and Contact —The information entered in these fields can be exported and
used in a form letter.
• Additional Info —Enter employee account number or employee I.D. Click “Define
Fields” to add custom fields that track employee information such as spouse’s name and
date of last raise.
(2) Payroll and Compensation Info Tab—By design, most of the requested information
has been filled in using the default information entered in step a. If any of the information
is incorrect for a particular employee, simply change it on this screen.
(3) Employment Info Tab—Enter the employee’s hire date and his or her release date if
he or she is no longer on the payroll. Specify whether he or she is a regular employee,
statutory employee, an officer, or an owner.
(4) Workers Compensation Tab—Enter the employee’s default workers compensation
code. If the employee is exempt from workers compensation, choose “Exempt.” 9
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100.29 Enter Year-to-date Payroll Amounts. If a client issued paychecks between January 1 and
the QuickBooks start date, this historical information must be entered. This information is
necessary in order to ensure correct year-to-date amounts on checks and in order to prepare
W-2s, IRS Forms 940, 941, 943, and 944, and any required state and local withholding tax
forms. 10 Summaries of wages, taxes, other additions and deductions, and company contribution
amounts for each current or former employee who was paid between January 1 of the current
year and the start date will need to be entered as well as summaries of year-to-date payments
of payroll taxes and other liabilities. Before setting up year-to-date amounts for employees,
payroll information for each employee must be set up as discussed beginning in paragraph
100.28.
NOTE Be sure to include all employees who were paid anything by the company since
the beginning of the year, even if the company no longer employs them.
100.30 The following year-to-date payroll information can be entered manually as follows:
a. Employee YTD Information. To manually enter year-to-date amounts, choose “Payroll
Setup” from the “Employees” menu. Click through the steps to “5. Year-to-date Payrolls.”
All previous steps must be completed before year-to-date amounts can be entered.
Follow the onscreen instructions to enter the year-to-date information.
NOTE In QuickBooks 2009 and earlier versions, users should click through the steps to
“5. Payroll History” to manually enter year-to-date amounts.
The user will enter summaries of wages, taxes, other additions/deductions, and
company contribution amounts for each employee paid during the current calendar year
from January 1 through the start date. The information will be entered by paycheck.
QuickBooks will post the historical paycheck amounts by quarter to the “Employee
summary information”—generally a requirement for tax reporting.
NOTE Both taxes withheld and taxes that are a company expense (owed as a result of
the employee’s earnings) must be entered.
b. Prior Payments. After finishing the year-to-date amounts for all employees, payroll
liability payments the company has made from the beginning of the calendar year
through the QuickBooks setup date need to be entered. If no payments for payroll taxes
or other liabilities have been paid during the calendar year, skip this step—this step is
only needed if payroll liabilities were paid. Do not include payments for expenses (for
example, salaries, bonuses, or hourly wages) paid directly to employees.
14
NOTE All outstanding liabilities for payroll withholding, deduction, and company
contribution amounts as of the end of the previous year also need to be entered.
Although those liabilities are the result of prior years’ payroll transactions, they
are liabilities that are paid in the current year.
100.31 Specify Payroll Preferences How QuickBooks Payroll acts and the features available
to users can be specified by setting payroll preferences. Payroll preferences can be customized
to specify whether—
• Full payroll features or no payroll features. This determines how much payroll
functionality is needed.
• Employees should be listed by first or last name in the “Employee List.”
• New employees should be marked as sales reps.
• Employee Social Security Numbers should be displayed in headers on reports.
• Certain information prints on paycheck vouchers and/or paystubs. Printing preferences
include: printing employee address, printing the company address, printing the pay
period, and whether to print sick or vacation information.
• Certain information from prior paychecks should be carried forward. For example, if a
fixed amount, such as commission, occurs on every paycheck for an employee, it can be
recalled each pay period.
• Company-paid payroll expenses should be broken down on reports of expenses for
each job, service item, and class. This option varies depending on whether the user
tracks classes, time, jobs, or items.
• All payroll expenses should be assigned to a single class (if class tracking is activated).
• Workers compensation is tracked and, if it is, whether to display a message to remind
the user to assign codes and whether to exclude overtime premium from calculation.
NOTE Tracking workers compensation is a feature of the QuickBooks Enhanced Payroll
and QuickBooks Enhanced Payroll for Accountants payroll services. Users must
subscribe to one of these services to track workers compensation costs,
classification codes, and rates.
The employee defaults discussed in paragraph 100.28 can be set up by clicking the “Employee
Defaults” button.
15
100.32 To set payroll preferences, select “Preferences” from the “Edit” menu item and click on
the “Payroll & Employees” icon that appears on the left of the preferences dialog box.
100.33 Set Up Payroll Schedules Payroll schedules can be set up enabling users to pay their
employees more efficiently. The user sets up schedules defining how often they pay their
employees (weekly, bi-weekly, semi-monthly, etc.), the paycheck dates, and the payroll run
dates. After payroll schedules are set up they display in the “Payroll Center.”
100.34 To set up a new payroll schedule, users should select “Add or Edit Payroll Schedules”
from the “Employees” menu. In the “Payroll Schedule List” window select the “Payroll Schedule”
button and click “New.” Enter a name for the payroll schedule (e.g. weekly, bi-weekly, etc.),
specify how often employees assigned to this schedule should be paid from the drop-down box,
specify the pay period end date, and the date that should appear on the paycheck. The
following illustrates the “New Payroll Schedule” window set up for a biweekly schedule.
100.35 After payroll schedules are set up, they should be assigned to the appropriate
employees. A payroll schedule can be assigned to all employees in the “Employee Defaults”
window. To do so, click “Employee Center” on the toolbar, then click “Change New Employee
Default Settings” from the “Manage Employee Information” button. In the “Employee Defaults”
window, select the payroll schedule that should be assigned to all employees from the “Payroll
Schedule” drop-down box. To assign a payroll schedule to one employee, click “Employee
Center” on the toolbar and click the “New Employee” button (or click the “Edit Employee” button
if the employee has already been entered). On the “Payroll and Compensation Info” tab, select
the payroll schedule that should be assigned to that employee from the “Payroll Schedule” dropdown box. The “Pay Frequency” field will be updated automatically, grayed out, and cannot be
changed in this screen.
100.36 To run a scheduled payroll, click “Employee Center” on the toolbar and select the
“Payroll” tab to open the “Payroll Center.” In the “Pay Employees” portion of the “Payroll Center”
select the pay schedule to be run, and click the “Start Schedule Payroll” button. Edit the
information in the “Enter Payroll Information” window for each employee. Information can be
changed in the “Preview Paycheck” window by placing a checkmark beside the employee’s
name and clicking on his or her name. Once all the information is correct in the “Enter Payroll
Information” window, click “Continue.” Edit the information in the “Review and Create
Paychecks” window if necessary and click the “Create Paychecks” button.
100.37 Review Payroll Data The final step of the payroll setup process is to review the data
entered. Because QuickBooks will base new payroll transactions on the data, it is important to
16
ensure that all data was entered accurately. There are several ways to check the accuracy of
the payroll data.
a. Payroll Item Listing. The “Payroll Item Listing” report shows the name, type, expense
account, liability account, tax tracking, and annual limit (if any) of each payroll item.
Thus, it can be used to check payroll item setup. From the “Reports” menu, choose
“Employees & Payroll” and then “Payroll Item Listing.”
b. Payroll Checkup. “Payroll Checkup” is a diagnostic tool within QuickBooks that helps
QuickBooks Basic Payroll, QuickBooks Enhanced Payroll Plus, and QuickBooks
Enhanced Payroll Plus for Accountants payroll service subscribers verify current setup
by scanning payroll data for any discrepancies. (When the taxability of a payroll item is
changed, year-to-date information is entered, or the user subscribes to the Assisted
Payroll Service, a prompt appears recommending that the “Payroll Checkup” be run to
verify new or modified entries against the current payroll setup.) To run “Payroll
Checkup,” choose “My Payroll Service” and then “Run Payroll Checkup” from the
“Employees” menu item. 37 After the checkup has been run, a “Payroll Checkup Results”
HTML page will appear displaying the results and the possible solutions to
discrepancies. The page may be printed and included in the company records by
clicking “Print This Log.”
NOTE Running the “Payroll Checkup” compares the user’s payroll set up with the wage
base and tax amount totals. It does not verify that payroll data is set up correctly.
The “Payroll Checkup” may create wage base adjustments with “zero-tax”
amounts. The zero-tax amounts with “Payroll Checkup” in the “Memo” field
should not be deleted.
c. Other Payroll Reports. To check the accuracy of the payroll setup process, several
payroll reports can be printed and compared to the data entered. For example, the
“Employee List” includes the names of all employees entered in the payroll system at
any time during the current calendar year. Also, a “Payroll Summary” report and an
“Employee Earnings Summary” report can be printed and their amounts compared to
those on the company’s year-to-date payroll records. Finally, compare the company’s
current payroll liabilities per QuickBooks to the company’s prior payroll reports.
QuickBooks Employee and Payroll Centers
100.38 The “Employee Center” stores the information about the company’s employees,
including contact information, Social Security number, and transactions. QuickBooks users can
add new employees, edit an employee’s information, and view or print employee transaction
information. The “Employee Center” also has a “Payroll Center” where users can manage
payroll and tax information. 12 In the “Payroll Center” users can run scheduled payrolls, pay
17
scheduled liabilities, file tax returns, check QuickBooks Payroll subscription status, and get
payroll information and help.
1
This section discusses the general procedures for setting up a company’s payroll in
QuickBooks. See section 101 for a more in-depth discussion of QuickBooks’ payroll features,
tips on processing payrolls and avoiding common errors, and discussion on using QuickBooks
After-the-fact payroll feature.
2
QuickBooks users who subscribe to the QuickBooks Enhanced Payroll or Enhanced Payroll
for Accountants Payroll Service can also have their state forms automatically completed. See
the discussion of QuickBooks Enhanced Payroll and Enhanced Payroll for Accountants
beginning at paragraph 100.6.
3
All of the Intuit payroll services require a currently supported version of QuickBooks (see
paragraph 100.9). QuickBooks Standard Payroll is no longer available for new payroll
subscribers. It is still available to existing QuickBooks Standard customers. However, Intuit
recommends that they consider whether QuickBooks Basic or Enhanced is a better product to
meet their needs.
4
As of May 31, 2010, the payroll services will not work with QuickBooks 2007 or earlier. Users
of these versions will need to upgrade to a more recent version of QuickBooks prior to the
service discontinuation date to receive the full 12 months of their payroll subscription.
5
The user must already have an existing subscription to one of the payroll services.
6
All of the Intuit payroll services require a currently supported version of QuickBooks. (See
paragraph 100.9.)
7
In order to start the “Payroll Setup Interview,” users must have already signed up for one of the
payroll services (see paragraph 100.14) or have enabled manual paycheck entry (see
paragraph 100.16).
8
All employees who were paid during the current calendar year should be added, even if the
company does not currently employ them.
9
Tracking workers compensation is a feature of the QuickBooks Enhanced Payroll and
QuickBooks Enhanced Payroll for Accountants payroll services. Users must subscribe to one of
these services to track workers compensation costs, classification codes, and rates. This tab is
not displayed if the workers compensation feature is not turned on. Subscribers to one of those
services must set up this feature by using the “Workers Compensation Setup” wizard. (See
paragraph 101.41.)
18
10
Skip this procedure if the company has just hired its first employee(s) and/or has not prepared
a payroll during the current calendar year.
11
Users must subscribe to one of the payroll services to run the payroll checkup.
12
The “Payroll Center” is available only with a subscription to a QuickBooks Payroll Service.
101 Payroll Preparation and Reporting
101.1 Payroll typically is one of the most problematic areas for practitioners and their
QuickBooks clients. This section addresses some of the most common problems that
practitioners encounter while assisting their QuickBooks clients with payroll preparation and
reporting. The discussion in this section is not intended to provide guidance on every aspect of
payroll preparation and reporting when using QuickBooks. For information about complex
payroll tax issues.
Paying Employees
101.2 QuickBooks Payroll Feature The QuickBooks payroll feature can be used to perform
most payroll functions (including automatic posting of payroll amounts to the applicable general
ledger payroll accounts.) However, the QuickBooks payroll feature may not accurately calculate
federal or state payroll taxes unless the user subscribes to one of the Intuit Payroll Services.
Users that do not subscribe to one of the services should calculate and enter payroll taxes
manually by replacing the zero tax amounts on each paycheck with the manually calculated
amounts for each employee each pay period. (See further discussion in paragraph 101.58.)
Users that manually calculate payroll taxes should obtain current tax tables (including tables for
mid-year tax changes) and wage limits (on taxes such as FICA and FUTA) from the IRS and
applicable state and local tax agencies. 1 Since federal, state, and local payroll tax information
can change at various times throughout the year, users should routinely contact the applicable
tax agencies for any changes.
101.3 Practitioners with clients that use the QuickBooks payroll feature without subscribing to
one of the Intuit Payroll Services may want to verify that their clients calculate payroll taxes
correctly. Otherwise, practitioners may encounter many problems when preparing payroll tax
forms for those clients. Preparation of payroll tax forms using QuickBooks payroll data is
discussed beginning in paragraph 101.74.
101.4 QuickBooks Basic Payroll, Enhanced Payroll, and Enhanced Payroll for Accountants
Payroll Services The QuickBooks Basic Payroll, Enhanced Payroll, and Enhanced Payroll for
Accountants payroll services allow subscribers to use federal and state payroll tax tables
downloaded from the internet to calculate payroll taxes automatically. Although QuickBooks
requires these subscribers to download updated payroll information at least every 45 days,
practitioners should encourage their clients to obtain current payroll updates each pay period.
Practitioners who use the Basic Payroll, Enhanced Payroll, or Enhanced Payroll for Accountants
payroll services to process their clients’ payrolls also should obtain current updates each time
19
they run payroll. Subscribers can download the most current payroll update by selecting “Get
Payroll Updates” from the “Employees” menu and then clicking on “Update.” 2 The discussion
beginning in paragraph 100.6 provides more information about the QuickBooks Basic Payroll,
Enhanced Payroll, and Enhanced Payroll for Accountants payroll services.
101.5 QuickBooks Assisted Payroll Service The QuickBooks Assisted Payroll service not only
calculates payroll taxes, but also deposits payroll taxes and prepares payroll tax forms for its
subscribers. After entering payroll data into their QuickBooks company files, these subscribers
select “Send Payroll Data” from the “Employees” menu to transmit the data to Intuit via the
internet. Subscribers must transmit the data by 5:00 PM (Pacific Time) at least two banking
days before the paycheck date. Subscribers actually print their own paychecks after Intuit
processes payroll files. Intuit withdraws funds from subscribers’ bank accounts one banking day
before the paycheck date and subsequently deposits payroll taxes and files the applicable
payroll tax forms. 3 The discussion beginning in paragraph 100.12 provides more information
about the QuickBooks Assisted Payroll service.
101.6 Processing Payroll Manually or through Third-party Payroll Services As noted in
paragraph 101.2, when companies use QuickBooks to perform payroll functions but do not sign
up for one of the payroll services, they must enter payroll taxes manually. To do so, they must
create payroll items and records for each employee. When they create paychecks, they must
replace zero tax amounts on each paycheck with manually-calculated amounts. While this
method is more cumbersome than subscribing to a QuickBooks payroll service, there are fewer
out-of-pocket charges. QuickBooks records these transactions to the general ledger and payroll
ledger so that many tax-reporting features of QuickBooks are enabled.
101.7 When a company uses a third-party payroll service, the question of how to efficiently and
accurately record the payroll in the general ledger arises. Some companies use a journal entry
to record the transaction while others manually input paychecks for each employee.
101.8 Recording the Transaction with a Journal Entry. Companies that create a journal entry to
record payroll transactions must keep a schedule on spreadsheet software (like Excel) of the
payroll allocations and tax allocations. (Some companies use the class feature to separate the
costs of different locations or divisions. If the company uses that feature, it would not be
adequate to simply enter the total gross pay, net pay, and payroll tax amounts because
allocations to specific locations or divisions would be lost.) Recording this information on
spreadsheet software can be complicated and can lead to errors. 4 Therefore, this method is
most effective in companies with a large number of employees or with few employees whose
time needs to be allocated among classes (e.g., locations or divisions).
101.9 Recording the Transaction Manually. Some other companies use the information in the
payroll register prepared by the third-party payroll service to create QuickBooks paychecks for
each employee (using the manual system discussed beginning in paragraph 101.6). While
cumbersome, many companies believe the increased accuracy of payroll information is worth
the effort—especially if they have a limited number of employees. When wages or salaries are
allocated to different classes (e.g., locations or divisions) QuickBooks automatically allocates
the other company-paid payroll items using these proportions—a time saver for the company.
20
101.10 Another advantage of entering a manual transaction instead of using a journal entry is
that the company can easily identify the individual paychecks underlying expense and liability
amounts. This is a decided advantage over using spreadsheet software when investigating
possible payroll problems.
101.11 Clients using a third-party payroll service that does not integrate with QuickBooks should
use a separate bank account for payroll if the service drafts the account for paychecks or
payment of employer taxes and other deductions. To transfer the money needed for payroll,
QuickBooks users should select “Transfer Funds” from the “Banking” menu and record the
transfer of money from their regular operating account to their payroll account. Enough money
should be transferred to cover the gross payroll, employer payroll expenses for items such as
FICA, Medicare, FUTA, unemployment, pension plan contributions, and benefits contributions.
Even if payroll is run more frequently than some of the employee deductions and employer
payroll expenses are transmitted, the employer should transfer the amounts to the payroll
account each pay period.
101.12 The following represents a typical journal entry to record gross wages and employee
withholdings:
DR.
Salaries & Wages Expense
CR.
$ 25,000
FIT Payable—Employee
$ 5,000
FICA Payable—Employee
1,500
Medicare Payable—Employee
400
State Income Tax Payable—Employee
1,500
Local Income Tax Payable—Employee
700
Health Insurance Payable—Employee
500
401(k) Contribution Payable—Employee
1,300
Other Payroll Liabilities—Employee
300
Cash—Payroll Account
13,800
101.13 The following represents a typical journal entry to record the employer’s portion of
payroll taxes and other deductions:
21
DR.
Payroll Tax Expense—FICA
$ 1,500
Payroll Tax Expense—Medicare
400
Payroll Tax Expense—State Unemployment
200
Payroll Tax Expense—Health Insurance
800
Payroll Tax Expense—401(k) Contribution
1,300
CR.
FICA Payable—Employer
$ 1,500
Medicare Payable—Employer
400
State Unemployment Tax Payable—Employer
200
Health Insurance Payable—Employer
800
401(k) Contribution Payable—Employer
1,300
101.14 If the payroll service remits payroll taxes and other deductions to the various payees, the
QuickBooks user should record a journal entry for the payment. The following represents a
typical journal entry to record payments of payroll withholdings and deductions by a payroll
service:
DR.
FIT Payable—Employee
$ 5,000
FICA Payable—Employee
1,500
FICA Payable—Employer
1,500
Medicare Payable—Employee
400
Medicare Payable—Employer
400
State Income Tax Payable—Employee
1,500
Local Income Tax Payable—Employee
700
State Unemployment Tax Payable—Employer
200
CR.
22
DR.
Health Insurance Payable—Employee
500
Health Insurance Payable—Employer
800
401(k) Contribution Payable—Employee
1,300
401(k) Contribution Payable—Employer
1,300
Other Payroll Liabilities—Employee
300
Cash—Payroll Account
CR.
$ 15,400
101.15 If the QuickBooks user remits the payroll taxes and other deductions directly to the
various payees, a journal entry is not needed to record the payments in QuickBooks. The
QuickBooks check-writing process automatically records the payments in the general ledger. To
write the checks to the various vendors, users should select “Write Checks” from the “Banking”
menu. (As discussed in paragraph 101.60, payroll liabilities should be paid by selecting “Payroll
Taxes and Liabilities” and then “Pay Scheduled Liabilities” from the “Employees” menu if the
QuickBooks payroll feature is used.) At the bottom of the check form under “Account,” users
should be sure to enter the various payroll liability accounts to pay against. If payroll liability
balances have not been zeroed out, practitioners should view the account distribution on the
checks. Many clients post payroll liability checks to payroll expense accounts rather than payroll
liability accounts.
101.16 QuickBooks users should instruct their payroll services not to draw their processing fees
from the payroll bank account since the payment for the payroll service is an operating expense
rather than a payroll expense. Instead, the payroll service should invoice the user for its fees,
and the user should write a check to the service from its operating account.
101.17 QuickBooks users should reconcile payroll bank accounts monthly. Some payroll
services draft the employer’s payroll account for the gross pay plus the employer’s share of
taxes and other deductions and subsequently pay the employees and payroll vendors from the
service’s own bank account. In that case, the QuickBooks reconciliation process can be used to
reconcile the payroll bank account since the summary cash transactions posted to QuickBooks
via journal entries should correspond to the actual cash withdrawals by the payroll service.
However, the QuickBooks bank account reconciliation function is not conducive to reconciling
the payroll bank account when an outside payroll service pays employees and payroll vendors
using checks drafted directly against the employer’s payroll account and the company records
the transactions via journal entry. (See the discussion beginning in paragraph 101.8.)
101.18 Users of third-party payroll services might want to reconcile the payroll bank account
outside QuickBooks when it pays employees and payroll vendors using checks drafted directly
23
against the employer’s payroll bank account. Since the payroll services usually provide the
employer with a detail report listing each check number, the payroll account may be reconciled
manually or using spreadsheet software. However, QuickBooks users that wish to reconcile the
payroll bank account via QuickBooks can enter each paycheck and post them against the
payroll account, as follows:
• Select “Other Names List” from the “Lists” menu and add a new name identified as
“Payroll.”
• Select “Use Register” from the “Banking” menu and select the payroll account.
(Alternatively, select “Chart of Accounts” from the “Lists” menu and double-click on the
payroll bank account to display the account register.)
• Enter the paycheck date on the next available transaction line in the payroll register.
• Enter the first check number listed in the report provided by the payroll service in the
“Number” field.
• Enter “Payroll” in the “Payee” field.
• Enter the net amount of the paycheck in the “Payment” field.
• Select the payroll bank account in the “Account” field. At this point, QuickBooks flashes a
warning message that indicates the payment is being posted to the source account (i.e.,
the payroll account). Click “OK” to get rid of the warning message. To prevent the warning
message from being displayed after each paycheck is entered, also check the box that
tells QuickBooks not to display the warning message in the future. Posting the checks
against the payroll bank account rather than an expense or liability account automatically
creates a deposit in the payroll register to offset each payment posted, thus creating a
“wash” in the payroll register.
• Click the “Record” button to save the transaction.
• Continue the preceding process until each paycheck is entered.
• Enter each check written by the payroll service to payroll vendors to transmit
withholdings and other deductions.
The following illustrates the posting of paychecks to the payroll account register using the
preceding procedures:
24
101.19 After entering each paycheck and payroll vendor check in the payroll account register,
the QuickBooks bank account reconciliation function can be used to reconcile the payroll
account. As illustrated by the following, the QuickBooks “Reconcile” window lists each check
written by the payroll service as both a deposit and a payment. Consequently, reconcile the
payroll account by marking each individual check that has cleared. When an individual check is
marked “cleared,” also mark the corresponding deposit “cleared.”
101.20 The process described in the preceding paragraph records individual paychecks in
QuickBooks but lists the name “Payroll” as the payee of each check. QuickBooks users may
want to look up paychecks by employee name, however. To do so, simply enter the employee
name from the “Employee List.” QuickBooks flashes a warning message indicating that the builtin payroll features should be used to create a paycheck for the employee. Click “OK” to get rid
of the warning message. To prevent the warning message from being displayed after each
paycheck is entered, also check the box that tells QuickBooks not to display the warning
message in the future.
101.21 Direct Deposit Subscribers to any of the Intuit Payroll Services can purchase the
QuickBooks direct deposit feature for employees’ paychecks. After enrolling in the direct deposit
feature, QuickBooks allows users to set up employees’ direct deposit information in the “Payroll
25
and Compensation Info” tab of the “Employee List.” The “Direct Deposit” button in the “Payroll
and Compensation Info” tab does not work if the user has not enrolled for direct deposit through
one of the Intuit Payroll Services. If the employee elects to split the direct deposit between two
bank accounts (the maximum number of accounts allowed by QuickBooks), the amount or
percentage of the deposit allocated to the first account must be specified. An amount or
percentage cannot be specified for the second account since QuickBooks automatically
deposits in the second account the portion of the employee’s net check not allocated to the first
account. QuickBooks increases the employer’s “Direct Deposit Liabilities” account but does not
reduce the amount in the employer’s bank account register until the employer goes online and
transmits the direct deposit paycheck information to the Intuit Payroll Service. The “Direct
Deposit Liabilities” account returns to a zero balance after the payroll information is transmitted.
101.22 If an employee needs a “live” paycheck rather than a direct deposit for a particular pay
period or for a particular payment, it is not necessary to cancel the employee’s direct deposit
payroll information in the “Employee List.” Instead, merely clear the “Use Direct Deposit”
checkbox in the upper right corner of the “Preview Paycheck” window before creating the
paychecks. Unchecking the “Use Direct Deposit” checkbox in the “Preview Paycheck” window
disables direct deposit for the employee for the current pay period only. Direct deposit will be
enabled in subsequent periods since that is what is specified in the default information for the
employee in the “Employee List.” To cancel direct deposit for an employee for future periods,
select the “Direct Deposit” button and clear the “Use direct deposit for” checkbox in the “Payroll
and Compensation Info” tab of the “Employee List.”
101.23 An employee’s direct deposit may be returned if the bank account information in
QuickBooks is incorrect. If a QuickBooks user receives a returned direct deposit paycheck,
QuickBooks posts the amount of the returned check as a deposit in the user’s payroll bank
account. The returned check is not posted as a payroll transaction. If a QuickBooks user
receives notification of a returned direct deposit, the user should:
a. Verify that the employee’s bank account number and routing number are correct in
QuickBooks. (Click “Employee Center” on the toolbar, select the employee, and click “Edit
Employee.” On the “Payroll and Compensation Info” tab, click “Direct Deposit.”)
b. Open the payroll bank account register (select “Use Register” from the “Banking” menu
and select the payroll account) and double-click on the return deposit. In the “Make
Deposit” window, edit the return deposit by changing the “Received From” name to the
applicable employee’s name.
c. Write a regular check (not a paycheck) using the “Write Checks” window to the
employee for the amount of the direct deposit paycheck. The user should assign the
amount to the “Direct Deposit Liabilities” account on the “Expenses” tab and “Save” the
check.
Using this method to handle a direct deposit return retains the original payroll records and
general ledger information from the original direct deposit paycheck.
26
101.24 Voiding versus Deleting Paychecks Voiding a check is not the same as deleting a check,
and users should understand the differences. The primary differences are:
• QuickBooks retains transaction details about voided checks and continues to list voided
checks in the bank account register (with a “VOID” notation and a “0.00” check amount),
but does not retain transaction details about deleted checks or list them in the check
register.
• Deleting a check creates a gap in check numbers within QuickBooks. However,
QuickBooks retains the check number information associated with voided checks.
• The “Missing Checks” report lists details of voided checks but not deleted checks.
101.25 Users can find information about voided and deleted paychecks via the “Voided/Deleted
Transactions Summary” report. Users can generate the “Voided/Deleted Transactions
Summary” report by selecting “Accountant & Taxes” and then “Voided/Deleted Transactions
Summary” from the “Reports” menu. The “Voided/Deleted Transactions Summary” report can
be changed to reflect just the voided or deleted paychecks by clicking on “Modify Report” button
and the “Filters” tab. Select “Transaction Type” from the list of filters, and select “Paycheck”
from the list of transaction types. Users can also double-click on the report information to view
the individual transactions.
101.26 Alternatively, users can find information about deleted checks via the “Audit Trail” report.
That report lists the check date, payee, affected accounts, and amount, as well as the date and
time the original check was printed, the date and time the check was deleted, and the user who
deleted the check. 5 Users cannot double-click on the report information to view a deleted
check.
101.27 Due to the reasons discussed in the preceding paragraph, QuickBooks users should not
delete checks that already have been printed. Those checks should be voided if necessary. For
example, QuickBooks users may need to void a paycheck issued in error or with a mistake. If an
erroneous paycheck has not been printed, the user may delete the check. However, users
cannot delete a paycheck that already has been transmitted to the QuickBooks Assisted payroll
service. Users can void such checks, though. Voiding or deleting a direct deposit paycheck in
QuickBooks does not prevent the funds from being transferred to the employee’s bank account.
In that case, the employer must get the money back from the employee.
101.28 Users can void paychecks by opening the payroll bank account register, selecting the
check to be voided, and selecting “Void Paycheck” from the “Edit” menu. (The procedures for
deleting a paycheck are the same as for voiding a paycheck; however, users should select
“Delete Paycheck” from the “Edit” menu rather than “Void Paycheck.”) Alternatively, paychecks
can be voided by selecting “Edit/Void Paychecks” from the “Employee” menu, selecting the
appropriate date range, and highlighting the paycheck to be voided. Click the void button at the
bottom of the window. QuickBooks does not display voided or deleted paychecks when
reconciling the payroll bank account.
27
101.29 Voiding or deleting a paycheck appropriately reduces the employer’s tax liabilities and
other payroll expenses. However, payroll tax forms may need to be refiled if the paycheck was
issued in a previous quarter or year for which the employer’s payroll tax forms already have
been filed. QuickBooks Assisted payroll service refiles the necessary forms for its subscribers. If
a prior paycheck is voided or deleted, the year-to-date amounts on subsequent paychecks that
already have been recorded will be incorrect. However, the year-to-date amounts on future
paychecks will be correct.
101.30 Employee Payroll Advances QuickBooks allows users to process employee payroll
advances via paychecks or regular checks. Either method is acceptable. However, processing
payroll advances on regular checks generally is simpler since users do not have to set up a
payroll item for the advance. In addition, printing an advance on a regular check avoids the
need to print a separate paycheck before other paychecks are printed. The advance check can
be processed and printed with other regular checks rather than printing an individual paycheck.
However, some users may choose to process payroll advances on paychecks if they want to
track all payroll-related items on paychecks. The following paragraphs explain the procedures
for processing payroll advances using both types of checks.
101.31 QuickBooks users that choose to process payroll advances on regular checks should:
• Set up “Employee Payroll Advances” as an “Other Current Asset” account in the chart of
accounts. 6 Creating subaccounts for individual employees allows general ledger reports
to summarize the balances for payroll advances by employee.
• Select “Write Checks” from the “Banking” menu to pay the advance to the employee from
the applicable checking account. (Ignore the QuickBooks message to write the employee
a paycheck.)
• Select “Employee Payroll Advances” as the “Expense” account for tracking the advance.
(The “Employee Payroll Advances” account is actually an asset account.) If subaccounts
are used to track advance balances by employee, select the applicable subaccount for
“Employee Payroll Advances.”
101.32 QuickBooks users that choose to process payroll advances on paychecks should:
• Set up “Employee Payroll Advances” as an “Other Current Asset” account in the chart of
accounts. 7 Creating subaccounts for individual employees allows general ledger reports
to summarize the balances for payroll advances by employee.
• Set up a new “Payroll Item” by selecting “Payroll Item List” from the “Lists” menu, clicking
the “Payroll Item” button, choosing “New,” and selecting the “Custom Setup” in the “Add
New Payroll Item” window. Then select “Addition” as the payroll item type. (The “Payroll
Item List” is not available unless the user subscribes to one of the payroll services.)
• Enter “Payroll Advance” as the name for the addition.
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• Select “Employee Payroll Advances” as the “Expense” account for tracking the advance.
(The “Employee Payroll Advances” account is actually an asset account.) If subaccounts
are used to track advance balances by employee, select the applicable subaccount for
“Employee Payroll Advances.”
• Select “None” as the tax tracking type. (Selecting “None” ensures that the advance is not
included in the employee’s wage base for tax purposes.)
• Follow the onscreen instructions to complete the setup.
• Create a paycheck for the employee receiving the advance by selecting “Pay
Employees” and “Unscheduled Payroll” from the “Employees” menu. (If payroll schedules
have not been set up, select “Pay Employees” from the “Employees” menu.) See
paragraph 100.34 for further discussion on payroll schedules.
• Select the employee to pay in the “Enter Payroll Information” window by placing a
checkmark next to his or her name and clicking the name. In the “Preview Paycheck”
window, select “Payroll Advance” as the “Item Name” under “Other Payroll Items” and
enter the amount of the advance under “Rate.” (Do not add the “Payroll Advance” payroll
item to the employee’s payroll records since the advance should not be a recurring
payment.)
101.33 Regardless of the method used to process employee payroll advances, the advances
can be repaid as deductions on employees’ subsequent paychecks. 8 Setting up the
repayments on paychecks allows QuickBooks to deduct repayments automatically and track the
repayments to ensure that the entire advance amount is repaid. That method may be easier
than attempting to collect the repayment amounts directly from employees. However, if
repayments are received directly from employees, the remaining balance for each employee
can be tracked via general ledger reports sorted by “Name.”
101.34 The following procedures should be used for repayment of employee payroll advances
via paycheck deductions:
• Set up a new “Payroll Item” by selecting “Payroll Item List” from the “Lists” menu, clicking
the “Payroll Item” button, choosing “New,” and selecting the “Custom Setup” in the “Add
New Payroll Item” window. Then select “Deduction” as the payroll item type.
• Enter “Repayment of Payroll Advance” as the name for the deduction. (The name of the
deduction payroll item cannot be the same as the name of the addition payroll item.)
• Leave the “name of agency to which liability is paid” field and the “number that identifies
you to agency” field blank.
• Select “Employee Payroll Advances” as the “Liability” account for tracking repayment of
the advance. (The “Employee Payroll Advances” account is actually the asset account to
which the advance was charged.) If subaccounts are used to track advance balances by
employee, select the applicable subaccount for “Employee Payroll Advances.”
29
• Select “None” as the tax tracking type.
• Follow the onscreen instructions to complete the setup.
• Edit the “Payroll and Compensation Info” for the applicable employee in the “Employee
List” by (a) selecting “Repayment of Payroll Advance” as the “Item Name” for the
deduction, (b) entering the “Amount” to be repaid on each paycheck, and (c) entering the
total amount of the advance to be repaid in the current calendar year as the “Limit.”
101.35 After setting up a deduction for “Repayment of Payroll Advance,” the “Preview
Paycheck” window should reflect the deduction as an “Other Payroll Item” for the specified
repayment amount each time a paycheck is created for the employee until the specified
deduction limit is reached. The deduction limit resets at the beginning of each calendar year. If
an advance is not fully repaid by December 31, the QuickBooks user should change the limit to
the unpaid balance on January 1 of the next year. If an employee receives multiple payroll
advances in the same year, the deduction amount and limit should be changed to reflect the
total repayment amounts. If the first advance already has been repaid, the deduction amount
should reflect only the second advance. However, the deduction limit for the year should reflect
the total limit for both the first advance and the second advance. For example, if the first
advance of $500 already has been repaid and the employee receives a second advance of
$300 to be repaid in the same calendar year, the deduction limit should be set to $800 rather
than $300. If the limit is set to $300, QuickBooks will not process a deduction for repayment of
the second advance since the deduction already has exceeded the $300 limit for the year.
Alternatively, QuickBooks users may choose to create separate deduction payroll items for each
advance.
101.36 The following procedures should be used when employees repay payroll advances
directly to employers with cash or a check:
• When the employee repays any portion of the advance, select “Make Deposits” from the
“Banking” menu.
• Select the applicable employee’s name in the “Received From” field.
• Select “Employee Payroll Advances” as the “From Account” for tracking repayment of the
advance. If subaccounts are used to track advance balances by employee, select the
applicable subaccount for “Employee Payroll Advances.”
101.37 Employee Travel Advances QuickBooks allows users to process employee travel
advances via regular checks or paychecks. Either method is acceptable. However, processing
travel advances on regular checks generally is simpler since users do not have to set up
separate payroll items for travel expenses. Since employees generally need travel advances
throughout the pay period, printing the advances on regular checks also avoids the need to print
paychecks before the end of the pay period. The advance checks can be processed and printed
with other regular checks rather than printing individual paychecks. In addition, employees’
payroll records are not cluttered with non-payroll information that can complicate preparation
and reconciliation of payroll tax forms if the travel advances and repayments are not set up
30
correctly. Consequently, the following paragraphs provide procedures for processing employee
travel advances and repayments via regular checks rather than paychecks.
101.38 QuickBooks users should process employee travel advances and other nonpayroll
advances via regular checks as follows:
• Set up “Employee Advances” as an “Other Current Asset” account in the chart of
accounts. (QuickBooks sometimes creates this account automatically.)
• Set up “Employee Advances” subaccounts for individual employees receiving advances.
• Select “Write Checks” from the “Banking” menu and create a check payable to the
employee receiving the advance. (Ignore the QuickBooks message to write the employee
a paycheck.)
• Select the “Employee Advances” subaccount for the applicable employee as the
“Expense” account for tracking the advance. (The “Employee Advances” account is
actually an asset account.)
101.39 When an employee subsequently submits an expense report and repays any unused
portion of a travel advance, QuickBooks users should:
• Select “Make Deposits” from the “Banking” menu.
• Select the applicable employee’s name in the “Received From” field.
• Select the “Employee Advances” subaccount for the applicable employee as the first
entry in the “From Account” field and enter the total amount of the advance in the
“Amount” field.
• Select the applicable expense account(s) or subaccount(s) as the next entries in the
“From Account” field, enter the amount of each expense item as a negative amount in the
“Amount” field, and select the appropriate class, if applicable.
The net of the amounts entered for the advance and the expenses should equal the amount
returned by the employee. For example, assume that an employee receives a $500 travel
advance and spends $400 on travel expenses. In that case, the following deposit should be
recorded when the employee completes the expense report for the trip and returns the $100
unused portion of the advance to the employer:
31
101.40 If an employee spends more than the advance, the following procedures should be used
to process the employee’s expense report and pay the employee any additional amount due:
• Select “Write Checks” from the “Banking” menu and create a check payable to the
employee. (Ignore the QuickBooks message to write the employee a paycheck rather than
a regular check.)
• Select the applicable expense accounts (or subaccounts) as the first entries in the
“Account” field and enter the amount of each expense item in the “Amount” field. The total
expenses entered should equal the amount of total expenses on the employee’s expense
report.
• If applicable, select the appropriate class in the “Class” field.
• Select the “Employee Advances” subaccount for the applicable employee as the last
entry in the “Account” field and enter the total amount of the advance as a negative
amount in the “Amount” field.
The net of the total expense amounts entered and the advance amount should equal the
amount due the employee. For example, assume that an employee receives a $700 travel
advance and spends $950 on travel expenses. In that case, the following check should be
written when the employee completes the expense report for the trip and receives payment for
the $250 excess of expenses over the amount advanced:
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101.41 Employee Expense Reimbursements Many users reimburse employee expenses via
paychecks. Unfortunately, they often set up a single “Addition” item in the “Payroll Item List” for
expense reimbursements and, because each “Addition” item may be linked to only one expense
account, erroneously end up charging all expense reimbursements to a miscellaneous expense
account. If employee expense reimbursements are made via paychecks, users should create an
“Addition” item for each type of expense to be reimbursed. When setting up the “Addition” items,
users should select “None” as the “Tax tracking type” since expense reimbursements are not
taxable to employees.
101.42 As a practical matter, the simplest way to reimburse employee expenses is to use
regular checks rather than paychecks. (Ignore QuickBooks’ warning message to pay the
employees via paychecks.) Reimbursing employee expenses on regular checks allows users to
more easily charge various expense accounts for various reimbursements or charge multiple
expense accounts for a single reimbursement.
101.43 Tracking Workers Compensation QuickBooks allows users to track workers
compensation if they subscribe to QuickBooks Enhanced Payroll or QuickBooks Enhanced
Payroll for Accountants. The user can enter workers compensation codes for each employee,
track workers compensation while processing payroll, and run reports to facilitate filing
insurance forms. Because each state regulates its own workers compensation program, the
practitioner should be familiar with the laws of the specific state(s) in which its clients operate.
The client’s workers compensation agent can usually help with this guidance.
101.44 QuickBooks users who wish to track workers compensation should turn the feature on
by selecting “Preferences” from the “Edit” menu and then selecting “Payroll & Employees” from
the “Preferences” scroll box. Users then should click on the “Worker’s Compensation” button on
the “Company Preferences” tab and select the “Track Workers Comp” checkbox. The user can
also specify whether to display a message to remind the user to assign codes, and whether to
exclude overtime premiums from calculations.
101.45 Next, the user must set up workers compensation using the “Workers Compensation
Setup” Wizard. 9 The wizard assigns default workers compensation codes to employees,
determines whether the company should exclude overtime premiums for calculations, and
enters an experience modification factor, if applicable. To start the wizard, select “Workers
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Compensation” and then “Set up Workers Comp” from the “Employees” menu and follow the
onscreen prompts. The following will be needed in order to complete the setup (this information
can be requested from the client’s insurance carrier):
• The name of the workers compensation insurance carrier.
• The policy number (optional).
• Job classification codes and rates.
• Experience modification factor, if applicable.
101.46 The workers compensation feature tracks only premiums that are accrued after the
feature has been set up. There is no way to enter “year-to-date” information. Therefore, users
who start tracking workers compensation through QuickBooks in the middle of their insurance
year will have to combine the QuickBooks information with the information that was tracked
outside of QuickBooks for that year.
101.47 Once the feature has been set up, each time a paycheck is written, QuickBooks accrues
workers compensation premiums for each earnings item that has a code assigned to it.
(QuickBooks automatically assigns an employee’s code to the employee’s earnings items on his
or her paychecks.)
101.48 If users need to modify the employee’s codes after set up, they should click “Employee
Center” on the toolbar, select the employee, and click “Edit Employee” (or select “New
Employee” if the employee is a new employee). Then, enter the employee’s default workers
compensation code in the “Workers Compensation” tab. If users need to modify the rate for a
code (e.g., when the insurance company changes the rates), they should select “Workers
Compensation” and then “Workers Comp List” from the “Employees” menu and select the code
to update. Then, select the “Workers Comp Code” button in the bottom-left corner of the list
window and select “Edit.” Users should enter the new rate for the code and the date that
QuickBooks should start using the new rate. If users need to update the experience modification
factor, they should select “Workers Compensation” and then “Workers Comp List” from the
“Employees” menu and select the code to update. Then, select the “Experience Modification”
button in the bottom-left corner of the list window and select “Edit.” Users should enter the new
experience modification factor and the date that QuickBooks should start using the experience
modification factor.
101.49 Workers compensation premiums accrue as payroll liabilities; therefore, they should be
paid via the “Pay Liabilities” screen as discussed beginning at paragraph 101.60.
101.50 Users can find out how much they have accrued in workers compensation premiums by
generating the “Workers Comp Summary” report. To do so, select “Employees & Payroll” and
the “Workers Comp Summary” from the “Reports” menu. (Alternatively, select “Workers
Compensation” and “Workers Comp Summary” from the “Employees” menu.)
Maintaining Employee Information
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101.51 Inactive Employees Many QuickBooks users attempt to delete employees that are no
longer employed. However, QuickBooks does not allow users to delete an employee from the
“Employee List” if there are any transactions or balances associated with the employee. Instead,
the employee’s release date should be entered in the “Employee List.” The release date is
entered in the “Employment Info Tab” in the “Edit Employee” window. Entering a release date
prevents QuickBooks from displaying the employee’s name in the payroll schedule for pay
schedules occurring after the release date. (See paragraph 100.34 for further discussion on
payroll schedules.) Consequently, a release date should not be entered until after the employee
has received a final paycheck. In addition to entering a release date, QuickBooks users can
hide the employee from the “Employee List” by right-clicking and selecting “Make Employee
Inactive.” QuickBooks retains the information associated with inactive employees but hides the
employee’s name from any lists (unless the user chooses “All Employees” in the “View” dropdown list). QuickBooks also retains the employee’s balances on payroll reports. QuickBooks
users also can enter a release date for an employee that will not be paid for an extended time
period, such as for an employee on a leave of absence or a seasonal employee. Entering a
release date keeps the employee from receiving a paycheck without inactivating the employee.
101.52 Deleting Employee Deductions Deleting employees’ payroll deductions can be confusing
since QuickBooks allows users to delete deductions in any of the following ways:
a. The Deduction Name and Amount Can Be Deleted from the “Payroll and Compensation
Info” in the “Employee List.” This method should not be used since it results in QuickBooks
not printing the deduction’s “Item Name” and year-to-date amount on the employee’s
subsequent check stubs. (However, QuickBooks retains the amounts in the employees’
payroll records.)
b. The Deduction Amount Can Be Deleted from the “Payroll and Compensation Info” in the
“Employee List.” This method should be used when the deduction will not apply to
subsequent paychecks since it results in QuickBooks continuing to print the deduction’s
“Item Name” and year-to-date amount on the employee’s subsequent check stubs even
though the amount is not deducted from subsequent paychecks. Including year-to-date
deduction amounts on each check stub even when there is no current deduction for a
particular item enables employees to reconcile their W-2 amounts to the amounts on their
final check stubs for the calendar year. (However, after the end of the calendar year,
QuickBooks users should delete the deduction name from the “Payroll and Compensation
Info” in the “Employee List” since the year-to-date deduction amount no longer needs to
print on the employee’s check stubs.)
c. The Deduction Name and Amount Can Be Deleted from the “Preview Paycheck”
Window. This method results in QuickBooks not printing the deduction’s “Item Name” and
year-to-date amount on the employee’s current check stub but leaves the deduction name
and amount in the “Payroll and Compensation Info” in the “Employee List.” Consequently,
the deduction name and amount appear in subsequent “Preview Paycheck” windows for
the employee.
35
d. The Deduction Amount Can Be Deleted in the “Preview Paycheck” Window. This
method should be used when the deduction will apply to subsequent paychecks even
though it does not apply to the current paycheck. It results in QuickBooks continuing to
print the deduction’s “Item Name” and year-to-date amount on the employee’s current and
subsequent check stubs.
Maintaining General Ledger Payroll Accounts
101.53 Practitioners often assist QuickBooks clients by setting up payroll liability and expense
accounts and subaccounts when creating the chart of accounts. Even practitioners who do not
actually set up charts of accounts for their clients should understand how such accounts should
be set up.
101.54 Payroll Liability and Expense Subaccounts If the QuickBooks payroll feature (see
paragraph 101.2) is used to process payroll, QuickBooks automatically creates accounts for
“Payroll Liabilities” and “Payroll Expenses” in the chart of accounts. (The accounts must be
created manually if the QuickBooks payroll feature is not used.) However, QuickBooks users
still should create subaccounts for each type of payroll liability and expense. In addition, the
related items (deductions, company contributions, federal tax, state tax, and other tax) in the
“Payroll Item List” should be linked to the applicable liability and expense subaccounts. For
example, to set up a payroll liability subaccount for federal income taxes, users should:
• Create a new “Other Current Liability” account for “Federal Income Tax Payable” as a
subaccount of “Payroll Liabilities” in the chart of accounts.
• Edit the “Federal Withholding” item in the “Payroll Item List” to change the related liability
account from “Payroll Liabilities” to the “Federal Income Tax Payable” subaccount.
101.55 Similarly, to set up payroll liability and expense subaccounts for employee medical
insurance deductions and employer medical insurance contributions, users should:
• Create a new “Other Current Liability” account for “Medical Insurance Payable” as a
subaccount of “Payroll Liabilities” in the chart of accounts.
• Create a new “Expense” account for “Medical Insurance Expense” as a subaccount of
“Payroll Expenses” in the chart of accounts.
• Edit the company contribution payroll item for “Medical Insurance—Company” to change
the related liability account to the “Medical Insurance Payable” subaccount and the related
expense account to the “Medical Insurance Expense” subaccount.
• Edit the deduction payroll item for “Medical Insurance—Employee” 10 to change the
related liability account to the “Medical Insurance Payable” subaccount. (Deduction payroll
items do not link to expense accounts since the employee pays for the deduction.)
101.56 Linking Vendors to Payroll Accounts Third parties such as the U.S. Secretary of the
Treasury, state taxing agencies, and insurance companies can be linked to specific “Payroll
Liabilities” subaccounts by editing the deductions, company contributions, and tax items in the
36
“Payroll Item List.” For example, “First State Bank” may be set up as the “agency to which
liability is paid” in the “Payroll Item List” for the “Federal Withholding” deduction, as well as for
the “Medicare Company,” “Medicare Employee,” “Social Security Company,” and “Social
Security Employee” federal tax items. Consequently, QuickBooks can write one check to the
U.S. Secretary of the Treasury for several different types of payroll liabilities.
Calculating, Paying, and Adjusting Payroll Liabilities
101.57 Payroll liabilities are among the most confusing aspects of payroll processing in
QuickBooks. Consequently, QuickBooks users often make many errors when accounting for
payroll liabilities. This section provides guidance on the correct methods for calculating, paying,
and adjusting payroll liabilities. In addition, the section discusses common errors related to
payroll liabilities and methods for correcting those errors.
101.58 Calculating Payroll Tax Liabilities The QuickBooks payroll feature does not calculate
federal or state payroll taxes unless the user subscribes to one of the Intuit Payroll Services.
Users that do not subscribe to one of the payroll services must calculate and enter payroll taxes
manually for each paycheck each pay period. (Paragraph 101.2 provides further guidance on
calculating payroll taxes manually.) As illustrated by the following “Preview Paycheck” window,
QuickBooks automatically inserts a zero tax amount for each payroll tax item if the QuickBooks
payroll feature is not used.
101.59 If one of the Intuit Payroll Services is not used, QuickBooks users should calculate the
payroll tax amounts and enter them in the “Preview Paycheck” window for each employee, as
illustrated by the following:
37
Note that tax amounts should be entered for both the “Employee Summary” and the “Company
Summary.”
NOTE The Intuit Payroll Services calculate payroll taxes using the most current federal
and state tax information. Subscribers to those services do not have to calculate
or enter payroll tax amounts in QuickBooks.
101.60 Paying Payroll Liabilities The most common error QuickBooks users make when paying
payroll liabilities is using “Write Checks” in the “Banking” menu rather than setting up and paying
scheduled liability payments. (Users that do not have an active payroll subscription and users
that do not have liability payments scheduled but use the QuickBooks payroll feature should pay
liabilities using “Payroll Taxes and Liabilities” and then “Pay Payroll Liabilities” in the
“Employees” menu.) QuickBooks users that use the QuickBooks payroll feature always should
write checks for payroll taxes and other payroll liabilities either via the “Payroll Center” window
or via the “Pay Payroll Liabilities” window in the “Employees” menu. 11 If checks for payroll
liabilities are written via the “Write Checks” window in the “Banking” menu, the general ledger
balances for payroll liabilities accounts will be correct (if the user enters the applicable “Payroll
Liabilities” accounts in the “Expenses” field of the check). However, QuickBooks will not update
the balances in the payroll liabilities reports. Consequently, the payroll liabilities balances in the
general ledger will not agree to the balances in the payroll liabilities reports. The Client Data
Review (CDR) feature has a tool that prepares a report that lists all “Write Check” forms that
were payable to a payroll item vendor. (See discussion at item c of paragraph 101.70.)
101.61 The procedures for paying payroll liabilities in QuickBooks differ based on whether the
payments are scheduled or unscheduled. The following procedures should be used to pay
scheduled payroll liabilities: 12
• Create a “Payroll Liability Balances” report to check payroll liability amounts before
creating liability checks. (See paragraph 101.65.)
• Adjust any incorrect payroll liability amounts. (See paragraph 101.70.)
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• Select “Payroll Taxes and Liabilities” and then “Pay Scheduled Liabilities” from the
“Employees” menu to open the “Payroll Center.” (Scheduled payments must have been
set up via the “Payroll Setup Interview.” See paragraph 100.25.)
• Select the scheduled payment to be paid by placing a checkmark next to the payment in
the “Pay Scheduled Liabilities” portion of the window. Click on “View/Pay” to open the
“Liability Payment” window.
• Users should enter any payroll expenses, penalties, or discounts in the “Liability
Payment” window by (a) selecting the “Expenses” tab, (b) entering the expense account
and amount, and (c) clicking the “Recalculate” button to recompute the check amount.
(Discounts should be entered as negative numbers.)
101.62 The following procedures should be used to pay unscheduled payroll liabilities:
13
• Create a “Payroll Liability Balances” report to check payroll liability amounts before
creating liability checks. (See paragraph 101.65.)
• Adjust any incorrect payroll liability amounts. (See paragraph 101.70.)
• Select “Payroll Taxes and Liabilities” and then “Create Custom Liability Payments” from
the “Employees” menu.
• Enter the date range for the liabilities to be paid in the “Select Date Range for Liabilities”
window. 14
• Edit the necessary fields in the “Pay Liabilities” window. (See paragraph 101.63.)
• Create and review the payroll liability checks. (See paragraph 101.67.)
Appendix 3 provides a checklist for use in paying payroll liabilities.
101.63 The following illustrates the “Pay Liabilities” window:
101.64 QuickBooks users should edit the fields in the “Pay Liabilities” window as follows:
39
• Select “Review liability check to enter expenses/penalties.” Payroll liability checks
generally should be reviewed before being created even if no expenses or penalties need
to be entered.
• Review the date range specified in the “Show Payroll Liabilities” portion of the screen
and edit the dates as necessary. QuickBooks uses the date range to generate the “Payroll
Liability Balances” report and to prepare Forms 940, 941, Schedule B (Form 941), and
Form 944 (discussed beginning in paragraph 101.74). QuickBooks also prints the dates in
the “Payment for payroll liabilities through” field in the “Liability Check” window.
• Edit other fields (such as “Bank Account” and “Check Date”) 15 as necessary. Users can
set up a default account for the “Bank Account” field. Click on “Preferences” from the “Edit”
menu and select “Checking” from the “Preferences” scroll box. Click on the “Open the Pay
Payroll Liabilities” checkbox and select the default account on the “Company Preferences”
tab.
• Check each “Payroll Item” for which a check should be printed. QuickBooks automatically
checks any payroll items related to the selected item. For example, if “Medicare Company”
is checked, QuickBooks automatically checks “Medicare Employee.” (If the user
subscribes to QuickBooks Assisted Payroll, QuickBooks does not display federal and state
tax payroll items since the service pays those liabilities. See paragraph 101.69.)
• Verify that the “Payable To” fields list a “Payee Name” for each “Payroll Item” selected.
• Edit the “Amt. To Pay” fields to pay more or less than the full amount of a liability, if
necessary
101.65 Before creating checks, QuickBooks users may want to run the “Payroll Liabilities
Balances” report. Users that have scheduled liability payments should select “Employees &
Payroll” and “Payroll Liabilities Balances” from the “Reports” menu. Users that are paying
unscheduled liability payments can click the “Payroll Liabilities Report” button in the “Pay
Liabilities” window to create a “Payroll Liability Balances” report. The report can be reviewed to
check payroll liability amounts. As illustrated by the following, the report lists unpaid liabilities
incurred 16 during the time period reflected in the “From” and “To” fields. (The report does not list
liabilities incurred within the specified time period if they have been paid already, even if the
payment occurred after the ending date of the report.) Users can double-click any amount on
the report to display a list of “Transactions by Payroll Liability Item.” The list displays all
transactions affecting the amount selected.
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101.66 Any incorrect payroll liability amounts should be adjusted by selecting “Payroll Taxes
and Liabilities” and then “Adjust Payroll Liabilities” from the “Employees” menu. (The discussion
beginning in paragraph 101.70 provides guidance on adjusting payroll liabilities.) QuickBooks
automatically adjusts the “Balance” field in the “Pay Liabilities” window or the “Amount Due” field
in the “Pay Scheduled Liabilities” portion of the “Payroll Center” for the adjusted payroll item.
101.67 After making any necessary adjustments to payroll liability amounts, QuickBooks users
should click the “Create” button in the “Pay Liabilities” window to review the payroll liability
checks. (QuickBooks creates only one check for each payee, regardless of the number of
“Payroll Items” checked for the payee. To write separate checks to the same payee, users
should repeat the “Pay Payroll Liabilities” process discussed in paragraph 101.62 for each
separate “Payroll Item” for the payee.) Users should enter any payroll expenses, penalties, or
discounts in the “Liability Check” window by (a) selecting the “Expenses” tab, (b) entering the
expense account and amount, and (c) clicking the “Recalculate” button to recompute the check
amount. (Discounts should be entered as negative numbers.) The following illustrates a “Liability
Check” for some of the payroll items checked in the “Pay Liabilities” window illustrated at
paragraph 101.63:
41
101.68 If payroll taxes are transmitted electronically via the Electronic Funds Transfer Payment
System (EFTPS), users should create a payroll liability check as described in the preceding
paragraph to record the transaction. However, the “To be printed” box in the upper left corner of
the “Pay Liabilities” window should not be checked. (Alternatively, the “To be printed” box on the
“Liability Check - Payroll” window can be unchecked.) In addition, “EFTPS” should be entered
as the check number in the “Liability Check” window to avoid problems with check numbers.
Users also may enter the EFTPS confirmation number in the “Memo” field in the “Liability
Check” window.
101.69 The QuickBooks Assisted Payroll service automatically pays federal and state payroll
tax liabilities from subscribers’ payroll bank accounts. 17 Consequently, the payroll liabilities paid
by the service should have zero balances. However, those balances may not be zero if users
created paychecks in QuickBooks before subscribing to QuickBooks Assisted Payroll service. In
that case, users should perform the following steps to adjust the payroll liability balances:
• Verify that no paychecks are listed in the “Items to Send” area of the “Send Payroll Data”
window.
• Generate a “Payroll Liability Balances” report as of the current date.
• Pay the liabilities as discussed in paragraph 101.62 for unscheduled payroll liabilities.
The last day of the quarter or period for which the liabilities are being paid should be
entered in the “Show Payroll Liabilities” portion of the screen.
NOTE Even though QuickBooks Assisted Payroll pays federal and state payroll tax
liabilities, subscribers still must use the QuickBooks payroll feature to calculate
and pay any local payroll taxes and other payroll liabilities (such as medical
insurance and 401(k) payments).
101.70 Adjusting Payroll Liabilities The amounts due for each payroll item in the “Pay Liabilities”
window or the “Pay Scheduled Liabilities” portion of the “Payroll Center” should match the
applicable general ledger balances for the corresponding payroll liabilities. If the “Balance” in the
“Pay Liabilities” window or the “Pay Scheduled Liabilities” portion of the “Payroll Center” is
incorrect or does not match the general ledger liability amount, QuickBooks users should:
a. If Paying Unscheduled Payroll Liabilities, Verify That the “Show Payroll Liabilities”
Portion of the Screen Is Correct. The payroll liability amounts may be incorrect if the
“through” date is a month-end date and payroll liabilities are paid on a weekly or bimonthly
basis. In that case, the “through” date can be changed directly on the “Pay Liabilities”
window. However, QuickBooks does not change the amounts due until after the “Payroll
Liabilities Report” button is selected to update the amounts. Alternatively, users can select
“Cancel” at the “Pay Liabilities” window, select “Payroll Taxes and Liabilities” and then
“Create Custom Liability Payments” from the “Employees” menu, and then they can enter
the correct “through” date in the “Select Date Range for Liabilities” window.
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b. If Paying Scheduled Payroll Liabilities, Verify That the Scheduled Payment is Set Up
Correctly. (See paragraph 100.27)
c. Determine Whether a Payroll Liability Has Been Paid via “Write Checks” Rather Than
“Pay Scheduled Liabilities” or “Pay Unscheduled Liabilities.” A payroll liability amount may
be incorrect if the liability was paid via “Write Checks” on the “Banking” menu rather than
using “Payroll Taxes and Liabilities” and then “Pay Scheduled Liabilities” on the
“Employees” menu or “Payroll Taxes and Liabilities” and then “Create Custom Liability
Payments” on the “Employees” menu. (See paragraph 101.60.) A regular check affects the
general ledger but does not affect the “Pay Liabilities” window, the “Pay Scheduled
Liabilities” portion of the “Payroll Center,” or the “Payroll Liability Balances” report. The
Client Data Review (CDR) feature has a tool that prepares the “Payroll Liabilities Paid by
Regular Check” report. This report lists all “Write Check” forms that were payable to a
payroll item vendor. The practitioner must be logged in as an External Accountant user in
order to access the Client Data Review feature in QuickBooks Pro or QuickBooks Premier
(non Accountant Editions). In QuickBooks Premier-Accountant, the Client Data Review
feature is always available. If a payroll liability has been paid via “Write Checks,” the
payroll liability balance can be corrected by selecting “Payroll Taxes and Liabilities” and
then “Adjust Payroll Liabilities” from the “Employees” menu and entering the payment
amount as a negative number for the applicable payroll item in the “Liability Adjustment”
window. After selecting the “Accounts Affected” button, users should select “Do not affect
accounts” if the general ledger expense and liability account balances are correct.
Paragraph 101.71 provides further guidance on adjusting payroll liabilities via the “Liability
Adjustment” window.
NOTE The Client Data Review feature is available in QuickBooks 2009 and later.
d. Verify That the Payroll Item Is Associated with a Liability Account. QuickBooks does not
list payroll items associated with non-liability accounts in the “Pay Liabilities” window or the
“Pay Scheduled Liabilities” portion of the “Payroll Center.” Consequently, payroll liability
balances may be incorrect if the payroll item is not associated with a liability account. To
verify that a payroll item is associated with a liability account, QuickBooks users should:
(1) Select the payroll item in question from the “Payroll Item List.”
(2) Select “Edit” from the “Payroll Item” button. QuickBooks will display the “Edit
Payroll Item” screen. Users should select “Next” until they reach the “Liability
Agency” window, depending on which payroll item is incorrect.
(3) Display the drop-down list for the “Liability account (employee-paid or companypaid)” field in the “Liability Agency” window. A liability should be specified as the
account type beside the name of the payroll item.
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If the account type is not a liability, the user should select a liability account from the
drop-down list.
e. Check for Duplicate Transactions. Payroll liability balances may be incorrect if duplicate
transactions have been posted. QuickBooks users can detect duplicate transactions by
selecting the payroll item in question from the “Payroll Item List” and selecting
“QuickReport” from the “Reports” button. At the top of the report, users should select “All”
from the “Dates” drop-down list. The QuickReport displays all transactions for the payroll
item. Users can scan the report to detect duplicate transactions.
f. Verify That the Correct Rate Is Used for Federal Unemployment Taxes If the Amount
Due Is Incorrect. The payroll liability balance for federal unemployment taxes (FUTA) may
be incorrect if the FUTA rate is incorrect. QuickBooks users should select the “Federal
Unemployment” payroll item from the “Payroll Item List” and select “Edit” from the “Payroll
Item” button. Users then can verify that the correct rate is selected on the “Federal
unemployment tax rate” window. The 6.2% rate should be selected if the company is not
eligible for the 5.4% FUTA tax credit for amounts paid for state unemployment.
Consequently, the .8% rate should be selected if the company is eligible for the credit. If
6.2% has been incorrectly used and the annual maximum for an employee already has
been exceeded, the FUTA liability related to that employee should be adjusted. See
further discussion beginning in paragraph 101.75.
g. Run the “Payroll Liability Balances” Report to Review the Transactions for the Incorrect
Amount. Incorrect payroll liability balances also can be detected by running the “Payroll
Liability Balances” report to review transactions for incorrect amounts. Users can run the
report by selecting “Employees & Payroll” and then “Payroll Liability Balances” from the
“Reports” menu. As illustrated in paragraph 101.65, the report lists unpaid liabilities
incurred during the time period reflected in the “From” and “Through” fields of the “Pay
Liabilities” window or the time period reflected in the “Pay Scheduled Liabilities” portion of
the “Payroll Center.” However, the report does not list liabilities incurred within the
specified time period if they have been paid already, even if the payment occurred after
the ending date of the report. The balances in the report also consider only payments
made via the “Pay Liabilities” window or via the “Pay Scheduled Liabilities” portion of the
“Payroll Center.” The report does not reflect payments made via “Write Checks” from the
“Banking” menu. (See item c.) The “Payroll Liability Balances” report can be changed to
reflect amounts paid rather than amounts due by clicking on the “Modify Report” button
and the “Filters” tab. Select “Transaction Type” from the list of filters, and select “Payroll
Liability Check” from the list of transaction types. Users can double-click any amount on
the report to display a list of “Transactions by Payroll Liability Item.” The list displays all
transactions affecting the amount selected.
101.71 As discussed in item c. in paragraph 101.70, QuickBooks users can correct payroll
liability amounts by selecting “Payroll Taxes and Liabilities” and then “Adjust Payroll Liabilities”
from the “Employees” menu and entering the following information in the “Liability Adjustment”
window:
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a. Date. Enter the adjustment date. QuickBooks automatically enters the current date.
QuickBooks adjusts the affected general ledger account balances as of the date entered.
b. Effective Date. Enter the date the adjustment should affect the payroll liability balance.
The effective date must be on or before the adjustment date. QuickBooks calculates
amounts for payroll tax forms and the “Payroll Liability Balances” report based on the
effective date. However, QuickBooks does not adjust the general ledger account balances
until the adjustment date. For example, a user may need to adjust a December 31 payroll
liability balance in January of the following year. In that case, December 31 should be
entered as the effective date so that the amounts on payroll tax forms and the “Payroll
Liability Balances” report are correct as of December 31. However, the adjustment date
could be any date on or after December 31. If the adjustment date is December 31, the
general ledger balances for the affected payroll accounts are adjusted as of December 31.
If the adjustment date is in January, the general ledger balances are not adjusted until
January. If the adjustment date is the same as the effective date, the general ledger
payroll balances are the same as the balances on the “Payroll Liability Balances” report for
the specified date. QuickBooks adjustments should not be posted to a “closed” period.
c. Company versus Employee Adjustment. Select whether the adjustment applies to the
whole company or a specific employee. Company adjustments may affect Forms 940,
941, 943, and 944 but they do not affect Forms W-2 or W-3. Company adjustments
generally are made when there are minor differences (such as rounding differences)
between the liability calculations on a tax form and the total of the liabilities for each
employee. Employee adjustments may affect Forms 940, 941, 943, and 944, as well as
Forms W-2 and W-3. Employee adjustments should be made if a specific employee’s
calendar-year totals for a deduction or company-paid tax or benefit are incorrect. If the
adjustment is for an employee, select the applicable employee’s name from the adjacent
drop-down list.
d. Item Name. Select the payroll item to be adjusted.
e. Amount. Enter the adjustment amount. If a positive amount is entered for an employee
adjustment, QuickBooks displays a warning message that a paycheck may need to be
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created for the employee so that the employee’s wage base and taxes are calculated
properly. In that case—
(1) If additional pay periods remain in the reporting period, do not enter the employee
liability adjustment. Instead, edit the amount on the employee’s next paycheck. (If the
employee adjustment relates to a flat-rate tax calculated by one of the Intuit Payroll
Services, QuickBooks will automatically include the adjustment in the employee’s
next paycheck.) 18
(2) If additional pay periods do not remain in the reporting period, make the
employee liability adjustment.
If a negative amount is entered for an employee adjustment (e.g., too much was
deducted for a nontax deduction), users may write a paycheck to refund the amount
to the employee rather than entering a liability adjustment. (Note that a refund check
and a negative liability adjustment should not be recorded for the same transaction.)
f. Wage Base. If the payroll liability adjustment applies to an employee, QuickBooks
displays a “Wage Base” column that allows the user to enter a corresponding adjustment
to the employee’s wage base.
g. Memo. Entering information in the “Memo” field is optional. Any information entered
about the adjustment appears on any detail payroll reports that include the adjustment.
h. Accounts Affected. After clicking the “Accounts Affected” button, QuickBooks asks the
user whether liability and expense account balances should be affected by the adjustment.
If “Do not affect accounts” is selected, general ledger account balances are not updated.
However, QuickBooks updates the “Payroll Liabilities” balance for the affected payroll
item. If “Affect liability and expense accounts” is selected, QuickBooks updates any
general ledger account balances related to the adjustment.
(1) “Do not affect accounts” should be selected if (a) a journal entry previously
adjusted the liability for the payroll item, or (b) the payroll liability was paid via “Write
Checks.” (See item c. in paragraph 101.70.)
(2) “Affect liability and expense accounts” should be selected if (a) the payroll liability
adjustment is due to rounding differences or (b) the purpose of the adjustment is to
record a credit or expense for the payroll liability.
If the adjustment relates to an amount withheld from an employee’s paycheck,
QuickBooks prompts the user to enter the name of the expense account to offset the
adjustment to the liability account.
NOTE Subscribers to QuickBooks Assisted Payroll cannot adjust a payroll liability
balance for federal or state tax liabilities paid by the service. (See paragraph
101.69.) However, the payroll liability balance for local or other taxes not paid by
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the service may be adjusted.
101.72 If payroll liabilities have been overpaid in prior quarters due to rounding errors, the
“Payroll Liability Balances” report (see item g. in paragraph 101.70) may contain small negative
balances. In that case, users should record a “Liability Adjustment” for the company following
the procedures in paragraph 101.71 to zero out the affected balances in the “Payroll Liability
Balances” report. When entering the adjustment, the “Effective Date” should be changed to a
date in a previous quarter and the amount should be entered as a negative number. A
QuickBooks user may receive a refund of an overpaid payroll liability if the amount of the
overpayment is significant. In that case, the user should select “Payroll Taxes and Liabilities”
and then “Deposit Refund of Liabilities” from the “Employees” menu and enter the following
information in the “Refund Deposit for Taxes and Liabilities” window:
• Vendor. Enter the vendor that refunded the payroll liability.
• Refund Date. Enter the date the refund should be posted to the bank account.
• For Period Beginning. Enter the beginning date of the pay period the refund affects. For
example, enter January 31 if a refund is received on February 23 that affects the pay
period beginning on January 31.
• Deposit Information. Select whether QuickBooks should group the refund with other
undeposited funds or deposit it directly into a specified bank account.
• Payroll Item. Enter the affected payroll item.
• Amount. Enter the refund amount as a positive number.
• Memo. Entering information in the “Memo” field is optional.
After recording the refund, QuickBooks increases the affected payroll liability balance from a
negative amount to zero (if the entire overpayment was refunded).
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101.73 Payroll Taxes Are Still Incorrect As discussed in paragraph 101.2, the QuickBooks
payroll feature may not accurately calculate federal or state payroll taxes unless the user
subscribes to one of the Intuit Payroll Services. In addition, there are several payroll item and
setup issues that can cause payroll taxes to be incorrect. (See paragraph 100.21 for more
information on QuickBooks payroll setup.) Users that process their payroll using the QuickBooks
payroll feature should do the following:
• Verify That the Payroll Schedule for Each Employee Is Set up Correctly. The payroll
schedule is the frequency of paychecks. It affects the tax amounts for federal and state
withholding on a paycheck. For example, an employee who is paid $1,500 every week is
in a different tax bracket than if he or she were paid $1,500 every month. The payroll
schedule is entered on the “Payroll and Compensation Info” tab in the “New Employee” or
“Edit Employee” window. Setting up payroll schedules is discussed beginning at paragraph
100.33.
• Determine That Each Employee’s Salary and Hourly Wage Payroll Items Are Set up
Correctly. The “Salary” payroll wage item should be used if the employee is paid a fixed
annual amount. In the “Hourly/Annual Rate” column on the employee’s “Payroll and
Compensation Info” tab, make sure the annual salary is entered, regardless of how
frequently he or she is paid. The gross pay of the salaried employee is computed by
dividing the annual salary by the number of pay periods during the year. Salaried
employees generally receive the same gross pay each pay period regardless of the
number of hours worked.
The “Hourly” payroll wage item should be used if the amount paid depends on how many
hours the employee works. In the “Hourly/Annual Rate” column on the employee’s “Payroll
and Compensation Info” tab, make sure the hourly rate is entered. The gross pay for an
hourly employee usually is computed by multiplying the “Hourly” pay rate by the number of
hours worked during the pay period.
Payroll wage items are set up either when the user defines employee defaults, or when he
or she adds employees to the “Employee List,” as discussed in paragraph 100.28.
• Verify That Additions and Deductions Are Set up Correctly. If the addition or deduction is
a percentage of gross or net pay, make sure a percentage sign is entered in the “Amount”
field on the employee’s “Payroll and Compensation Info” tab. Also, as discussed in
paragraph 100.28, the order in which payroll items are entered can affect the amount
QuickBooks calculates for each item and for taxes. Therefore, verify that the order is
appropriate.
• Verify That Tax Payroll Items Are Set up Correctly. (a) Select the payroll item of concern
from the “Payroll Item List.” (b) Select “Edit” from the “Payroll Item” tab. (c) Click “Next” in
the wizard to view each window. Make any necessary changes. Users cannot change the
type of an item. For example, they cannot change an “Addition” to a “Deduction.”
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• Determine That the Tax Table Is Up-to-date. As discussed in paragraph 100.6,
subscribers should go online to obtain current payroll updates each time they pay
employees. Subscribers should select “Get Payroll Updates” from the “Employees” menu
in QuickBooks and then click on “Update” to download the current payroll update.
• Make Sure Each Employee Is Set up with the Correct Filing Status. To properly withhold
federal income taxes and calculate an employee’s net wages, the company must have a
completed Form W-4 for each employee. Form W-4 informs the company of the number of
withholding allowances claimed by the employee. Such claims then determine the amount
of federal income tax that should be withheld from the employee’s gross pay. If the
employee has not submitted a valid Form W-4 in time to calculate his or her first payroll,
the employer must withhold FIT as if the employee is single with no exemptions. The
information can be changed on the “Payroll and Compensation Info” tab in the “Edit
Employee” window. Click on the “Taxes” button to change filing status and withholding
allowances.
Preparing Payroll Tax Forms
101.74 Preparing payroll tax forms is one of the most common ways in which practitioners
become involved with their QuickBooks clients. 19 QuickBooks can be used to prepare and print
the following federal payroll tax forms:
• Form 940, Employer’s Annual Federal Unemployment (FUTA) Tax Return (including
Schedule A, Multi-State Employer and Credit Reduction Information).
• Form 941, Employer’s Quarterly Federal Tax Return (including Schedule B, Report of
Tax Liability for Semiweekly Schedule Depositors).
• Form 944, Employer’s Annual Federal Tax Return (including Form 945-A, Annual Record
of Federal Tax Liability).
• Form 943, Employer’s Annual Federal Tax Returns for Agricultural Employees (including
Form 943-A, Agricultural Employer’s Record of Federal Tax Liability).
• Form W-2, Wage and Tax Statement. 20
• Form W-3, Transmittal of Wage and Tax Statements. 20
The QuickBooks Enhanced Payroll or Enhanced Payroll for Accountants payroll services give
subscribers access to the most current versions of Forms 940, Schedule A (Form 940), 941,
Schedule B (Form 941), 943, 943-A, 944, 945-A, W-2, and W-3. 21 The QuickBooks Assisted
Payroll service actually prepares and files the applicable federal and state payroll tax forms and
send subscribers copies of the forms. If QuickBooks users generate Forms 940, Schedule A
(Form 940), 941, Schedule B (Form 941), 943, 943-A, 944, 945-A, W-2, and W-3 without
subscribing to one of the payroll services (or if they subscribe to QuickBooks Basic Payroll),
they should ensure that the forms are the most current version (QuickBooks generates the
forms current as of the software release date, which may not be the most recent version). If the
49
forms are not current, the user should go to the QuickBooks website and determine whether
QuickBooks has issued an update for the software that includes the revised form. If a revised
form is not available from QuickBooks, users may either subscribe to the QuickBooks Enhanced
Payroll, Enhanced Payroll for Accountants, or Assisted Payroll, 21 or they may obtain the most
current forms from the IRS and fill out the forms manually. To determine if the correct form is
being used or to obtain copies of the form refer to www.irs.gov.
101.75 Form 940 (and Schedule A) 22 Form 940, Employer’s Annual Federal Unemployment
(FUTA) Tax Return, is used to report federal unemployment tax 23 and is due annually by
January 31. (Employers that properly and timely deposit all taxes receive an additional 10 days
to file Form 940.) Schedule A, Multi-State Employer and Credit Reduction Information, is filed
with Form 940 if the user paid wages to employees in more than one state or if they paid wages
in any state that is subject to credit reduction (if any). Even though Form 940 is due annually,
FUTA tax deposits must be made quarterly if the cumulative FUTA tax liability exceeds $500.
FUTA liabilities of $500 or less may be carried forward and added to the liability accumulated for
the following quarter. If no deposits are required during the calendar year and the ending tax
liability is under $500, the tax can be paid when Form 940 is filed. Under a de minimis exception
to the FUTA deposit rules, an employer is not required to deposit FUTA taxes for any quarter if
its employment tax [i.e., FICA (social security and Medicare) and withheld income taxes] liability
is less than $2,500 (even if it has an accumulated FUTA tax liability greater than $500) and
those taxes are remitted with the employer’s timely filed quarterly employment tax return (e.g.,
Form 941) [or annual employment tax return (e.g., Form 944)]. Instead, employers accumulate
the liability and must only make a deposit when both the employment tax due for a period is at
least $2,500 and the accumulated FUTA tax for the year exceeds $500. An employer qualifying
for the de minimis exception in the fourth quarter can remit its FUTA tax liability with a timely
filed Form 940 (i.e., by January 31). FUTA taxes are calculated as 6.2% of taxable wages 24 if
the company is not eligible for the 5.4% FUTA tax credit for amounts paid for state
unemployment. However, many companies qualify for the credit and pay taxes using the
reduced rate of .8%. QuickBooks users should verify that the correct rate is selected for the
“Federal Unemployment” payroll item, as discussed in item f. in paragraph 101.70.
101.76 The QuickBooks Enhanced Payroll and Enhanced Payroll for Accountants payroll
services help users prepare Form 940 and Schedule A by calculating taxable wages and the
amount of tax owed. However, users should verify that state unemployment taxes 25 have been
paid before using QuickBooks to prepare Form 940 and Schedule A. If the payroll liability for
state unemployment tax has not been paid, QuickBooks assumes that the company does not
qualify for the FUTA credit and calculates the tax at the 6.2% rate even if the .8% rate has been
used on employees’ paychecks. After verifying payment of state unemployment taxes, users
should select “Payroll Tax Forms & W-2s” and then “Process Payroll Forms” from the
“Employees” menu to prepare Form 940 and Schedule A. Then, select “Federal Form,” click
“OK,” select “Annual Form 940/Schedule A” and the filing period, and click “OK.” If users have a
saved draft of the form, they have the option of opening the existing draft or creating a new
form. It is important to note, if any changes were made in QuickBooks that need to be on the
form, the user will need to click on the “Start New Form” button. (QuickBooks does not import
changed data into the draft form.) If the user is creating a new form, QuickBooks will display an
50
“Interview for Your Forms 940/Schedule A and 940-V.” This interview will help QuickBooks
decide whether the user needs to file Schedule A, and QuickBooks will use the answers to fill in
the forms. After answering the questions in the interview, the QuickBooks user should click
“Next” and review the forms. If the forms are correct, QuickBooks users can either save them as
a .pdf (if they subscribe to Enhanced Payroll or Enhanced Payroll for Accountants) or print the
forms. QuickBooks saves only one copy of Form 940 and Schedule A at a time. Thus, when the
user selects “Start New Form,” QuickBooks essentially erases any information that may have
appeared on a previous Form 940 and Schedule A (including adjustments the user may have
entered manually) and creates a new Form 940 and Schedule A, recalculating all amounts
based on current QuickBooks data.
NOTE In QuickBooks 2008 users should select “Payroll Forms” and then “Process
Payroll Forms” from the “Employees” menu to prepare payroll tax forms.
101.77 If the amounts on Form 940 or Schedule A look incorrect, users should verify that the
proper FUTA rate is being used and that state unemployment taxes have been paid. Next, users
should check the date through which payroll liabilities have been paid. As discussed in
paragraph 101.63, QuickBooks uses the date in the “through” field of the “Pay Liabilities”
window or the time period reflected in the “Pay Scheduled Liabilities” portion of the “Payroll
Center” to calculate amounts in Forms 940 and Schedule A. To check the date, users can:
• Select “Chart of Accounts” from the “Lists” menu.
• Double-click on the federal unemployment liability account.
• Double-click on the applicable “LIAB CHK” from the register.
• Verify the “Payment for payroll liabilities through” field on the “Liability Check.”
If the date is incorrect, users can edit Form 940 or Schedule A to correct the amounts. As a
general rule, the user should not edit any other information directly on the form as the changes
do not get saved back to QuickBooks. Instead, users should click “Finish Later” and change the
information within QuickBooks.
101.78 Users of QuickBooks Enhanced Payroll and Enhanced Payroll for Accountants payroll
services can file Form 940 electronically. After reviewing Form 940, users should select “Submit
Form.” In the “Submit Form” window, select the “E-File” button. QuickBooks will not e-file the
form if it detects any errors in the data. To view errors, close the “Submit Form” window and
click on the “Check for Errors” button in the “Payroll Tax Form” window. Also, the user must
have set up the form for e-file in the payroll setup interview as discussed in paragraph 100.25.
To manually set up for e-file, open the “Payroll Center,” click on the “Related Form Activities”
button and select “Edit Filing Methods.” This will open the payroll setup interview.
101.79 Form 941 (and Schedule B) 26 Form 941, Employer’s Quarterly Federal Tax Return, is
due quarterly (on the last day of the month after the calendar quarter) and is used to report
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federal income tax withheld, social security tax, Medicare tax, and advance earned income
credit paid to employees. Schedule B, Report of Tax Liability for Semiweekly Schedule
Depositors, is filed with Form 941 if the users are semiweekly schedule depositors or if their
payroll tax liability on any day in the quarter exceeds the standard amount (currently $100,000)
for a monthly depositor. The QuickBooks Enhanced Payroll and Enhanced Payroll for
Accountants payroll services help users prepare Form 941 and Schedule B by calculating
taxable wages and tax amounts. Users should select “Payroll Tax Forms & W-2s” and then
“Process Payroll Forms” from the “Employees” menu to prepare Form 941 and Schedule B.
Then, select “Federal Form,” click “OK,” select “Quarterly Form 941/Schedule B” and the filing
period, and click “OK.” If users have a saved draft of the form, they have the option of opening
the existing draft or creating a new form. It is important to note, if any changes were made in
QuickBooks that need to be on the form, the user will need to click on the “Start New Form”
button. (QuickBooks does not import changed data into the draft form.) If the user is creating a
new form, QuickBooks will display an “Interview for Your Forms 941/Schedule B.” This interview
will help QuickBooks decide whether the user needs to file Schedule B, and QuickBooks will
use the answers to fill in the forms. After answering the questions in the interview, QuickBooks
users should click “Next” and review their form. If the form is correct, QuickBooks users can
either save it as a .pdf (if they subscribe to Enhanced Payroll or Enhanced Payroll for
Accountants) or print the form.
NOTE In QuickBooks 2008 users should select “Payroll Forms” and then “Process
Payroll Forms” from the “Employees” menu to prepare payroll tax forms.
101.80 As with Form 940 and Schedule A, QuickBooks saves only one copy of Form 941 and
Schedule B. Therefore, users should be aware that creating a new Form 941 and Schedule B
clears all information from the user’s previous Form 941 and Schedule B. As a general rule, the
user should not edit any information directly on the form as the changes do not get saved back
to QuickBooks. Instead, users should click “Finish Later” and change the information within
QuickBooks. When creating a new Form 941 and Schedule B, users should enter the ending
date of the quarter for which the form is being filed.
101.81 If the amounts on Form 941 and Schedule B (or Form 944 and Form 945-A) look wrong,
users should check the date through which payroll liabilities have been paid, as discussed in
paragraph 101.77. In addition, users can run a “QuickReport” on the payroll item affecting the
questioned amount. To run a “Payroll Item QuickReport,” users should:
• Select the applicable payroll item from the “Payroll Item List.”
• Select “QuickReport” from the “Reports” menu button.
• Select the “Filters” tab from the “Modify Report” menu button.
• Select “Paid Through” as the filter, and select “Last Calendar Quarter” (or “Last Calendar
Year”) from the “Paid Through” drop-down list. [Alternatively, enter the applicable dates for
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the quarter for which Form 941 and Schedule B (or period for which form 944 and 945-A)
is being processed in the “To” and “From” fields.]
101.82 The following list provides guidance on solving other common problems users may
encounter when processing Form 941 and Schedule B (or Form 944 and Form 945-A) via
QuickBooks:
• Payroll Taxes Were Overpaid in a Previous Quarter. If the employer overpaid federal
income tax, social security, or Medicare in a previous quarter, the overpayment amount
should be added to the “Total deposits for this quarter” amount in Line 11 of Form 941. 27
• “Total deposits for this quarter” or “Total deposits for this year” Amount Is Incorrect. If the
amount on Line 11 of Form 941 (or line 10 of Form 944) is incorrect because payroll tax
liabilities were paid via “Write Checks” rather than “Pay Scheduled (or Unscheduled)
Liabilities,” the user should leave Form 941/Schedule B (or Form 944/945-A) and adjust
the applicable payroll liability amount as discussed in item c. of paragraph 101.70 and in
paragraph 101.71. The user then should return to Form 941/Schedule B (or Form
944/945-A) and start the form again. The user will need to click on the “Start New Form”
button, since any changes made in QuickBooks will not be imported into a draft form.
• Payroll Transaction Was Voided or Edited after Filing Form 941 and Schedule B (or Form
945 and Form 945-A). The year-to-date amounts, wage base, or other payroll information
on Form 941 and Schedule B for a previous quarter (or Form 944 and 945-A for a previous
year) may be incorrect if a payroll transaction was voided or edited after filing Form 941
and Schedule B for that quarter (or Form 944 and 945-A for the year). In that case, an
amended Form 941 and Schedule B or Form 944 and 945-A should be filed for the prior
period using the adjusted amounts in Form 941/Schedule B or Form 944/945-A for the
applicable period. Even if the payroll transaction for a previous period is voided or edited in
the current period, the amounts in Form 941/Schedule B or Form 944/945-A for the current
period should be correct.
• Payroll Liability Adjustments Were Posted for the Company Rather Than for Individual
Employees. Users should identify any employee-paid taxes that were adjusted with a
company liability adjustment rather than an employee adjustment (see paragraph 101.71)
and associate the adjustments with the applicable employees. (QuickBooks then can track
when the individual employees reach the wage base limit for specific taxes.) Paragraph
101.83 provides guidance on identifying company liability adjustments for employee-paid
taxes and associating the adjustments with employees.
• Incorrect Wage Base. If the wage base appears incorrect, verify that the payroll items for
pre-tax or exempt earnings (such as dependent care or educational assistance) are set up
correctly. To verify that such items are set up correctly, generate a “Payroll Item Detail”
report (from the “Employees & Payroll” reports menu) and verify that the amount in the
“Wage Base” column for pre-tax and exempt earnings is zero. The payroll item should be
edited to correct the “Tax tracking type.” Changing the tax status of the payroll item
automatically updates the wage base amount in Form 941/Schedule B or Form 944/945-A.
53
NOTE To edit a payroll item, select “Payroll Item List” from the “Lists” menu. Choose the
item in question, select the “Payroll Item” button, and select “Edit.” A series of
screens will appear. Click “Next” until the “Tax Tracking Type” screen displays.
Select the appropriate tax tracking type from the drop-down list, select “Next” until
the last screen, and then select “Finish.”
• Net Taxes Do Not Equal Total Deposits. The “Total taxes after adjustment for advanced
EIC” amount in Line 10 of Form 941 (Line 9 of Form 944) may not equal the “Total
deposits for this quarter” amount in Line 11 of Form 941 (or “Total deposits for this year”
amount in Line 10 of Form 944) because of rounding. In that case, the “Total taxes after
adjustment for advanced EIC” amount can be adjusted for federal income tax withholding
by entering a company “Liability Adjustment,” as discussed in paragraph 101.71. The
“Total taxes after adjustment for advanced EIC” amount can be adjusted for rounding
differences involving social security and Medicare taxes by entering an adjustment in Line
7a of Form 941 (Line 6 of Form 944).
• Employee-paid Taxes Were Underwithheld. Correcting Form 941 and Schedule B (or
Form 944 and 945-A) for underwithheld employee-paid taxes depends on whether the
underwithholding occurred in the period for which Form 941 and Schedule B (or Form 944
and 945-A) is being filed or a prior period. Paragraph 101.84 provides guidance on
correcting Form 941 and Schedule B (and Form 944 and 945-A) for taxes underwithheld in
the period for which the form is being filed. Paragraph 101.87 provides guidance on
correcting Form 941 and Schedule B (and Form 944 and 945-A) for taxes underwithheld in
a prior period.
• Employee-paid Taxes Were Overwithheld. Correcting Form 941 and Schedule B (or
Form 944 and 945-A) for overwithheld employee-paid taxes depends on whether the
overwithholding occurred in the period for which Form 941 and Schedule B (or Form 944
and 945-A) is being filed or a prior period. Paragraph 101.88 provides guidance on
correcting Form 941 and Schedule B (and Form 944 and 945-A) for taxes overwithheld in
the period for which the form is being filed. Paragraph 101.89 provides guidance on
correcting Form 941 and Schedule B (and Form 944 and 945-A) for taxes overwithheld in
a prior period.
• Company-paid Taxes Are Incorrect. If an employee’s total for a company-paid tax is
incorrect for the quarter, an employee “Liability Adjustment” should be created. Enter the
last date of the quarter in which the error occurred in the “Effective Date” field. Verify that
“Affect liability and expense accounts” is selected in the “Affect Accounts” window.
• Taxable Wage Amounts Appear Incorrect. If the taxable wage amounts in Form 941 and
Schedule B (or Form 944 and 945-A) appear incorrect, the user can edit the applicable
payroll item to verify that the payroll item was set up correctly. For example, users should
check the set up of the tax rate, taxable compensation, and pre-tax deductions for the
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applicable payroll item. A “Payroll Item Detail” report for the affected item also can be
created by selecting “Employees & Payroll” from the “Reports” menu. In addition, users
should verify that no employee’s wages in excess of the social security wage base are
included in lines 5a and 5b of Form 941 (or lines 4a and 4b of Form 944).
101.83 As discussed in the preceding paragraph, QuickBooks users should identify any
employee-paid taxes adjusted with a company liability adjustment rather than an employee
adjustment. To identify such taxes and associate the adjustments with the applicable
employees, users should:
• Select “Employees & Payroll” from the “Reports” menu and generate a “Payroll Item
Detail” report.
• Click the “Modify Report” button and the “Filters” tab. Select “Payroll Item” from the
“Filter” drop-down list and “All Employee” from the “Payroll Item” drop-down list.
• Change the “Dates” field to “This Calendar Year” and select “Employee” in the “Total By”
field.
• Scroll to the bottom of the report. Liability adjustments not associated with an employee
are grouped together with a blank field in the “Source Name” column.
• Double-click on the employee-paid tax in the “Amount” column. If QuickBooks displays
the “Liability Adjustment” window, click the “Employee” button and enter the adjustment for
each affected employee using separate transactions.
101.84 QuickBooks users that discover underwithheld employee-paid taxes before filing Form
941 and Schedule B for the quarter (or Form 944 and 945-A for the year) in which the
underwithholding occurred should report the correct withholding amount on Form 941 and
Schedule B (or Form 944 and 945-A). The withholding amount can be corrected by entering an
employee “Liability Adjustment” (as discussed in paragraph 101.71) for each affected employee.
Users should select “Payroll Taxes and Liabilities” and then “Adjust Payroll Liabilities” from the
“Employees” menu to access the “Liability Adjustment” window. When entering information in
the “Liability Adjustment” window, users should:
• Enter the last day of the quarter (or year) in which the error occurred as the effective
date.
• Enter the underwithheld amount as a positive number to increase the employee’s liability
for the tax. (Ignore the QuickBooks warning message to create a paycheck. Click on the
“OK” button in the warning message.)
• Select “Affect liability and expense accounts” in the “Affect Accounts?” window and click
“OK.”
• After clicking “OK” in the “Liability Adjustment” window, enter an asset account (such as
“Due from Employees”) in the “Account for employee liabilities” window to record the
amount to be reimbursed by the employee.
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101.85 The employer should pay the employee’s portion of underwithheld payroll taxes when
filing Form 941 and Schedule B for the quarter (or Form 944 and 945-A for the year) in which
the tax was underwithheld. QuickBooks users then can set up a “Deduction” payroll item to
collect the underwithheld taxes from the employee’s next paycheck. When setting up the
“Deduction” payroll item (under the “Payroll Item List”) in the “Lists” menu, users should:
• Leave the “Enter name of agency to which liability is paid” field blank.
• In the “Liability account” field, enter the asset account (such as “Due from Employees”)
previously specified in the “Liability Adjustment” window.
• Select “None” in the “Tax tracking type” drop-down list.
Any underwithheld income tax must be recovered by December 31 of the calendar year in which
the tax was underwithheld.
101.86 The employer may decide to pay underwithheld payroll taxes on the employee’s behalf
rather than recovering the taxes from the employee. To record the “gross up,” the QuickBooks
user should:
• Create a “Wage” 28 payroll item named “Gross Up.”
• Select “Pay Employees” and “Unscheduled Payroll” from the “Employees” window.
• Enter the last day of the period in which the error occurred in the “Pay Period Ends” field
of the “Enter Payroll Information” window.
• Select the employee by clicking the field next to his or her name, and then clicking the
name. Enter the total amount of underwithheld taxes for a particular employee in the
“Earnings” area of the “Preview Paycheck” window (after deleting any other earnings)
using the “Gross Up” payroll item. Continue to increase the amount until the net check
amount equals the total amount of underwithheld taxes for the employee. 29
• Add the underwithheld amount to any calculated amount for the applicable tax in the
“Employee Summary” area of the “Preview Paycheck” window. Continue adjusting the
amount until the net check equals zero.
101.87 QuickBooks users that discover underwithheld employee-paid taxes after filing Form 941
should report the adjustment and pay the additional tax due on a timely filed Form 941-X
(Adjusted Employer’s Quarterly Federal Tax Return or Claim for Refund). Effective with errors
ascertained after December 31, 2008, corrections will be reported on separately filed adjusted
returns (e.g., Form 941-X) rather than on Form 941c. Unlike Form 941c, the adjusted returns
will not be filed as an attachment to a current return and will not affect the liability reported on
the current return. An employer will be able to file an adjusted return as soon as it ascertains the
underpayment or overpayment error, rather than waiting to report the adjustment with its
regularly filed employment tax return. For errors ascertained before 2009, Form 941c
(Supporting Statement to Correct Information) must be attached to Form 941 for the period (or
Form 944 for the year) in which an error is corrected. Since Form 944 is filed annually, any
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underwithheld federal income taxes cannot be reported as an adjustment. Corrections for
income tax withholding may be made only for administrative errors. Adjustments for
underwithheld social security and Medicare taxes are reported on Form 944-X. The
underwithheld FICA taxes do not have to be collected from the employee within any specific
time period. Underwithheld federal income taxes generally must be recovered by December 31.
QuickBooks users should follow the instructions for Forms 941-X and 944-X when correcting
payroll taxes underwithheld or overwithheld. Different rules apply for correcting income tax and
FICA withholding amounts.
101.88 QuickBooks users who discover overwithheld employee-paid taxes before filing Form
941 and Schedule B for the quarter (or Form 944 and 945-A for the year) in which the
overwithholding occurred should report the correct withholding amount on Form 941 and
Schedule B (or Form 944 and 945-A) and return the overwithheld amount to the employee.
Users also should correct the problem causing the overwithholding in the employee’s record or
in the payroll item setup. QuickBooks users can return the overwithheld amount on the
employee’s paycheck if the overwithholding is detected before the employee’s last paycheck for
the quarter is printed. In that case, the user should reduce the current tax amount in the
“Amount” field in the “Employee Summary” area of the “Preview Paycheck” window by the
previously overwithheld amount. If the overwithheld amount relates to a flat-rate tax, the
QuickBooks Enhanced Payroll and Enhanced Payroll for Accountants payroll services
automatically reduce the tax amount on the new paycheck. (It may take multiple paychecks to
correct the error if the overwithheld amount exceeds the tax amount on the new paycheck.)
QuickBooks Assisted Payroll processes overwithheld tax amounts for their subscribers.
101.89 QuickBooks users that discover overwithheld employee-paid taxes after filing Form 941
and Schedule B must (a) settle with the affected employees by either repaying the employees or
obtaining written consent from the affected employees to file a claim on their behalf, and (b) file
a claim for refund or credit. A credit adjustment of overwithheld federal income taxes or
overwithheld FICA taxes (for a prior calendar quarter in the same year) is reported as a
deduction from tax liability on Form 941-X. Adjustments should only be made to correct
overwithheld income tax amounts from the current year. Since Form 944 is filed annually, any
overwithheld federal income taxes cannot be reported as an adjustment. Corrections for income
tax withholding may be made only for administrative errors. Adjustments for overwithheld social
security and Medicare taxes are reported on Form 944-X.
101.90 If the amounts on Form 941 and Schedule B (or Form 944 and 945-A) still look incorrect
after making adjustments for the errors described in the preceding paragraphs, QuickBooks
users should verify that any year-to-date amounts were entered properly. Users can check yearto-date amounts by generating a “Payroll Item Detail” report as follows:
• Select “Employees & Payroll” and “Payroll Item Detail” from the “Reports” menu.
• Select “This Calendar Year” from the “Dates” drop-down list.
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• Select the “Modify Report” button and the “Filters” tab. Then select “Transaction Type”
from the “Filter” drop-down list and “YTD Adjustment” from the “Transaction Type” dropdown list.
Users then can verify that the year-to-date wage base and tax amounts were entered correctly
for particular payroll items and particular employees.
101.91 If the amounts on Form 941 and Schedule B (or Form 944 and 945-A) still seem
incorrect after following the guidance in the preceding paragraphs, QuickBooks users can
create a “Payroll Summary” report as follows:
• Select “Employees & Payroll” and “Payroll Summary” from the “Reports” menu.
• Select “This Calendar Year” from the “Dates” drop-down list.
• In the “Total” column of the report, double-click on the amount in question to display the
detail for that amount in the “Transaction by Payroll Item” report.
• In the “Transaction by Payroll Item” report, select the “Modify Report” button and the
“Display” tab, and then select “Employee” from the “Total By” drop-down list.
The wage base for individual employees then can be multiplied by the applicable tax rate to
determine if the tax amounts for each employee are correct for the specified payroll item.
101.92 QuickBooks users should reconcile the following amounts on Form 941 (or Form 944) to
the payroll register to determine that all amounts have been reported:
• Federal income tax wages.
• Federal income tax withholdings.
• Social security wages.
• Social security taxes (both employees’ and employer’s).
• Medicare wages.
• Medicare taxes (both employees’ and employer’s).
• Tax deposits.
• Tax liabilities.
Social security and Medicare taxes also should be recalculated to determine that the employer’s
portion of the taxes equals the employees’ withholdings. The information within Form 941 (or
Form 944) itself also should be reconciled. For example, the compensation subject to federal
income tax withholdings (line 2 of Form 941, line 1 of Form 944) should be reconciled to
compensation subject to social security taxes (make sure that no employee’s wages in excess
of the social security wage base are included) (lines 5a and 5b of Form 941, lines 4a and 4b of
58
Form 944) and Medicare taxes (line 5c of Form 941, line 4c of Form 944). The primary
differences generally arise from the handling of 401(k) or 403(b) pre-tax contributions, SEP
employee contributions, deceased workers’ wages paid in year of death, adoption assistance,
and nonqualified deferred compensation. 30 Amounts for such items are excluded from line 2 of
Form 941 but included in line 5 (or excluded from line 1 of Form 944 but included in line 4).
101.93 Users of QuickBooks Enhanced Payroll and Enhanced Payroll for Accountants payroll
services can file Form 941 electronically. After reviewing Form 941, users should select “Submit
Form.” In the “Submit Form” window, select the “E-File” button. QuickBooks will not e-file the
form if it detects any errors in the data. To view errors, close the “Submit Form” window and
click on the “Check for Errors” button in the “Payroll Tax Form” window. Also, the user must
have set up the form for e-file in the payroll setup interview as discussed in paragraph 100.25.
To manually set up for e-file, open the “Payroll Center,” click on the “Related Form Activities”
button and select “Edit Filing Methods.” This will open the payroll setup interview.
101.94 Form 944 (and 945-A) To reduce the tax filing burden, the IRS requires certain small
employers to file Form 944, Employer’s Annual Federal Tax Return annually instead of filing
Form 941 quarterly. In addition, employers that qualify to file Form 944 will pay their
employment taxes once a year instead of every quarter. Only employers whose estimated
annual employment tax liability is $1,000 or less are eligible to file Form 944. Typically this
includes very small employers that pay no more than $4,000 in annual wages that are subject to
federal income tax withholding and FICA taxes. Employers that have been notified by the IRS to
file Form 944 must continue filing Form 944 until properly opting out of the program and
receiving confirmation by the IRS, or being notified by the IRS that quarterly Forms 941 must be
filed. If an eligible employer’s employment tax liability exceeds $1,000, the employer would still
file Form 944 for that tax year, but would start filing Form 941 at the beginning of the next tax
year. In February of each year, the IRS will notify newly eligible employers who qualify to file
Form 944. Form 945-A, Annual Record of Federal Tax Liability, is filed with Form 944 if the
users are semiweekly schedule depositors or if their payroll tax liability on any day in the quarter
exceeds the standard amount (currently $100,000) for a monthly depositor.
101.95 The QuickBooks Enhanced Payroll and Enhanced Payroll for Accountants payroll
services help users prepare Form 944 and Form 945-A by calculating taxable wages and tax
amounts. Users should select “Payroll Tax Forms & W-2s” and then “Process Payroll Forms”
from the “Employees” menu to prepare Forms 944 and 945-A. Then, select “Federal Form,”
click “OK,” select “Annual Form 944/945-A” and the filing period, and click “OK.” If users have a
saved draft of the form, they have the option of opening the existing draft or creating a new
form. It is important to note, if any changes were made in QuickBooks that need to be on the
form, the user will need to click on the “Start New Form” button. (QuickBooks does not import
changed data into the draft form.) If the user is creating a new form, QuickBooks will display an
“Interview for Your Forms 944/945A.” This interview will help QuickBooks decide whether the
user needs to file Form 945-A, and QuickBooks will use the answers to fill in the forms. After
answering the questions in the interview, QuickBooks users should click “Next” and review their
form. If the form is correct, QuickBooks users can either save it as a .pdf (if they subscribe to
Enhanced Payroll or Enhanced Payroll for Accountants) or print the form.
59
NOTE In QuickBooks 2008 users should select “Payroll Forms” and then “Process
Payroll Forms” from the “Employees” menu to prepare payroll tax forms.
101.96 As with Forms 940 and 941, QuickBooks saves only one copy of Forms 944 and 945-A.
Therefore, users should be aware that creating new Forms 944 and 945-A clears all information
from the user’s previous Forms 944 and 945-A. As a general rule, the user should not edit any
information directly on the form as the changes do not get saved back to QuickBooks. Instead,
users should click “Finish Later” and change the information within QuickBooks. When creating
a new Form 944 and 945-A, users should enter the ending date of the year for which the form is
being filed.
101.97 If the amounts on Form 944 and 945-A look wrong, users should check the date through
which payroll liabilities have been paid, as discussed in paragraph 101.77. In addition, users
can run a “QuickReport” on the payroll item affecting the questioned amount. (See paragraph
101.81.) Guidance on solving other common problems users may encounter when processing
Forms 944 and 945-A begins at paragraph 101.82. Correcting withholding errors is discussed
beginning at paragraph 101.84. Verifying that year-to-date amounts were entered properly is
discussed at paragraph 101.90. Reconciling Form 944 to the payroll register is discussed at
paragraph 101.92.
101.98 Users of QuickBooks Enhanced Payroll and Enhanced Payroll for Accountants payroll
services can file Form 944 electronically. After reviewing Form 944, users should select “Submit
Form.” In the “Submit Form” window, select the “E-File” button. QuickBooks will not e-file the
form if it detects any errors in the data. To view errors, close the “Submit Form” window and
click on the “Check for Errors” button in the “Payroll Tax Form” window. Also, the user must
have set up the form for e-file in the payroll setup interview as discussed in paragraph 100.25.
To manually set up for e-file, open the “Payroll Center,” click on the “Related Form Activities”
button and select “Edit Filing Methods.” This will open the payroll setup interview.
101.99 Form 943 (and 943A) Employers report wages, federal income tax withholding, and
FICA taxes for agricultural employees to the IRS on Form 943, Employer’s Annual Federal Tax
Return for Agricultural Employees. Agricultural employees are employees who perform
farmwork. In addition, Form 943 is used to report taxes on wages of household employees
working in a private home on a farm operated for profit. Employers are required to file Form 943
if (a) they paid an employee $150 or more in a calendar year for farmwork or (b) they paid
aggregate cash wages of $2,500 or more to all of the combined farmworkers (the $2,500-ormore group test”). If an employer pays a farmworker less than $150 in annual cash wages, the
wages are not subject to social security and Medicare taxes even if the employer meets the
$2,500-or-more group test, if the farmworker—
a. is employed in agriculture as a hand-harvest laborer,
b. is paid piece rates in an operation that is usually paid on a piece-rate basis in the region
of employment,
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c. commutes daily from his or her home to the farm, and
d. has been employed in agriculture less than 13 weeks in the preceding calendar year.
The amounts the employer pays such workers should be included in the $2,500-or-more
group test, however.
101.100 The QuickBooks Enhanced Payroll and Enhanced Payroll for Accountants payroll
services help users prepare Form 943 and 943A by calculating taxable wages and tax amounts.
Users should select “Payroll Tax Forms & W-2s” from the “Employees” menu to prepare Form
943 and 943A. Then, select “Federal Form,” click “OK,” select “Annual Form 943/943A” and the
filing period, and click “OK.” If users have a saved draft of the form, they have the option of
opening the existing draft or creating a new form. It is important to note, if any changes were
made in QuickBooks that need to be on the form, the user will need to click on the “Start New
Form” button. (QuickBooks does not import changed data into the draft form.) If the user is
creating a new form, QuickBooks will display an “Interview for Your Forms 943/943A.” This
interview will help QuickBooks decide whether the user needs to file Form 943A, and
QuickBooks will use the answers to fill in the forms. After answering the questions in the
interview, QuickBooks users should click “Next” and review their form. If the form is correct,
QuickBooks users can either save it as a .pdf (if they subscribe to Enhanced Payroll or
Enhanced Payroll for Accountants) or print the form.
101.101 As with Form 941 and Schedule B, QuickBooks saves only one copy of Form 943 and
943A. Therefore, users should be aware that creating a new Form 943 and 943A clears all
information from the user’s previous Form 943 and 943A. As a general rule, the user should not
edit any information directly on the form as the changes do not get saved back to QuickBooks.
Instead, users should click “Finish Later” and change the information within QuickBooks. When
creating a new Form 943 and 943A, users should enter the ending date of the period for which
the form is being filed.
101.102 Users of QuickBooks Enhanced Payroll and Enhanced Payroll for Accountants payroll
services can file Form 943 electronically. After reviewing Form 943, users should select “Submit
Form.” In the “Submit Form” window, select the “E-File” button. QuickBooks will not e-file the
form if it detects any errors in the data. To view errors, close the “Submit Form” window and
click on the “Check for Errors” button in the “Payroll Tax Form” window. Also, the user must
have set up the form for e-file in the payroll setup interview as discussed in paragraph 100.25.
To manually set up for e-file, open the “Payroll Center,” click on the “Related Form Activities”
button and select “Edit Filing Methods.” This will open the payroll setup interview.
NOTE In QuickBooks 2008 users should select “Payroll Forms” and then “Process
Payroll Forms” from the “Employees” menu to prepare payroll tax forms.
101.103 Form W-2 Form W-2, Wage and Tax Statement, must be transmitted to each employee
by January 31 each year. (W-2 information will only include amounts from employee paychecks
61
written via “Pay Employees.” Information from paychecks created by selecting “Write Checks”
will not be included in W-2s.) QuickBooks allows users to prepare W-2s and print them on IRSapproved forms. 31 32 Unless the user is a subscriber to QuickBooks Enhanced Payroll or
Enhanced Payroll for Accountants, the forms cannot be printed on blank paper. 33 QuickBooks
requires users to review W-2 forms onscreen before printing the forms. To review W-2s, users
should (a) select “Payroll Tax Forms & W-2s” and then “Process Payroll Forms” from the
“Employees” menu, select “Federal Form,” and click “OK” (b) select “Annual Form W-2/W-3,”
the filing period, 34 and whether to process W-2s for all employees or select employees and click
“OK”; and (c) select “Review/Edit.” QuickBooks will display a “Forms W-2 and W-3 Interview.”
This interview will help the user review and prepare their Form W-2s and Form W-3. In the
interview, the user can override certain information to make changes. However, the changes do
not get saved back to QuickBooks. Therefore, if information needs to be changed, users should
exit the interview and change the information within QuickBooks. If information (boxes a through
f) in a particular W-2 needs to be corrected, users should correct the information as follows:
NOTE In QuickBooks 2008 users should select “Payroll Forms” and then “Process
Payroll Forms” from the “Employees” menu to prepare payroll tax forms.
• Boxes b and c. If the employer’s identification number, name, address, or zip code is
incorrect, select “Company Information” from the “Company” menu to correct the
information. The information in Boxes b and c should be the same information as reported
on the employer’s Form 941.
• Boxes a, e, and f. If the employee’s social security number, name, or address is
incorrect, click “Employee Center” on the toolbar, select the employee, click “Edit
Employee,” and edit the applicable information.
• Box 15. If the employer’s state or state identification number is incorrect, select the
payroll item for state withholding from the “Payroll Item List” and edit the applicable
information. QuickBooks can track state wages for more than two states for the same
employee. However, QuickBooks cannot reflect more than two state amounts on the
employee’s W-2 form.
After editing the W-2s for any of the preceding adjustments, users should return to the W-2
form. Users then should right-click any amount in Boxes 1 through 11 that needs to be adjusted,
select “Override,” enter the applicable information, and press Tab. Users should be sure to enter
the adjusted amount rather than the adjustment amount. If the employee is subject to state
disability insurance withholding, QuickBooks automatically enters the amount in Box 14. In
addition, QuickBooks also enters the amount for any other payroll item with “Tax tracking type”
set to “Other” in Box 14. Users also may enter other information (such as employee-paid state
unemployment insurance or union dues) in Box 14 by clicking in the box and entering the
adjustment description and amount.
101.104 When reviewing W-2s, QuickBooks users should check the amounts to ensure that:
62
• The total of the amounts in Box 3 (social security wages) and Box 7 (social security tips)
do not exceed the social security wage base.
• The amount in Box 3 (social security wages) equals the amount in Box 5 (Medicare
wages and tips) if the amount of wages paid was less than or equal to the social security
wage base.
• The amount in Box 4 (social security tax withheld) equals 6.2% of the amount in Box 3
(social security wages). If not, the difference should be reconciled by the amounts
specified for Code A (uncollected social security taxes on reported employee tips) and
Code M (uncollected social security tax on a former employee’s group-term life coverage
in excess of $50,000) in Box 12.
• The amount in Box 6 (Medicare tax withheld) equals 1.45% of the amount in Box 5
(Medicare wages and tips). If not, the difference should be reconciled by the amounts
specified for Code B (uncollected Medicare taxes on reported employee tips) and Code N
(uncollected Medicare tax on a former employee’s group-term life coverage in excess of
$50,000) in Box 12.
101.105 After reviewing all W-2 forms, users should select “Submit Form.” (QuickBooks
Assisted Payroll prepares W-2s for their subscribers’ employees and mail the forms to the
subscribers.) In the “Print/E-File Form” window, select “Print.” Copies of W-2 forms are due to
the Social Security Administration by the last day of February. 35 In general, employers that file
250 or more returns must file the forms electronically. Users of QuickBooks Enhanced Payroll
and Enhanced Payroll for Accountants payroll services can file the forms electronically. After
reviewing all W-2 forms, users should select “Submit Form.” In the “Print/E-File Form” window,
select the “E-File Federal Forms” button. QuickBooks will not e-file the forms if it detects any
errors in the data. To view errors, close the “Print/E-File Form” window and click on the “Check
for Errors” button in the “Payroll Tax Form” window. Also, the user must have set up the form for
e-file in the payroll setup interview as discussed in paragraph 100.26. To manually set up for efile, open the “Payroll Center,” click on the “Related Form Activities” button and select “Edit
Filing Methods.” This will open the payroll setup interview. 36 QuickBooks does not prepare
Form W-2c to correct information on W-2 forms already sent to the Social Security
Administration.
101.106 If an error is detected on an employee’s Form W-2 before Forms W-2 and Form W-3
(see paragraph 101.107) are filed with the Social Security Administration, the QuickBooks user
should:
• Select “Review/Edit” for the affected employee from the “Select Employees for Form W2/W-3” window.
• Right-click on the incorrect amount, select “Override,” enter the applicable information,
and press Tab. (An error in Boxes a, b, c, e, or f should be corrected following the
procedures in paragraph 101.103.)
63
• Print the corrected Form W-2 for the applicable employee. Do not reprint W-2s for all
employees (unless corrections are being made for all employees).
• Give the corrected copy of Form W-2 to the employee after manually marking the
employee’s copies (Copies B, C, and 2) “Corrected.”
• Void Copy A of the original Form W-2 by manually marking the “Void” box at the top of
the form.
• Send the original Copy A and the corrected Copy A to the Social Security Administration
when all of the W-2 forms are filed. The corrected Copy A should not be marked corrected.
• QuickBooks automatically includes the corrected amounts in Form W-3 since each
printing of Form W-2 for a particular employee overrides the previously printed Form W-2.
However, if Form W-3 already has been printed, it must be reprinted after selecting all
employees for whom Form W-2 is being transmitted. (See further discussion in paragraph
101.107.)
If an error is detected on an employee’s Form W-2 after filing Forms W-2 and W-3 with the
Social Security Administration, the QuickBooks user should issue a Form W-2c to the employee
and the Social Security Administration. Form W-2c only reports corrections to Form W-2. (Form
W-3c should be used to transmit Form W-2c to the Social Security Administration). QuickBooks
does not support preparation of Forms W-2c or W-3c.
101.107 Form W-3 Form W-3, Transmittal of Wage and Tax Statements, is a summary form that
must be used when submitting W-2 forms to the Social Security Administration. Form W-3 must
be submitted to the Social Security Administration, along with copies of Forms W-2, by the last
day of February. (QuickBooks Assisted Payroll prepares and files Form W-3 for their
subscribers.) After printing Forms W-2, Form W-3 should be printed to summarize the individual
W-2 forms. QuickBooks calculates the amounts for Form W-3 by totaling the amounts on the W2 forms. QuickBooks users cannot edit Form W-3. Consequently, users should review W-2
forms carefully before printing Form W-3. To print Form W-3, users should select “Payroll Tax
Forms & W-2s” and then “Process Payroll Forms” from the “Employees” menu, select “Federal
Form,” and click “OK”; then, select “Annual Form W-2/W-3,” the filing period, and “All
Employees” and click “OK.” Then, select all of the individual employees whose W-2 forms are
being filed. Users then click “Review/Edit” and QuickBooks will display a “Forms W-2 and W-3
Interview.” Users should review each W-2 again, and then review the Form W-3 Worksheet.
After reviewing the forms, users should select “Submit Forms.” As with Form W-2, QuickBooks
allows users to print Form W-3 on an IRS-approved form. 37 Unless the user subscribes to the
QuickBooks Enhanced Payroll or Enhanced Payroll for Accountants payroll services, the form
cannot be printed on blank paper. If Form W-3 needs to be reprinted because one or more W-2
forms have been corrected before transmitting Forms W-2 and W-3 to the Social Security
Administration, all employees for whom a W-2 is being transmitted should be selected before
reprinting Form W-3. Users of QuickBooks Enhanced Payroll and Enhanced Payroll for
Accountants payroll services can file Form W-3 electronically. See the discussion at paragraph
101.105.
64
NOTE In QuickBooks 2008 users should select “Payroll Forms” and then “Process
Payroll Forms” from the “Employees” menu to prepare payroll tax forms.
101.108 QuickBooks users should be aware that QuickBooks does not track information for Box
14 (“Income tax withheld by payer of third-party sick pay”) on Form W-3. Therefore, users who
must report an amount in Box 14 should calculate the amount manually. Then, right-click in Box
14, select “Override,” and enter the information.
101.109 The totals on Form W-3 must match the cumulative totals reported to the Internal
Revenue Service on the quarterly Forms 941 or the annual Form 944 for the calendar year.
Consequently, the amounts on the four quarterly Forms 941 or the annual Form 944 should be
reconciled to the amounts on Form W-3. Ideally, the amounts should be reconciled before filing
the fourth quarter Form 941 or the annual Form 944 and releasing Forms W-2. The Internal
Revenue Service or the Social Security Administration will require the employer to explain any
discrepancies between the following amounts on the forms:
• Total compensation.
• Income tax withheld.
• Social security wages.
• Social security tips.
• Social security taxes.
• Medicare wages and tips.
• Medicare taxes.
• Advance earned income credit.
Form W-3 should include Form 941-X (for errors ascertained after December 31, 2008)
adjustments for only the current year. (See discussion of Form 941-X at paragraph 101.87.) If
the Form 941-X adjustments include amounts for a prior year, those adjustments should not be
reported on the current year Forms W-2 and W-3. The amounts for social security taxes and
Medicare taxes (including current year adjustments) on the four quarterly Forms 941 (or the
annual Form 944) should be approximately double the amounts on Form W-3.
101.110 The following common errors create differences between Forms 941 and 944 and
Form W-3:
• Properly applying the social security wage base limit on W-2 forms, but not applying the
limit to the data reported on Forms 941 or 944.
65
• Properly including other compensation or taxable fringe benefits (such as auto usage or
group term life insurance exceeding $50,000) on W-2 forms but improperly omitting the
amounts from Form 941 or Form 944.
Paragraph 101.82 discusses correcting errors on Form 941 and Form 944. Correcting errors on
Forms W-2 or W-3 is discussed in paragraph 101.106.
101.111 In addition to reconciling the amounts on Forms 941 and 944 to Form W-3, the total
compensation reported on Form 940 should be reconciled to the amount reported on Form W-3.
The Internal Revenue Service will compare the total compensation reported on Form W-3 to
total compensation reported on Form 940 and require employers to explain any differences.
Proper reconciling differences between Box 1 (“Wages, tips, other compensation”) of Form W-3
and Part 2, line 3 (“Total payments to all employees”) of Form 940 include the following
amounts that are excluded from Form W-3 but included in Form 940:
• 401(k) Plan Pre-tax Contributions.
• 403(b) Plan Pre-tax Contributions.
• Medical Savings Accounts (MSAs).
• Health Savings Accounts (HSAs).
• SEP and SIMPLE Employee Contributions.
• Section 125 Plan Pre-tax Contributions. Such amounts are included in line 3 of Form 940
but excluded in line 4.
• Deceased Worker Wages Paid in Year of Death.
• Dependent Care Assistance. Amounts under $5,000 ($2,500 for employees married and
filing separately) are excluded from Form W-3 but included in Form 940 as an amount for
line 3 and exclusion in line 4. (Amounts exceeding $5,000 are included in both lines.)
• Nontaxable Portion of Third-party Sick Pay. Certain amounts of third-party sick pay are
excluded from Form W-3 but included in Form 940.
• Adoption Assistance. Amounts under a certain limit ($12,150 in 2009) are excluded from
Form W-3 but included in Form 940.
In addition to the preceding reconciliations, QuickBooks users should reconcile the amount in
Box 1 (wages, tips, other compensation) of Form W-3 to the amounts in Box 3 (social security
wages) and Box 5 (Medicare wages and tips).
101.112 State Payroll Tax Forms QuickBooks Enhanced Payroll and Enhanced Payroll for
Accountants subscribers can prepare and file most state payroll tax forms from within
QuickBooks. Subscribers can generate state forms for 40 states. QuickBooks users can check
the availability of their state form at www.quickbooks.com/taxforms. Users should select “Payroll
Tax Forms & W-2s” and then “Process Payroll Forms” from the “Employees” menu. Then, select
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“State Form,” click “OK” and follow the onscreen prompts. In addition, QuickBooks Assisted
Payroll prepares and files most state payroll tax forms for their subscribers.
NOTE In QuickBooks 2008 users should select “Payroll Forms” and then “Process
Payroll Forms” from the “Employees” menu to prepare payroll tax forms.
101.113 QuickBooks users who do not subscribe to one of those services (i.e., they subscribe
to QuickBooks Basic or process payroll manually) can generate reports to assist in preparation
of state payroll tax forms by selecting “Employees & Payroll” and then “Employee State Taxes
Detail” from the “Reports” menu. QuickBooks automatically totals the report by employee. Users
may want to sort the report by vendor or payroll item detail. Users also may want to customize
the report. The standard report includes columns for “Income Subject To Tax” and “Wage Base”
but not for rate. Users can add a rate column to the report by clicking the “Modify Report” button
and the “Display” tab. Then select “Sales Price” from the “Columns” drop-down list.
101.114 QuickBooks users should set up a separate payroll item for each type of state or local
payroll tax. When setting up the payroll item, “State Tax” should be selected as the “Payroll item
type” for state withholding, state disability, and state unemployment taxes. “Other Tax” should
be selected as the “Payroll item type” for local taxes and miscellaneous state taxes. The correct
“Payroll item type” should be selected so that QuickBooks includes the correct information on
the “Employee State Taxes Detail” report. In some states, employers are required to withhold
disability taxes from employees’ paychecks and also to pay state disability insurance as a
company expense. Likewise, some states collect unemployment insurance from employers and
also require unemployment taxes to be withheld from employees’ paychecks. In such cases,
QuickBooks prompts users to set up separate “State Tax” payroll items for the company
expense and the employee withholding simultaneously.
101.115 The following list provides guidance on solving common problems encountered by
QuickBooks users when preparing state payroll tax forms:
• Using a Combined Tax Rate for Separate Taxes. As discussed in the preceding
paragraph, QuickBooks users should set up a separate payroll item for each type of state
or local payroll tax. If one payroll item has been set up to account for multiple state or local
taxes with a combined rate (e.g., combining the tax for state unemployment insurance with
a miscellaneous state or local tax), the payroll items should be adjusted to track the taxes
separately. Paragraph 101.116 provides guidance on adjusting the payroll items.
• Paying State Disability at a Rate Other Than the State-mandated Rate. If the employer
pays state disability insurance at a rate other than the state-mandated rate, an “Other Tax”
(rather than “State Tax”) payroll item should be set up to track the disability insurance.
Although QuickBooks does not calculate federal or state payroll taxes for users that do not
subscribe to one of its payroll services, QuickBooks does calculate “other” taxes based on
the rates and limits specified by the user. Paragraph 101.117 provides guidance on setting
up the “Other Tax” payroll item.
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The QuickBooks Enhanced Payroll or Enhanced Payroll for Accountants payroll services
provide the state-mandated disability insurance rates for subscribers. However, if state
disability insurance is being paid at a rate other than the state-mandated rate, Enhanced
Payroll or Enhanced Payroll for Accountants subscribers should set up an “Other Tax”
payroll item to track state disability insurance since subscribers cannot edit the rate in the
preset state disability insurance payroll items. The QuickBooks Assisted Payroll also
calculates and makes state disability insurance payments for their subscribers using statemandated rates. If a rate other than the state-mandated rate is being paid, subscribers
should set up an “Other Tax” payroll item for state disability insurance. In that case,
subscribers must make their own state disability insurance payments since the
QuickBooks Assisted Payroll service will not make such payments on behalf of
subscribers.
• Paying State Disability Insurance to a Private Agency. Some states require employers to
pay state disability insurance to a private agency rather than the state. Other states let
employers choose whether to pay the state or a private agency. However, QuickBooks
Assisted Payroll does not make payments to private agencies. Therefore, subscribers to
that service should set up state disability insurance as an “Other Tax” payroll item as
discussed in paragraph 101.117 and make the required state disability insurance
payments to the applicable private agencies.
• Calculating State Unemployment Insurance Incorrectly. QuickBooks does not calculate
state unemployment insurance amounts for users that do not subscribe to one of the Intuit
Payroll Services. The state unemployment insurance amount may be incorrect for those
users if the user’s state imposes an annual limit on taxable income but the user continues
calculating the tax for employees after the year-to-date total for income subject to
unemployment tax reaches the limit. In addition, state unemployment taxes may be
calculated incorrectly if the user does not verify that the correct rate is being used each
quarter. Subscribers to Intuit Payroll Services also should verify that the payroll item(s) for
state unemployment insurance is set up with the correct rates for each quarter and that the
rates are set up using the correct format. (For example, a rate of .5% should be set up as
.5 rather than .005 since QuickBooks automatically enters the rate as a percentage.) If the
rates are set up incorrectly, QuickBooks may quit calculating the unemployment tax before
the applicable wage base is met. Similarly, QuickBooks may continue calculating
unemployment tax after the applicable wage base is met if the maximum amount to be
withheld (the wage base limit multiplied by the rate) has not been reached. Users can
verify rates and wage bases by generating an “Employee State Taxes Detail” report, as
discussed in paragraph 101.112.
101.116 As discussed in the preceding paragraph, QuickBooks users should set up a separate
payroll item for each type of state or local payroll tax. If one payroll item has been set up to
account for multiple state or local taxes with a combined rate, the payroll items should be
adjusted as follows to track the taxes separately:
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• Create a new payroll item to track the miscellaneous state or local tax. (Select “Payroll
Item List” from the “List” menu, and then select “New” from the “Payroll Item” button.
Select “Custom Setup” and click “Next.”) Select “Other Tax” as the “Payroll item type.”
• Calculate the amounts needed to adjust the taxes that had been combined previously.
• Enter the adjustment in the “Liability Adjustment” window. (See paragraph 101.71.) Enter
the last day of the first quarter in the current calendar year in which the combined tax was
used in the “Effective Date” field. Enter the adjustments by employee. Enter the previously
combined payroll item (e.g., state unemployment taxes) in the first line of the “Item Name”
field and enter a negative adjustment in the “Amount” field. In the next line, enter the newly
created payroll item in the “Item Name” field and enter the same amount as a positive
adjustment in the “Amount” field. Select “Affect liability and expense accounts” after
clicking the “Accounts Affected” button. Enter the adjustment for each employee for each
quarter.
101.117 As discussed in paragraph 101.115, QuickBooks users should set up an “Other Tax”
(rather than “State Tax”) payroll item to track disability insurance if the employer pays state
disability insurance at a rate other than the state-mandated rate. When setting up the “Other
Tax” payroll item, users should:
• Select “Other” as the “Tax tracking type” for employee deductions so that QuickBooks
will display the tax on the employee’s W-2 form. Select “None” as the “Tax tracking type”
for company contributions. 38
• Edit the applicable employees in the “Employee List” by selecting each employee and
clicking “Edit Employee;” next select the “Payroll and Compensation Info” tab, then the
“Taxes” button, and then the “State” tab.
• At the “State” tab, clear the “SDI” checkbox so that it is not checked.
• Select the “Other” tab and then select the applicable “Other Tax” payroll item(s) 39 from
the “Item Name” drop-down list. Also override the applicable disability rate and limit if
those amounts differ from the amounts set up for the payroll item(s). Any rates or limits set
up for an individual employee override the amounts set up for the specified payroll item.
101.118 QuickBooks users should complete annual state unemployment reports as soon as
possible after the calendar year since state unemployment payments affect Form 940 (the
federal unemployment report), as discussed in paragraph 101.76.
101.119 State and local payroll taxes should be remitted to the taxing authorities by selecting
“Payroll Taxes and Liabilities” and then “Create Custom Liability Payments” from the
“Employees” menu, as discussed beginning in paragraph 101.62 (or “Payroll Taxes and
Liabilities” and then “Pay Scheduled Liabilities” from the “Employees” menu, as discussed
beginning in paragraph 101.61.)
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NOTE When payroll liabilities are selected to be paid, QuickBooks creates a single
check to each payee, even if several different liabilities are being paid. For
example, if state income taxes, state unemployment taxes, and state disability
taxes are remitted to the same state agency and all three tax liabilities are
selected to be paid, a single check payable to the state agency will be created.
That poses a problem if each payment must be remitted with a different form or to
a different address.
To solve that problem, separately select and print each liability to be paid (e.g.,
select the state income tax liability and print the check, then select the state
unemployment tax liability and print the check, etc.). Alternatively, create slightly
different payee names for each liability to prevent payments for different liabilities
from appearing on the same check. (For example, a payee name such as “State
of Texas” could be created for one liability, “State Treasury” could be created for
another, etc.)
Processing “After-the-Fact” Payroll 40
101.120 QuickBooks Premier-Accountant includes a feature that allows practitioners to process
after-the-fact payroll. The client prepares its payroll checks outside of QuickBooks and
subsequently provides the practitioner the information. After the practitioner enters the
information in the “After-the-Fact Payroll” window, he or she can review the client’s payroll
records and find and correct errors. QuickBooks updates the general ledger and calculates
payroll tax liabilities. The practitioner can then print payroll tax forms such as W-2, 940, 941,
943, or 944 from within QuickBooks. After opening the client’s file, practitioners can access the
“After-the-Fact Payroll” window by selecting “After-the-Fact Payroll” from the “Employees”
menu. 41 The “After-the-Fact Payroll” window is illustrated below:
101.121 Practitioners should enter each employee’s paycheck for the pay period in the “Afterthe-Fact Payroll” window. Each paycheck should be entered on a separate row. Practitioners
can customize the “After-the-Fact Payroll” window to match the client’s paychecks by adding
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columns in the spreadsheet for any payroll items that have been set up by the client. To add,
remove, or move columns click the “Customize Columns” button.
101.122 Practitioners can choose to use calculated net pay for the paycheck amount by
selecting the “Accept Calculated Net Pay if Enter Net Pay is left blank” checkbox. They should
leave the “Enter Net Pay” column blank. QuickBooks will use the calculated net pay for the net
pay amount.
101.123 If the net pay amount that QuickBooks calculates does not match the paycheck
amount, the practitioner must decide how to handle the difference. They can let QuickBooks
automatically adjust paycheck amounts that have errors by selecting the “Adjust out of balance
paychecks by applying Diff+/- to Fed W/H” checkbox. If the checkbox is not selected, an “Out of
Balance” window will appear each time a paycheck is out of balance. In this window the
practitioner can have the difference applied either to Federal Withholding, State Withholding (if
there is a payroll item for this) or they can choose to adjust the difference manually by applying
the difference to another payroll item.
101.124 Practitioners can also customize how the “After-the-Fact Payroll” window works by
setting QuickBooks preferences. (See discussion of payroll preferences at paragraph 100.31)
Preferences that can be customized that affect the “After-the-Fact Payroll” window include:
• Whether certain information from prior paychecks should be carried forward. (Select
“Preferences” from the “Edit” menu and click “Payrolls & Employees” from the icon list.)
• Warning about duplicate check numbers. (Select “Preferences” from the “Edit” menu and
click “Checking” from the icon list.)
• Which default account to use. (Select “Preferences” from the “Edit” menu and click
“Checking” from the icon list.)
• Pressing enter to move between fields. (Select “Preferences” from the “Edit” menu and
click “General” from the icon list.)
• Warning to save paychecks. (Select “Preferences” from the “Edit” menu and click
“General” from the icon list.)
1
Alternatively, the 2010 federal income tax withholding tables are also available on the IRS’s
website.
2
As of May 31, 2010, the payroll services will not work with QuickBooks 2007 or earlier. Users
of those versions will need to upgrade to a more recent version of QuickBooks prior to the
service discontinuation date in order to receive the full 12 months of their payroll subscription.
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3
The QuickBooks Assisted Payroll service requires that all customers use a currently supported
version of QuickBooks.
4
Using a journal entry to record payroll transactions also leads to other problems related to
reconciling the payroll bank account. See paragraph 101.17.
5
To make the report more useful, add the check number to the report. To do so, create an
“Audit Trail” report and select “Modify Report.” Place a check mark next to “Num” in the
“Columns” drop-down list and select “OK.”
6
QuickBooks sometimes creates “Employee Advances” as an “Other Current Asset” in the chart
of accounts as part of the company set up process. The authors recommend adding an
“Employee Payroll Advances” account to distinguish payroll advances from other types of
employee advances, such as travel advances. See paragraph 101.37 for discussion of travel
advances.
7
QuickBooks sometimes creates “Employee Advances” as an “Other Current Asset” in the chart
of accounts as part of the company set up process. The authors recommend adding an
“Employee Payroll Advances” account to distinguish payroll advances from other types of
employee advances, such as travel advances. See paragraph 101.37 for discussion of travel
advances.
8
Employers that deduct repayments of payroll advances from employees’ paychecks should
receive the employee’s written authorization for the deduction before processing the payroll
advance.
9
Tracking workers compensation is a feature of the QuickBooks Enhanced Payroll and the
QuickBooks Enhanced Payroll for Accountants payroll services. Users must subscribe to one of
these services to track workers compensation costs, classification codes, and rates. The wizard
is not available if the user has not subscribed to one of these payroll services.
10
QuickBooks does not allow the same name to be used for company contribution and
deduction payroll items.
11
As discussed in paragraph 101.15, payroll liabilities should be paid by selecting “Write
Checks” from the “Banking” menu if the QuickBooks payroll feature is not used (e.g., a thirdparty payroll service processes payroll).
12
Subscribers to QuickBooks Assisted Payroll should follow the guidance in paragraph 101.69.
Intuit recommends that users set up scheduled liability payments. (See paragraph 100.27 for
guidance on setting up scheduled liability payments.) Users that do not have an active payroll
subscription or do not have tax payments scheduled should use the procedures at paragraph
101.62.
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13
Subscribers to QuickBooks Assisted Payroll should follow the guidance in paragraph 101.69.
Intuit recommends that users set up scheduled tax payments (see paragraph 100.27). Users
that do not have tax payments scheduled should use these procedures.
14
The authors recommend leaving the “From” date as the first day of the calendar year and
changing only the “Through” date. This ensures that all payroll liabilities for the year are paid in
full.
15
The check date does not affect the payroll liabilities balances.
16
The “Payroll Liability Balances” report can be changed to reflect amounts paid rather than
amounts due by clicking on “Modify Report” button and the “Filters” tab. Select “Transaction
Type” from the list of filters, and select “Payroll Liability Check” from the list of transaction types.
17
QuickBooks Assisted Payroll requires that all customers use a currently supported version of
QuickBooks.
18
The Intuit Payroll Services calculate flat-rate taxes, such as social security, Medicare, and
federal unemployment, based on year-to-date amounts rather than current amounts. Thus, any
adjustments of flat-rate taxes needed in the current reporting period are automatically made
when paychecks are run. A QuickBooks Basic Payroll, Enhanced Payroll, or Enhanced Payroll
for Accountants payroll service subscriber may edit a previously recorded paycheck after the tax
tables have been updated for a change in a flat-rate tax, however. In that event, QuickBooks will
automatically update that paycheck to reflect the new tax rate as calculated from the beginning
of the year, even if the subscriber did not change any tax amounts. Consequently, the
subscriber would need to change the tax amount by editing the paycheck.
19
Practitioners can use the accountant’s copy in QuickBooks to create, adjust, and print payroll
tax forms. However, QuickBooks does not allow practitioners to export changes made to those
forms using the accountant’s copy.
20
W-2 and W-3 forms cannot be printed on blank paper (unless the user subscribes to one of
the payroll services). They must be printed on IRS-approved forms. Such forms can be ordered
from Intuit’s website at www.intuitmarket.com.
21
As of May 31, 2010, the payroll services will not work with QuickBooks 2007. Users of these
versions will need to upgrade to a more recent version of QuickBooks prior to the service
discontinuation date in order to receive the full 12 months of their payroll subscription. In
addition, QuickBooks Basic Payroll does not include access to payroll tax forms, only tax tables.
22
In order to process the correct Form 940, QuickBooks users should make sure that they have
downloaded the most current update for their version of QuickBooks. The discussion beginning
in paragraph 401.11 explains how to access maintenance releases and updates online.
QuickBooks users who subscribe to one of the Intuit payroll services will also need the most
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recent payroll update. The discussion at paragraph 100.6 explains how to obtain current payroll
updates.
23
Employers must file Form 940 if they paid wages of $1,500 or more in any calendar quarter or
had at least one employee (including part-time and temporary employees) for at least part of a
day in at least 20 different weeks in the current or preceding calendar year.
24
QuickBooks automatically calculates taxable wages using the current FUTA wage base limit
of $7,000.
25
QuickBooks users should set up a “State Tax” payroll item for each state to which
unemployment taxes are paid. If state unemployment taxes are paid by the company and
deducted from employees’ paychecks, separate payroll items should be set up for the company
expense and the employee deduction. For those states, QuickBooks allows users to set up both
payroll items simultaneously. If a state establishes an annual maximum on taxable income,
QuickBooks quits collecting the tax for an employee when the year-to-date maximum for income
subject to tax is reached.
26
QuickBooks users should make sure that they have downloaded the most current update for
their version of QuickBooks in order to process payroll tax returns correctly. QuickBooks users
who subscribe to one of the Intuit payroll services will also need the most recent payroll update.
The discussion at paragraph 100.6 explains how to obtain current payroll updates.
27
QuickBooks does not pick up the amount automatically from the prior Form 941.
28
A “Wage” payroll item should be created since the amount of taxes paid by the employer on
the employee’s behalf is considered taxable compensation that is subject to federal and state
taxes.
29
QuickBooks Enhanced Payroll or Enhanced Payroll for Accountants automatically calculates
net-to-gross check amounts. Users must have a subscription to one of these payroll services.
30
Payments into nonqualified deferred compensation plans generally are excluded from line 2
of Form 941 but included in line 5, while payments from the plan are included in line 2 but
excluded from line 5. Practitioners should review the plan to determine the proper treatment.
31
W-2 forms may be purchased online from Intuit’s website at www.intuitmarket.com.
32
In QuickBooks 2008, some QuickBooks users had problems creating W-2s for employees
whose names begin with special characters. Intuit fixed this error with maintenance release R4.
Practitioners should make sure that they have downloaded the most current update for their
version of QuickBooks.
33
Users who subscribe to QuickBooks Assisted Payroll do not have to print the forms because
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they receive completed forms from the payroll service.
34
QuickBooks automatically displays the prior year if the current date is between January 1 and
February 28. QuickBooks displays the current year if the current date is after February 28.
35
W-2 forms also must be filed with certain states and cities. The dates W-2 forms are due to
states and cities vary, but generally range from January 31 to March 31.
36
A waiver from filing Form W-2 electronically may be obtained by filing Form 8508, Request for
Waiver From Filing Information Returns Electronically.
37
W-3 forms are provided when a purchaser buys W-2 sets. They may be purchased online
from Intuit’s website at www.intuitmarket.com, from Deluxe Corporation at www.deluxe.com, or
from an office supply store.
38
If employers are required to withhold disability taxes from employees’ paychecks and also to
pay state disability insurance as a company expense, users should set up separate “Other Tax”
payroll items for the company expense and the employee withholding.
39
Separate payroll items for employee deductions and company contributions should be
selected in the “Item Name” field if state disability insurance is deducted from the employee’s
paycheck and contributed by the company. (See paragraph 101.114.)
40
Practitioners must have QuickBooks Premier-Accountant and a subscription to Enhanced
Payroll for Accountants to process after-the-fact payroll.
41
The client must be added to the practitioner’s Enhanced Payroll for Accountants subscription.
To do so, select “Payroll” and then “Use My Existing Payroll Service” from the “Employees”
menu and follow the onscreen prompts.
102 Income Tax and 1099 Preparation and Reporting
102.1 Preparing income tax forms and 1099s are two of the most common ways in which
practitioners become involved with their clients’ QuickBooks data. This section provides
practitioners with useful information for preparing income tax forms and 1099s using
QuickBooks. Specifically, it explains how to set up QuickBooks to properly track income tax and
1099 information and how to solve common problems related to reporting on that information.
Income tax preparation and reporting is discussed beginning in paragraph 102.2, and 1099
preparation and reporting is discussed beginning in paragraph 102.16.
Income Tax Preparation and Reporting
102.2 Income Tax Tracking QuickBooks does not generate income tax returns. 1 However,
QuickBooks may be used to track the information needed to prepare income tax forms. As
discussed in paragraph 102.4, QuickBooks can be used to link general ledger accounts to
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specific lines on income tax forms. When the company was set up either manually or with the
“EasyStep Interview” and the appropriate tax form and a preset chart of accounts were selected,
the accounts already have tax line assignments. However, if accounts have been added to the
chart of accounts, they are not automatically assigned to tax lines. Users must assign tax lines
as discussed in paragraph 102.4.
102.3 QuickBooks cannot link accounts to income tax forms if users select “Other/None” as the
income tax form. However, users who initially select “Other/None” subsequently can specify the
applicable tax form by selecting “Company Information” from the “Company” menu. If users
subsequently specify a different tax form, QuickBooks resets all of the links between the general
ledger accounts and the income tax lines to “Unassigned.” Consequently, users must link
general ledger accounts to the applicable lines on the specified tax form manually. Likewise,
users who add accounts to QuickBooks’ preset chart of accounts or set up their own charts of
accounts also must link general ledger accounts to the applicable lines on the specified tax form
manually. In addition, users who select Forms 990, 990-PF, or 990-T as the income tax form
must link general ledger accounts to lines on the nonprofit tax forms manually.
102.4 Linking General Ledger Accounts to Lines on Income Tax Forms Practitioners
should assist their clients in linking general ledger accounts to the appropriate lines on income
tax forms, 2 particularly if the QuickBooks files will be used to prepare income tax forms. As
discussed in paragraph 102.2, when the company was set up either manually or with the
“EasyStep Interview” and the appropriate tax form and a preset chart of accounts were selected,
the accounts already have tax line assignments. However, if accounts have been added to the
chart of accounts, they are not automatically assigned to tax lines. QuickBooks users who add
accounts to a preset chart of accounts, or set up their own charts of accounts can link taxrelated general ledger accounts to specific income tax form lines manually. To do so:
• Select “Chart of Accounts” from the “Lists” menu.
• Select the account to be linked to a specific line on the income tax form.
• Click the “Account” button and select “New” or “Edit” from the drop-down list.
• Select the applicable “Tax Line” from the drop-down list in the “Add New Account” or
“Edit Account” window. “Not tax related” should be selected if the account is not reported
on the applicable income tax form. The “Tax Line” drop-down list does not appear in the
“Edit Account” window if the user has not selected a tax form for the company, as
discussed in paragraph 102.3.
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102.5 QuickBooks users who have set up their own charts of accounts or changed the specified
tax form may find it helpful to create a “dummy” company using the QuickBooks preset chart of
accounts for their particular industry to see what income tax form lines QuickBooks assigns to
certain general ledger accounts. To create a “dummy” company, users should:
• Select “New Company” from the “File” menu.
• Click the “Skip Interview” button.
• Enter the name of the “dummy” company in the “Enter your Company Information”
screen.
• Select the applicable business entity in the “How is your Company Organized?” screen.
• Select the first month of the fiscal year.
• Select the type of business that is most similar to the user’s business from the
“Industry” drop-down list in the “Select your Industry” window.
• Save the file for the “dummy” company.
• Display the “dummy” company’s chart of accounts by selecting “Chart of Accounts”
from the “Lists” menu.
• Select “List” and then “Account Listing” from the “Report” menu.
• Locate accounts in the chart of accounts for the “dummy” company that track the same
type of income or expense as the accounts set up by the user. The account names do
not have to be the same.
• Use the “Income Tax Line” information in the “dummy” chart of accounts to assign
income tax lines to the corresponding accounts set up by the user.
QuickBooks users who file Form 1040 need only assign income tax lines to income and
expense accounts. Those users need not assign tax lines to balance sheet accounts. However,
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users that file Forms 1120, 1120S, or 1065 should assign income tax lines on Schedule L to
applicable balance sheet accounts.
102.6 Linking Payroll Expense Accounts to Income Tax Forms QuickBooks users should
create separate payroll subaccounts for each type of payroll expense reported on income tax
forms. Examples of payroll expenses that may need to be reported separately on income tax
forms include officers compensation, commissions, pension and profit-sharing plans, and
employee benefits. Users setting up payroll subaccounts should:
• Select “Chart of Accounts” from the “Lists” menu.
• Select “New” from the “Account” menu button.
• Select “Expense” in the “Add New Account: Choose Account Type” window.
• Enter the name of the expense subaccount and click the “Subaccount of” checkbox
and select “Payroll Expenses” from the adjacent drop-down list.
• Select the applicable “Tax Line Mapping” from the drop-down list.
The following illustrates the “Add New Account” window:
New payroll subaccounts should be assigned to the applicable payroll items by selecting
“Payroll Item List” from the “Lists” menu and editing existing payroll items or creating new
payroll items and then assigning the payroll expense subaccount as the expense account for
the item.
102.7 As noted in paragraph 102.6, QuickBooks users that file Forms 1120 or 1120S must
report officers’ compensation separately from employees’ salaries and wages. To track officers’
compensation separately from other compensation, users should:
• Select “Payroll Item List” from the “Lists” menu, click the “Payroll Item” button, and
choose “New” to add payroll items for officers’ salary, officers’ sick salary, and officers’
vacation salary. Adding new payroll items is discussed at paragraph 100.26.
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• Click “Employee Center” on the toolbar, select the employee, and click “Edit
Employee.”
• For each applicable employee, select “Officer” from the “Type” drop-down list in the
“Employment Info” tab.
• Select the payroll item for officers’ salary from the “Item Name” drop-down list in the
“Earnings” section of the “Payroll and Compensation Info” tab.
QuickBooks users can generate reports reflecting officers’ salaries by selecting “Employees &
Payroll” and “Payroll Item Detail” from the “Reports” menu.
102.8 Linking Depreciation Expense to Income Tax Forms The IRS requires taxpayers to
calculate depreciation expense on a tax form worksheet. Consequently, the depreciation
expense in QuickBooks cannot be used on income tax forms or linked to an income tax line
(except for linking depreciation expense for partnerships to the Schedule M-1 “Depreciation per
books” line).
102.9 Generating Income Tax Reports QuickBooks users can generate a report that may be
used to prepare income tax forms by selecting “Accountant & Taxes” and “Income Tax
Summary” from the “Reports” menu. The “Income Tax Summary” report reflects the amounts
that QuickBooks recorded for each tax line on the tax form specified by the user. When
generating the report, users should verify that the report specifies the correct date range. Users
then can use the information on the report to verify income tax form line assignments and
account distributions. To check and correct income tax line assignments using the “Income Tax
Summary” report, 3 users should:
• Double-click on the amount for “Tax line unassigned (income/expense)” at the end of
the report. This generates the “Tax Line By Account” report that lists all income and
expense transactions for which a tax line has not been assigned.
• Check the “Tax Line By Account” report for accounts that should be reported in the
company’s income tax form. (Note that some accounts may not be tax-related. It is not
necessary to assign tax lines for those accounts with amounts that are not reported on
income tax forms. The tax line for those accounts can remain “Unassigned” or be
changed to “Not tax related.”)
• Select “Chart of Accounts” from the “Lists” menu and edit the applicable account by
selecting the appropriate “Tax Line Mapping” from the drop-down list in the “Edit
Account” window.
• Return to the “Income Tax Summary” report after correcting any missing or incorrect
tax line assignments in the chart of accounts and “Refresh” the report to verify that it has
been updated appropriately.
102.10 To check and correct account distributions using the “Income Tax Summary” report,
users should:
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• Double-click on any amount that seems incorrect. This generates the “Tax Line By
Account” report.
• Check the “Tax Line By Account” report for amounts that were distributed to the wrong
income or expense account.
• If an income amount is not distributed to the correct account, select “Item List” from the
“Lists” menu and enter the correct income account in the “Edit Item” window.
• If an expense amount is not distributed to the correct account, double-click the amount
in the “Tax Line By Account” report to display the related transaction and select the
correct expense account in the “Expenses” tab for non-payroll items and in the “Other
Payroll Items” window of paychecks.
QuickBooks users should print the “Income Tax Summary” report after verifying the accuracy of
the amounts, account distributions, and tax line assignments. The amounts in the report can be
used to prepare income tax forms.
102.11 QuickBooks users also can use the “Income Tax Summary” report to obtain the amounts
to be reported on income tax forms for gross sales and returns and allowances. The “Income
Tax Summary” report automatically prints totals for “Gross receipts or sales” and “Returns and
allowances” if income and discount accounts in the chart of accounts have been appropriately
linked to the tax lines for “Income: Gross receipts or sales” and “Income: Returns and
allowances.” The “Gross receipts or sales” amount in the “Income Tax Summary” report should
be the total of all sales for the tax year, net of any returns entered as credit memos or refund
checks. The “Returns and allowances” amount should be the total of all discounts, including
those entered as separate line items on sales forms and those given for early payments.
QuickBooks users can use the sales and returns information in the “Income Tax Summary”
report to prepare income tax forms as follows:
• Double-click the “Gross receipts or sales” amount. This generates the “Tax Line By
Account” report.
• Click the “Modify Report” button in the “Tax Line By Account” report and check “Debit”
and “Credit” in the “Columns” drop-down list on the “Display” tab.
• Enter the total amount in the “Credit” column as gross sales in the income tax form.
• Add the total amount in the “Debit” column to the total amount for “Returns and
allowances” in the “Income Tax Summary” report and enter the results as returns and
allowances in the income tax form.
• Subtract the previously calculated amount for returns and allowances from the
previously calculated amount for gross sales and enter the result as net sales in the
income tax form. The net sales amount should equal the “Gross receipts or sales”
amount less the “Returns and allowances” amount in the “Income Tax Summary” report.
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102.12 As discussed in paragraph 102.9, QuickBooks users can generate the “Income Tax
Summary” report to verify tax line assignments. QuickBooks also allows users to generate the
“Income Tax Preparation” report to quickly verify that general ledger accounts are associated
with the correct income tax lines. Users generate the report by selecting “Accountant & Taxes”
and “Income Tax Preparation” from the “Reports” menu. The “Income Tax Preparation” report
contains columns for each account in the chart of accounts, sorted by account type” (i.e.,
income, expense, etc.). The report lists the tax line associated with each general ledger
account. Users can quickly review this report to check for unassigned and incorrect tax lines.
NOTE QuickBooks Premier-Accountant includes the amounts for each tax report line in
the “Income Tax Preparation” report.
102.13 QuickBooks users can also generate the “Income Tax Detail” report to review the detail
transactions for each tax line amount. Users generate the report by selecting “Accountant &
Taxes” and “Income Tax Detail” from the “Reports” menu. The “Income Tax Detail” report is
sorted by income tax line and lists detail information (including the general ledger account) for
each transaction associated with the income tax line. Users can double-click on any amount in
the report to view further details about the transaction.
NOTE QuickBooks Premier-Accountant condenses this report into one-line summaries
of transactions. Users needing additional detail about a transaction can doubleclick on it and the details will display.
102.14 When generating income tax reports in QuickBooks, users always should verify that the
correct period and date range are specified. In addition, users should verify that the reporting
preference is set to the appropriate method the company uses for income tax reporting (i.e.,
cash or accrual). Users can verify or change the reporting preference by selecting “Preferences”
from the “Edit” menu and then selecting “Reports & Graphs” from the “Preferences” scroll box
and clicking on the “Company Preferences” tab.
102.15 Reporting Income Taxes As discussed in paragraph 102.2, QuickBooks does not
generate income tax forms. However, QuickBooks users can enter the verified tax line amounts
from the “Income Tax Summary” report (see the discussion beginning in paragraph 102.9) in the
appropriate lines of income tax forms. Alternatively, QuickBooks users can transfer income tax
information from QuickBooks directly to TurboTax, TurboTax Business, and ProSeries.
1099 Preparation and Reporting
102.16 Setting up 1099 Preferences 4 QuickBooks users that file Form 1099-MISC,
Miscellaneous Income, can track 1099-related payments by setting up 1099 preferences. Users
can set up 1099 preferences by selecting “Preferences” from the “Edit” menu and then selecting
“Tax: 1099” from the “Preferences” scroll box. As illustrated by the following, users that file
1099-MISC forms should check “Yes” to the question, “Do you file 1099-MISC forms?” on the
“Company Preferences” tab.
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In the “Company Preferences” tab, users also should select the applicable general ledger
account and subaccounts 5 for each 1099 category reported to the IRS. If more than one
general ledger account or subaccount is used to track payments for a single 1099 category
(which is usually the case), users should identify the accounts by choosing “Multiple Accounts”
from the “Account” drop-down list. QuickBooks then opens the “Select Accounts” window that
allows users to check each applicable account and subaccount. For example, the general
ledger accounts for outside services, printing and reproduction, professional fees, and repairs
may all need to be linked to the 1099 category for “Box 7: Nonemployee Compensation.” 6 Even
though one 1099 category can be linked to multiple general ledger accounts, each account can
be linked to only one 1099 category. For example, the account for professional fees cannot be
linked to both the nonemployee compensation category and the royalties category. After
selecting the applicable accounts for each 1099 category reported to the IRS, users should
verify the threshold amount for 1099 reporting purposes. QuickBooks automatically enters the
threshold amounts established by the federal government as of the date the user’s copy of
QuickBooks was manufactured. However, users should verify that those amounts are current.
Appendix 4 provides a checklist for preparing 1099s.
102.17 Setting up 1099 Vendors QuickBooks users should set up 1099 vendors as follows:
• Click “Vendor Center” on the toolbar. (QuickBooks only tracks 1099 information for
names on the “Vendor List.” The “Other Names List” should not be used to set up 1099
vendors.)
• Edit the “Additional Info” tab for vendors that should receive 1099-MISC forms. To do
so, highlight the vendor that should receive a 1099-MISC form and click the “Edit
Vendor” button. Click on the “Additional Info” tab.
• Enter the vendor’s “Tax ID” number and check the “Vendor eligible for 1099” box. (The
box will not display if the 1099 preferences have not been set up.) If the vendor is an
individual (i.e., a sole proprietor), the person’s social security number should be entered
as the taxpayer identification number. If the vendor is a company, the company’s ninedigit federal taxpayer identification number should be entered.
Users also should edit the information in the vendor’s “Address Info” tab to verify that the
vendor’s address contains the state abbreviation and zip code. The IRS requires complete
address information for 1099 vendors. (Paragraph 102.25 provides further guidance on vendors’
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addresses.) If the vendor is an individual (i.e., a sole proprietor), the vendor’s name should be
entered in the first name, middle initial, and last name fields. The IRS matches the vendor’s
social security number with the person’s name rather than the company’s name.
102.18 Maintaining 1099 Information QuickBooks automatically adds each payment to a 1099
vendor to the total to be reported on the vendor’s 1099-MISC form if the payment is charged to
a general ledger account that is linked to a 1099 category. Payments that are not charged to an
account linked to a 1099 category are not included in 1099 totals even if the vendor is set up as
a 1099 vendor. If a particular payment to a 1099 vendor should not be reported on Form 1099MISC, the payment should be charged to an account that is not linked to a 1099 category.
102.19 Verifying 1099 Information QuickBooks users should verify 1099 information before
printing 1099-MISC forms. Users can verify that the 1099 threshold amounts are correct by
selecting “Preferences” from the “Edit” menu and then selecting “Tax: 1099” from the
“Preferences” scroll box. As discussed in paragraph 102.16, threshold amounts are specified in
the “Company Preferences” tab. Users should change any amounts that do not agree to current
IRS amounts. Form 1099-MISC does not have to be filed for a vendor whose total payments for
the calendar year are less than the applicable threshold amount. After verifying the threshold
amounts, QuickBooks users should generate the “1099 Summary” and “1099 Detail” reports to
verify the following information:
• 1099 vendors (see paragraph 102.20).
• 1099 accounts (see paragraph 102.21).
• 1099 amounts (see paragraph 102.22).
Users can generate the “1099 Summary” and “1099 Detail” reports by selecting “Vendors &
Payables” from the “Reports” menu.
102.20 QuickBooks users should verify that the appropriate vendors are set up as 1099
vendors. Vendors can be verified by selecting “Print 1099s/1096” from the “Vendors” menu. In
the “1099 and 1096 wizard” click “Run Report” in step 1. (Review your 1099 Vendors). This will
verify whether the appropriate vendors have been set up as 1099 vendors. Users can change
the set up for any vendor by double-clicking the vendor’s name in the “Vendor 1099 Review”
report and editing the information in the “Additional Info” tab of the “Edit Vendor” window.
102.21 QuickBooks users should generate the “1099 Detail” report to verify that the appropriate
general ledger accounts are linked to 1099 payments. After specifying the correct date range for
the report, users should print a copy of the report in its current format. (QuickBooks
automatically generates the report to include only 1099 accounts and 1099 vendors.) Users
then should modify the report by selecting “All allowed accounts” from the second “1099
Options” drop-down list located below the “Dates” boxes. Users then can print the report for all
accounts and compare it to the report for 1099 accounts to verify whether any payments to a
1099 vendor have been charged to an account that is not linked to a 1099 category. As
discussed in paragraph 102.18, QuickBooks users can charge a particular 1099 vendor
payment that should not be reported on Form 1099-MISC to an account that is not linked to a
1099 category. Users can correct any payments charged to the wrong account by doubleclicking the applicable “Paid Amount” in the modified “1099 Detail” report and changing the
account in the “Expenses” tab of the check detail. Users also can change whether a particular
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account is linked to a 1099 category by selecting “Print 1099s/1096” from the “Vendors” menu.
In the “1099 and 1096 Wizard” click “Map Accounts” in step 2. (Set up your 1099 Account
mapping). This will open the Tax:1099 Preferences window. Users then can change which
accounts are linked to 1099 categories, as discussed in paragraph 102.16.
102.22 QuickBooks users should generate the “1099 Summary” report to verify that the
appropriate amounts are reported as 1099 payments. After specifying the correct date range for
the report, QuickBooks automatically generates the report to include only cumulative payments
that equal or exceed the 1099 threshold amounts. Users can modify the report by selecting
“Ignore thresholds” from the third “1099 Options” drop-down list. Users should review the
modified report as follows:
• Double-click on any amount that seems too low for a particular 1099 vendor.
QuickBooks then generates the “1099 Detail” report that lists all transactions relating to
that amount.
• Display any missing transactions by selecting “All allowed accounts” from the second
“1099 Options” drop-down list.
• Review the detail report for missing transactions. A transaction may be missing if the
payment was not charged to an account linked to a 1099 category.
• Double-click on any payment charged to an incorrect account.
• Select the correct account in the “Expenses” tab of the check detail.
102.23 After verifying 1099 vendors, accounts, and amounts, users should generate the “1099
Summary” again. Users should verify that the report is generated for the correct date range and
that the 1099 options are set for “Only 1099 vendors,” “Only 1099 accounts,” and “Use
thresholds.” The report should include the correct amounts for each vendor that should receive
Form 1099-MISC. The information on the “1099 Summary” report should be verified before
printing 1099s.
102.24 Printing 1099s As discussed in the preceding paragraph, users should verify the
information in the “1099 Summary” report, as well as taxpayer identification numbers and
address information for 1099 vendors, before printing 1099s. Taxpayer identification numbers
and addresses can be verified by selecting “Print 1099s/1096” from the “Vendors” menu. In the
“1099 and 1096 Wizard,” click “print 1099s” in step 4, (Print 1099s and 1096 Summary), and
specify a date range. As illustrated by the following, the “Select 1099s to Print” window indicates
whether a valid identification number and address have been set up for each 1099 vendor.
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Users can select “Preview 1099” in the “Select 1099s to Print” window to verify vendors’
taxpayer identification numbers and addresses. The vendor’s street address, city, state, and zip
code must be printed on Form 1099-MISC.
102.25 Users can correct missing or incorrect addresses and taxpayer identification numbers by
clicking “Vendor Center” on the toolbar, selecting the vendor and clicking the “Edit Vendor”
button, and editing the “Address Info” and “Additional Info” for 1099 vendors. The following
illustrates the “Address Info” in the “Edit Vendor” window:
Entering information in the “Company Name” field of the “Address Info” tab is unnecessary if the
company’s legal name is specified in the “Vendor Name” field. However, users may want to
enter information in the “Company Name” field if the vendor is an individual (i.e., a sole
proprietor) and the company name differs from the individual’s name. If the user chooses to
enter information in the “Company Name” field, the company’s legal name should be entered. If
the vendor is an individual, users must enter the person’s legal name in the “First Name,” “M.I.,”
and “Last Name” fields. Those vendors should use their social security numbers as their
taxpayer identification numbers. QuickBooks automatically prints the individual’s name and
company name in the address box. Users that retain those lines in the address should verify
that the names exactly match the information in the “Company Name” and individual name
fields. If the user enters more than one line for the vendor’s street address, QuickBooks
combines the information into one line for the street address when 1099s are printed.
102.26 After verifying the information in the “1099 Summary” report and the taxpayer
identification numbers and addresses for 1099 vendors, QuickBooks users 7 should:
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• Verify the accuracy of the company’s address, phone number, and federal taxpayer
identification number. 8 That information can be verified and edited by selecting
“Company Information” from the “Company” menu. The IRS requires companies to
include their phone number on Form 1099-MISC.
• Select “Print Forms” and then “1099s/1096” from the “File” menu. (Alternatively, users
can select “Print 1099s/1096” from the “Vendors” menu.)
• In the “1099 and 1096 Wizard” click “print 1099s” in step 4. (Print 1099s and 1096
summary.)
• Specify the correct date range in the “Printing 1099-MISC and 1096 Forms” window
and click “OK.”
• In the “Select 1099s to Print” window, verify that each vendor for which a Form 1099MISC should be printed is checked.
• Click the “Preview 1099” button in the “Select 1099s to Print” window.
• Click the “Print” button in the “Print Preview” window to print the 1099s on blank paper.
• After reviewing the 1099s for accuracy and making any necessary corrections, reselect
“Print Forms” and “1099s/1096” from the “File” menu (or “Print 1099s/1096” from the
“Vendors” menu).
• Click “Print 1099s” in step 4. (Print 1099s and 1096 summary.)
• After selecting the correct date range, verifying that each vendor for which a Form
1099-MISC should be printed is checked, and previewing the 1099s, click the “Print
1099” button in the “Select 1099s to Print” window and print the 1099-MISC forms on the
actual forms. 9
102.27 Form 1099-MISC must be transmitted to applicable vendors by January 31 each year.
QuickBooks allows users to prepare 1099s and print them on IRS-approved forms. 10 The forms
cannot be printed on blank paper. QuickBooks allows users to print up to 249 Forms 1099MISC. The IRS requires users who file more than 249 forms to file electronically. However,
QuickBooks does not support electronic filings. Companies must file Copy A of Forms 1099MISC with the IRS by the last day of February.
102.28 Printing 1096s Form 1096, Annual Summary and Transmittal of U.S. Information
Returns, must be transmitted to the IRS along with Copy A of Forms 1099-MISC. The “1096
Summary Information” at the bottom of the “Select 1099s to Print” window specifies the number
of vendors selected for 1099 printing and the total amount of 1099 payments for those vendors.
Verify that information before printing Form 1096. QuickBooks users should also verify that the
company’s name, address, and taxpayer identification number are correct, as discussed in
paragraph 102.26. To print Form 1096 users should do the following:
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• Select “Print Forms” and then “1099s/1096” from the “File” menu. (Alternatively, users
can select “Print 1099s/1096” from the “Vendors” menu.)
• In the “1099 and 1096 Wizard” click “Print 1099s” in step 4. (Print 1099 and 1096
summary.)
• Specify the correct date range in the “Printing 1099-MISC and 1096 Forms” window
and click “OK.”
• In the “Select 1099s to Print” window, verify that each vendor for which a Form 1099MISC was created is checked. (Verify the “1096 Summary Information” located at the
bottom of the “Select 1099s to Print” window.)
• Click the “Print 1096” button.
• Enter a contact name on the “1096 Information” window and, if applicable, check the
“This is my Final Return” box.
• In the “Print 1096” window, click “Preview” to review the Form 1096 and then click
“Print.”
102.29 Correcting 1099s and 1096s If an error is detected on a vendor’s Form 1099-MISC (or
if the user realizes Form 1099-MISC was not printed for a particular vendor) before Forms 1099MISC and Form 1096 (see paragraph 102.27) are filed with the IRS, QuickBooks users should
make any necessary corrections and perform the following procedures to issue corrected 1099
forms:
• Select “Print Forms” and “1099s/1096” from the “File” menu. (Alternatively, users can
select “Print 1099s/1096” from the “Vendors” menu.)
• In the “1099 and 1096 Wizard” click “Print 1099s” in step 4. (Print 1099 and 1096
summary.)
• Specify the correct date range in the “Printing 1099-MISC and 1096 Forms” window
and click “OK.”
• Note the “1096 Summary Information” at the bottom of the “Select 1099s to Print”
window. QuickBooks automatically updates that information to reflect any corrections.
• Select only those vendors that need to receive a new Form 1099-MISC and 1096
(either because the first 1099 was incorrect or because a 1099 was not generated
previously).
• Preview and print the selected 1099s. Do not reprint 1099s for all vendors (unless
corrections are being made for all vendors).
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• If Form 1096 already has been printed, it must be reprinted after selecting all vendors
for whom Form 1099 is being transmitted.
• Give the corrected copy of Form 1099-MISC to the vendor after manually marking an
“X” in the “Corrected” box at the top of the vendor’s copies.
• Void Copy A of the original Form 1099-MISC by manually marking an “X” in the “Void”
box at the top of the form.
• Send the voided original Copy A, the corrected Copy A, and the new Form 1096 to the
IRS when all of the Forms 1099-MISC are filed. The corrected Copy A should not be
marked corrected.
102.30 When an error is detected on a vendor’s Form 1099-MISC after filing Forms 1099-MISC
and 1096 with the IRS, the correction process depends on the type of error. If the original 1099
did not include a taxpayer identification number or included an incorrect number or name and an
incorrect address, QuickBooks users should generate two new 1099 forms, as follows:
• Manually create the first new Form 1099-MISC by (a) entering an “X” in the “Corrected”
box at the top of the form; (b) entering the payer, recipient, and account number
information exactly as it appeared on the original incorrect form; and (c) entering “0”
(zero) for all money amounts.
• Correct the information in QuickBooks and use QuickBooks to print the second new
Form 1099-MISC. Include all the correct information on this form (including the correct
taxpayer identification number, name, and address). Do not enter an “X” in the
“Corrected” box at the top of this form.
• Prepare a new Form 1096 as discussed in paragraph 102.28, and manually write “Filed
To Correct TIN, Name, and/or Address” in the bottom margin of the form.
• File Form 1096 and Copy A of the two new Forms 1099-MISC with the IRS. Do not
include a copy of the original return that was filed incorrectly.
102.31 If the original 1099 was filed when a form should not have been filed or if it included an
incorrect money amount or address, 11 QuickBooks users should generate one new 1099 form,
as follows:
• Correct the information in QuickBooks and use QuickBooks to print the new Form
1099-MISC. Include the payer, recipient, and account number information exactly as it
appeared on the original incorrect form. However, include the recipient’s correct address
and all correct money amounts as they should have appeared on the original form.
• Mark an “X” in the “Corrected” box at the top of the form.
• Prepare a new Form 1096.
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• File Form 1096 and Copy A of the new Form 1099-MISC with the IRS. Do not include a
copy of the original return that was filed incorrectly.
1
Although QuickBooks does not generate income tax forms, the QuickBooks income tax data
can be imported automatically into Intuit’s TurboTax or Pro Series products.
2
QuickBooks allows practitioners to use the accountant’s copy to link general ledger accounts
to the appropriate income tax form lines and to edit existing links.
3
QuickBooks users also can generate the “Income Tax Preparation” report to verify tax line
assignments. That report is discussed in paragraph 102.12.
4
Practitioners can use the accountant’s copy in QuickBooks to set up their client’s 1099
preferences.
5
Users should select applicable subaccounts to be linked to 1099 categories. Even if the
primary account is selected, QuickBooks does not link subaccounts to the specified 1099
category unless the user specifically selects the subaccounts.
6
Many businesses report 1099 payments primarily in the “Box 7: Nonemployee Compensation”
category.
7
Practitioners can use the accountant’s copy in QuickBooks to print 1099 forms and to make
changes to 1099 preferences.
8
QuickBooks does not print the state identification number on Form 1099-MISC since the IRS
does not require that information.
9
QuickBooks must be in the single-user mode to print 1099s.
10
Forms 1099-MISC may be purchased online from Intuit’s website at www.intuitmarket.com.
11
Users that must correct an address and a name or taxpayer identification number should
follow the procedures listed in paragraph 102.30 to create two new Forms 1099-MISC.
89
90
QuickBooks Payroll, 1099 and Income Tax Year-end Procedures Guide 2011
Appendix
Description
1
Setup Information Checklist
2
Payroll Setup Checklist
3
Paying Payroll Liabilities Checklist
4
1099 Preparation and Reporting Checklist
APPENDIX 1
General Setup Checklist
Instructions: This checklist presents the procedures necessary to create a company in QuickBooks. Some, but
not all, of the listed procedures may be completed using QuickBooks' "EasyStep Interview." Those who create a
company using the "EasyStep Interview" should review this checklist to ensure that each step has been
completed.
To complete this checklist, review each task with the client to determine specific information that might be
required and whether a task is applicable. If a task does not apply, write N/A in the appropriate space. If additional
setup procedures are required, document each on a separate page or memorandum, making sure to note the
procedure on the preprinted General Setup Checklist so it will be carried out in the proper sequence. As each task
is completed, initial the space labeled "Done By" and enter the appropriate date in the space labeled "Date
Completed."
Done By
1. Determine the QuickBooks start date. Typically the start date will be the end of
the prior fiscal period. Consider the following questions:
a. When is the beginning of the company's fiscal year?
b. How close are we to the last day of the fiscal year?
c. What is the most recent date for which an accurate balance sheet and
income statement is available?
d. How far back is the client willing to enter historical transactions?
e. How many transactions does the company process per month?
f. Will the client use QuickBooks to track its payroll?
2. Collect the necessary company information and documents. (Use the "Setup
Information Checklist" in Appendix 2A.)
3. Define a new company.
a. Choose "New Company" from the "File" menu. Click the "Skip Interview"
button to exit the "EasyStep Interview."
b. Follow the onscreen prompts to enter general information about the
company (such as company name, address, the business entity, first
month in fiscal year, and the industry, etc.) QuickBooks will automatically
set up a chart of accounts applicable to the company's industry. Before
entering transactions, however, review the preset chart of accounts and
add or delete accounts. (See Step 5.)
c. Specify the file name for the new company and save the file before
continuing.
4. Specify the company preferences in the following areas by selecting
"Preferences" from the "Edit" menu and clicking on features that should be
active for all company users:
a. Accounting.
b. Bills.
c. Checking.
Date
Completed
Done By
d. Desktop View.
e. Finance Charge.
f. General.
g. Integrated Applications.
h. Items & Inventory.
i. Jobs & Estimates.
j. Multiple Currencies.
k. Payments.
l. Payroll & Employees.
m. Reminders.
n. Reports & Graphs.
o. Sales and Customers.
p. Sales Tax.
q. Send Forms.
r. Service Connections.
s. Spelling.
t. Tax: 1099.
u. Time & Expenses.
5. Create and/or customize the chart of accounts.
a. Select "Chart of Accounts" from the "Lists" menu, and select "Account"
and "New" to add accounts or select "Account" and "Edit" to modify
existing accounts.
b. Enter an opening balance as of the start date for all accounts except
accounts receivable, accounts payable, and equity accounts. Enter the
opening balances for bank and credit card accounts as of the most recent
bank or credit card statement on or before the QuickBooks start date.
(1) Accounts receivable and accounts payable opening balances
should be "built" as the customer and vendor lists are created and as
individual balances due from customers and payable to vendors are
entered. (Total balances can be entered for each customer and
vendor, or individual invoices and bills can be entered.)
(2) QuickBooks automatically posts the offsetting entry for most asset
and liability accounts to the opening balance equity account. After
completing the remaining steps in this checklist and verifying that the
opening balances for all asset and liability accounts have been set up
correctly, transfer the balance in the opening balance equity account
to the applicable equity accounts.
Date
Completed
Done By
(3) QuickBooks automatically posts the offsetting entry for opening
accounts receivable and accounts payable balances to the "Uncate
gorized Income" and "Uncategorized Expenses" accounts. Transfer
the balances in those accounts to the applicable income statement
accounts for current fiscal year transactions and to the applicable
equity accounts for prior fiscal year transactions.
6. Set up lists in "List Windows" by selecting "Lists" from the menu bar and
choosing the applicable list. (See Step 8. for instructions on how to add multiple
list entries.) Then, click the button in the lower left corner of the list window that
appears (in the "Item List" window the button is labeled "Item," in the "Chart of
Accounts List" window the button is labeled "Account," etc.), click "New," and
enter the requested information. The following "List Windows" can be created:
a. Chart of Accounts List Shows all general ledger accounts.
b. Item List Defines the products and services the company provides.
c. Fixed Asset Item List Tracks fixed assets and keeps information (i.e.,
cost, depreciation, serial number, acquisition date, and disposal date)
about them in one place.
d. U/M Set List Shows the unit of measure sets.
e. Price Level List Tracks price levels assigned to an item.
f. Billing Rate Level List Tracks the billing rate levels stored. (Quick
Books Premier Accountant, Premier Contractor, or Premier Professional
Services).
g. Sales Tax Code List Tracks the sales tax codes assigned to items and/or
customers.
h. Payroll Item List Tracks payroll information.
i. Class List Tracks revenues and expenses by departments, locations, or
other criteria.
j. Workers Comp List Tracks workers compensation codes. (A subscrip
tion to the QuickBooks Enhanced Payroll or QuickBooks Enhanced
Payroll for Accountants payroll service is needed).
k. Other Names List Tracks a list of names not included in other categories.
l. Customer and Vendor Profile Lists Include several sublists such as
customer type, job type, terms, etc.
m. Templates Contain the various templates that can be used to generate
invoices and statements.
n. Memorized Transaction List Recalls frequently entered transactions that
the user has "memorized" for future use.
7. Set up "QuickBooks Center" lists by clicking the appropriate Center button on
the toolbar to open the "QuickBooks Center." Click the button in the top left
corner of the "QuickBooks Center" (in the "Vendor Center" the button is labeled
"New Vendor") and fill in the requested information. (See Step 8. for instructions
on how to add multiple list entries.) The following "QuickBooks Center" lists can
be created:
Date
Completed
Done By
a. Customer Center Includes the Customers & Jobs list which keeps track
of customer contact information. (The "Customers & Jobs" list is the same
as the "Customer:Job" list.)
b. Vendor Center Includes the Vendors list which manages vendor contact
information.
c. Employee Center Includes the Employee list which keeps track of
employee contact information.
8. Add multiple list entries by selecting "Add/Edit Multiple List Entries" from the
"Lists" menu. The "Add/Edit Multiple List Entries" window can be used to add
and/or edit multiple customer, vendor, and item lists in one place. From this
window, users can either edit current lists or enter new information. They can
also copy and paste list information from Excel into this window. The user
should select which list to add or edit in the "List" drop down box. For example,
to add customers to a customer list, the user should select "Customers" from
the drop down list. The user can then add list entries. When "Save Changes"
is clicked, the list will be in QuickBooks. Users can also customize the
information that is added to QuickBooks by clicking on the "Customize
Columns" button.
9. Set up budgets.
10. Set up service items.
11. Set up price levels.
12. Set up fixed assets.
13. Set up loans payable.
14. Set up vehicle mileage tracking.
15. Set up sales tax. (See the checklist in Appendix 2E.)
16. Set up inventory. (See the checklist in Appendix 2F.)
17. Set up payroll. (See the checklist in Appendix 2D.)
18. Set up 1099 tracking. (See the checklist in Appendix 3B.)
19. Enter historical transactions between the QuickBooks start date and the setup
date in the following order:
a. Purchases and accounts payable.
b. Sales and accounts receivable.
c. Bank transactions. Be sure to enter bank transactions occurring between
the last bank statement date on or before the QuickBooks start date and
the start date, as well as transactions occurring between the QuickBooks
start date and the setup date. (Be careful not to duplicate transactions
already entered in QuickBooks.)
d. Depreciation of fixed assets.
20. Customize invoices and forms.
Date
Completed
Done By
21. Print the following reports to review the setup.
a. Balance Sheet. Compare the QuickBooks balance sheet report to the
company's balance sheet as of the setup date.
(1) Verify that only amounts posted to the opening balance equity
account relate to the set up of balance sheet accounts as of the
QuickBooks start date. Reclassify any amounts resulting from other
transactions.
(2) Verify that the adjusted balance in the opening balance equity
account equals the total equity amount in the company's balance
sheet immediately preceding the QuickBooks start date.
(3) Transfer the balance in the opening balance equity account to the
applicable equity accounts (such as retained earnings, proprietor's
capital, or partners' capital.)
b. Profit and Loss. If the setup date is not the beginning of the company's
fiscal year, compare the QuickBooks profit and loss report as of the setup
date to the company's income statement as of the setup date.
c. Open Invoices. Compare the QuickBooks open invoices report to the
company's accounts receivable detail as of the setup date.
d. Unpaid Bills Detail. Compare the QuickBooks unpaid bills detail report
to the company's accounts payable detail as of the setup date.
e. Inventory Valuation Detail. Compare the QuickBooks inventory valuation
detail report to the company's inventory information as of the setup date.
f. Fixed Asset Detail. Compare the QuickBooks fixed asset tracking report
to the company's fixed asset detail as of the setup date.
22. Create a control environment.
a. Select "Set Up Users and Passwords," and then "Set Up Users" from the
"Company" menu.
b. Specify the person responsible for maintaining the QuickBooks account
ing system as the QuickBooks Administrator.
c. Set up an External Accountant user.
d. Set the closing date by entering the date through which the books are
closed. The administrator (or External Accountant user) may also
password protect the closing date. When this feature is enabled,
QuickBooks requires users to enter the password before they can make
changes to periods that have been closed.
e. Define all other users and specify the QuickBooks areas to which they are
to have access.
23. Establish backup procedures.
Date
Completed
APPENDIX 2
Payroll Setup Checklist
Instructions: This checklist provides guidance for setting up payroll in QuickBooks Pro, Premier, or
Premier Accountant 2010. Some, but not all, of the listed procedures may be completed by using QuickBooks'
"Payroll Setup Interview." Those who create a company using the "Payroll Setup Interview" should review this
checklist to ensure that each step has been completed. To complete this checklist, review the procedures with the
client to determine specific information that might be required and whether a task is applicable to the client. If a
task does not apply, write N/A in the appropriate space. If additional procedures are required, document each on
a separate page or memorandum, making sure to note the procedure on the preprinted checklist so it will be
carried out in the proper sequence.
As each task is completed, initial the space labeled "Done By" and enter the appropriate date in the space labeled
"Date Completed."
Done By
1. Gather the necessary payroll information. (Use the checklist in Appendix 2A.)
2. Sign up for a payroll service, if applicable.
3. Select "Preferences" from the "Edit" menu and select "Payroll & Employees"
from the "Preferences" scroll box. Select the "Company Preferences" tab and
specify whether:
a. Full payroll features or no payroll features should be enabled.
b. Employees should be listed by first or last name in the "Employee List."
c. New employees should be marked as sales reps.
d. Employee Social Security Numbers should be displayed in headers on
reports.
e. Certain information prints on paycheck vouchers and/or paystubs.
f. Certain information from prior paychecks should be carried forward. (For
example, if a fixed amount such as commission occurs on every paycheck
for an employee, it can be recalled each pay period.)
g. Company paid payroll expenses should be broken down on reports of
expenses for each job, service item, and class.
h. All payroll expenses should be assigned to a single class (if class tracking
is activated).
i. Workers compensation is tracked and, if it is, whether to display a
message to remind the user to assign codes and whether to exclude
overtime premium from calculation. (A subscription to the QuickBooks
Enhanced Payroll Plus or QuickBooks Enhanced Payroll Plus for
Accountants payroll service is needed).
j. Employee defaults should be set up for payroll data that is common to
most employees. The default information automatically appears in the
"Payroll and Compensation Info" tab of the "Employee List" for each
employee. (Employee defaults can be set up by clicking "Employee
Center" on the toolbar, then clicking "Change New Employee Default
Settings" from the "Manage Employee Information" button.) The following
information can be set up as employee defaults:
Date
Completed
Done By
(1) Salary or wage payroll items (with or without rates).
(2) Payroll schedules.
(3) Pay frequency.
(4) Class (if applicable).
(5) Whether to use time data to create checks.
(6) Additions, deductions, and company contributions.
(7) Whether employees are covered by a qualified pension plan.
(8) Federal, state, and other taxes.
(9) Sick and vacation time.
4. Set up payroll schedules.
a. Select "Add or Edit Payroll Schedules" from the "Employees" menu. In the
"Payroll Schedule List" window select the "Payroll Schedule" button and
click "New."
b. Enter a name for the payroll schedule (e.g. weekly, bi weekly, etc.), specify
how often employees assigned to this schedule should be paid from the
drop down box, specify the pay period end date, and the date that should
appear on the paycheck.
c. Assign payroll schedules to the appropriate employees. To assign payroll
schedule to all employees click "Employee Center" on the toolbar, then
click "Change New Employee Default Settings" from the "Manage
Employee Information" button. In the "Employee Defaults" window, select
the payroll schedule that should be assigned to all employees from the
"Payroll Schedule" drop down box. To assign a payroll schedule to one
employee, click "Employee Center" on the toolbar and click the "New
Employee" button (or click the "Edit Employee" button if the employee has
already been entered.) On the "Payroll and Compensation Info" tab, select
the payroll schedule that should be assigned to that employee from the
"Payroll Schedule" drop down box. The "Pay Frequency" field will be
updated automatically and cannot be changed in this screen.
5. Enter payroll items such as wages, deductions, and company contributions.
Some payroll items are automatically created when a new company is set up.
a. Edit the payroll items automatically created by QuickBooks by selecting
"Payroll Item List" from the "Lists" menu and selecting "Edit" from the
"Payroll Item" menu button. Enter or edit information such as the agency
to which the payroll liability is paid, liability account, and expense account.
b. Add additional payroll items by selecting "Payroll Item List" from the "Lists"
menu and selecting "New" from the "Payroll Item" drop down list.
6. Set up scheduled tax payments by selecting "Payroll Taxes and Liabilities" and
then "Edit Payment Due Dates/Methods" from the "Employers" menu.
Date
Completed
Done By
7. Add employees to the employee list by clicking "Employee Center" on the
toolbar, and clicking the "New Employee" button.
a. Enter the following information in the "Personal Info Tab"
(1) Personal Info. Enter the employee's name as it should appear on
his or her W 2 form and as it should appear on checks (if different),
social security number, gender (if required for the employee's state),
and date of birth.
(2) Address and Contact Info. The information entered in these fields
can be exported and used in a form letter.
(3) Additional Info. Enter employee account number or employee I.D.
Click "Define Fields" to add custom fields that track employee
information such as spouse's name.
b. Enter information in the "Payroll and Compensation Tab" such as
earnings, additions, deductions, company contributions, pay period,
class, tax information, sick and vacation information, and direct deposit
information.
c. Enter information in the "Employment Info Tab," such as the employee's
hire date and his or her release date if he or she is no longer on the payroll.
Specify whether he or she is a regular employee, statutory employee, an
officer, or an owner.
d. Enter information in the "Workers Compensation Tab" such as the
employee's default workers compensation code. If the employee is
exempt from workers compensation, choose "Exempt." (A subscription to
the QuickBooks Enhanced Payroll or QuickBooks Enhanced Payroll for
Accountants payroll service is needed).
8. Enter payroll year to date amounts for the current calendar year by selecting
"Payroll Setup" from the "Employees" menu. Click "5. Year to Date Payrolls"
and follow the onscreen instructions. All previous steps must be completed
before year to date amounts can be entered.
9. Determine the accuracy of the payroll setup by reviewing various QuickBooks
lists and reports and by running "Payroll Checkup" in QuickBooks.
a. Review the "Payroll Item List" and the "Employee List."
b. Generate and review the "Payroll Summary," "Employee Earnings
Summary," and the "Payroll Item Listing" reports by selecting "Employees
& Payroll" from the "Reports" menu. Compare the information in these
reports to the year to date payroll information from the previous payroll
system.
c. Subscribers to QuickBooks Basic Payroll, QuickBooks Enhanced Payroll,
or QuickBooks Enhanced Payroll for Accountants should run "Payroll
Checkup" by selecting "My Payroll Service" and then "Run Payroll
Checkup" from the "Employees" menu. The "Payroll Checkup" results can
be printed and compared to the year to date payroll information from the
previous payroll system.
Date
Completed
APPENDIX 3
Paying Payroll Liabilities Checklist
Instructions: This checklist provides guidance for paying payroll liabilities in QuickBooks 2010. Review the
procedures with the client to determine specific information that might be required and whether a task is
applicable to the client. If a task does not apply to the client, write N/A in the appropriate space. If additional
procedures are required, document each on a separate page or memorandum, making sure to note the
procedure on the preprinted checklist so it will be carried out in the proper sequence.
As each task is completed, initial the space labeled "Done By" and enter the appropriate date in the space labeled
"Date Completed."
Done By
1. Create a "Payroll Liability Balances" report to check payroll liability amounts
before creating liability checks.
a. Users that have scheduled liability payments should select "Employees &
Payroll" and "Payroll Liabilities Balances" from the "Reports" menu. Users
that are paying unscheduled liability payments can click the "Payroll
Liabilities Report" button in the "Pay Liabilities" window to create the
"Payroll Liability Balances" report. (See Step 5.)
b. Review that report to check payroll liability amounts.
2. Adjust any incorrect payroll liability amounts.
a. Select "Payroll Taxes and Liabilities" and then "Adjust Payroll Liabilities"
from the "Employees" menu.
b. Verify that the dates in the "Show Payroll Liabilities" portion of the screen
are correct.
c. Determine whether a payroll liability has been paid via "Write Checks"
rather than "Pay Scheduled Liabilities" or "Create Custom Liability
Payments." The Client Data Review (CDR) feature has a tool that prepares
the "Payroll Liabilities Paid by Regular Check" report. This report lists all
"Write Check" forms that were payable to a payroll item vendor. To access
this tool select "Client Data Review" from the "Accountant" menu and then
click on "Find Incorrectly Paid Payroll Liabilities" in the "Payroll" section.
If a payroll liability has been paid via "Write Checks," correct the payroll
liability balance. (However, the liability must be paid via "Write Checks" if
the QuickBooks payroll feature is not used.)
(1) Select "Payroll Taxes and Liabilities" and then "Adjust Payroll
Liabilities" from the "Employees" menu.
(2) Enter the following information in the "Liability Adjustment" window:
(a) Enter the adjustment date.
(b) Enter the date the adjustment should affect the payroll liability
balance. The effective date must be on or before the adjustment
date.
(c) Select the "Company" adjustment option.
(d) Select the payroll item to be adjusted using the "Item Name"
drop down list.
Date
Completed
Done By
(e) Enter the payment amount as a negative number for the
applicable payroll item.
(f) Enter information in the "Memo" field. (This information is
optional.)
(g) Click the "Accounts Affected" button and select "Do not affect
accounts" if the general ledger expense and liability account
balances are correct.
d. Verify that the payroll item is associated with a liability account.
(1) Select the payroll item in question from the "Payroll Item List."
(2) Select "Edit" from the "Payroll Item" button.
(3) Display the drop down list for the "Liability account (employee paid
or company paid)" field in the "Liability Agency" window. A liability
should be specified as the account type beside the name of the
payroll item.
(4) If the account type is not a liability, select a liability account from the
drop down list.
e. Check for duplicate transactions.
(1) Select the payroll item in question from the "Payroll Item List."
(2) Select "QuickReport" from the "Reports" button.
(3) Select "All" from the "Dates" drop down list.
(4) Scan the report to detect duplicate transactions.
f. Verify that the correct rate is used for federal unemployment taxes if the
amount due is incorrect.
(1) Select the "Federal Unemployment" payroll item from the "Payroll
Item List."
(2) Select "Edit" from the "Payroll Item" button.
(3) Verify that the correct rate is selected on the "Federal unemployment
tax rate" window.
g. Generate the "Payroll Liability Balances" report to review transactions for
incorrect amounts.
(1) Select "Employees & Payroll" and then "Payroll Liability Balances"
from the "Reports" menu.
(2) Change the report to reflect amounts paid rather than amounts due
by clicking on the "Modify Report" button and the "Filters" tab. Select
"Transaction Type" from the list of filters, and select "Payroll Liability
Check" from the list of transaction types.
(3) Double click on any amount on the report to display a list of
"Transactions by Payroll Liability Item."
Date
Completed
Done By
3. If payroll schedules were set up, select "Payroll Taxes and Liabilities" and then
"Pay Scheduled Liabilities" from the "Employees" menu and go to Step 7. Users
that do not have tax payments scheduled should select "Payroll Taxes and
Liabilities" and then "Create Custom Liability Payments" from the "Employees"
menu and go to Step 4.
4. Enter the date range for the liabilities to be paid in the "Select Date Range for
Liabilities" window.
5. Edit the necessary fields in the "Pay Liabilities" window.
a. Select "Review liability check to enter expenses/penalties."
b. Review the date range specified in the "Show Payroll Liabilities" portion of
the screen and edit the dates as necessary.
c. Edit other fields (such as "Bank Account" and "Check Date") as necessary.
d. Check each "Payroll Item" for which a check should be printed.
e. Verify that the "Payable To" field lists a "Payee Name" for each "Payroll
Item" selected.
f. Edit the "Amt. To Pay" field for each payroll item to pay more or less than
the amount of a liability, if necessary.
6. Create and review the payroll liability checks.
a. Click the "Create" button in the "Pay Liabilities" window.
b. Enter any payroll expenses, penalties, or discounts in the "Liability Check"
window.
(1) Select the "Expenses" tab.
(2) Enter the expense account and amount.
(3) Click the "Recalculate" button to recompute the check amount.
c. If payroll taxes are transmitted electronically via the Electronic Funds
Transfer Payment System (EFTPS), create a payroll liability check as
described in steps 6.a. and 6.b.
(1) Do not check the "To be printed" box in the upper left corner of the
"Pay Liabilities" window.
(2) Enter "EFTPS" as the check number in the "Liability Check" window.
(3) Enter the EFTPS confirmation number in the "Memo" field.
7. If paying scheduled payments, select the scheduled payment to be paid by
placing a checkmark next to the payment in the "Pay Scheduled Liabilities"
portion of the "Payroll Center" window. Click on "View/Pay" to open the "Liability
Payment" window.
8. Enter any payroll expenses, penalties, or discounts in the "Liability Payment"
window.
a. Select the "Expenses" tab.
b. Enter the expense account and amount.
c. Click the "Recalculate" button to recompute the check amount.
Date
Completed
APPENDIX 4
1099 Preparation and Reporting Checklist
Instructions: This checklist provides guidance for 1099 preparation and reporting in QuickBooks 2010. Review
the procedures with the client to determine specific information that might be required and whether a task is
applicable to the client. If a task does not apply to the client, write N/A in the appropriate space. If additional
procedures are required, document each on a separate page or memorandum, making sure to note the
procedure on the preprinted checklist so it will be carried out in the proper sequence.
As each task is completed, initial the space labeled "Done By" and enter the appropriate date in the space labeled
"Date Completed."
Done By
Setting up 1099 Preferences
1. Select "Preferences" from the "Edit" menu.
2. Select "Tax: 1099" from the "Preferences" scroll box.
3. Check "Yes" to the question, "Do you file 1099 MISC forms?" on the "Company
Preferences" tab.
4. Select the applicable general ledger account and subaccounts for each
1099 category reported to the IRS.
a. Click on the "Account" drop down list for each applicable 1099 category.
b. Select the appropriate general ledger account.
c. If more than one general ledger account or subaccount is used to track
payments for a single 1099 category (which is usually the case), identify
the accounts by choosing "Multiple Accounts" from the "Account"
drop down list and checking each applicable account and subaccount in
the "Select Accounts" window.
Setting up 1099 Vendors
5. Click "Vendor Center" on the toolbar.
6. Edit the "Additional Info" tab for vendors that should receive 1099 MISC forms.
a. Highlight the vendor meeting the criteria.
b. Click the "Edit Vendor" button.
c. Click on the "Additional Info" tab.
d. Enter the vendor's "Tax ID" number and check the "Vendor eligible for
1099" box. (If the vendor is an individual, enter the person's social security
number as the taxpayer's identification number.)
7. Edit the information in the vendor's "Address Info" tab to verify that the vendor's
address contains the state abbreviation and zip code.
8. If the vendor is an individual, enter the vendor's name in the first name, middle
initial, and last name fields.
Verifying 1099 Information
9. Verify that the 1099 threshold amounts in the "Tax: 1099" company preferences
match current IRS amounts.
Date
Completed
Done By
10. Verify that the appropriate vendors are set up as 1099 vendors.
a. Select "Print 1099s/1096" from the "Vendors" menu.
b. In the "1099 and 1096 wizard" click "Run Report" in step 1. (Review your
1099 Vendors).
c. Change the set up for any vendor by double clicking the vendoris name
in the "Vendor 1099 Review" report and editing the information in the
"Additional Info" tab of the "Edit Vendor" window.
11. Generate the "1099 Detail" report to verify that the appropriate general ledger
accounts are linked to 1099 payments.
a. Select "Vendors & Payables" and then "1099 Detail" from the "Reports"
menu.
b. Specify the correct date range for the report.
c. Print a copy of the report in its current format. (QuickBooks automatically
generates the report to include only 1099 accounts and 1099 vendors.)
d. Modify the report by selecting "All allowed accounts" from the second
"1099 Options" drop down list located below the "Dates" boxes.
e. Print the report for all accounts and compare it to the report for
1099 accounts to verify whether any payments to a 1099 vendor have
been incorrectly charged to an account that is not linked to a 1099 cate
gory.
f. Change a particular 1099 vendor payment by double clicking the
applicable "Paid Amount" in the modified "1099 Detail" report and
changing the account in the "Expenses" tab of the check detail.
g. Change whether a particular account is linked to a 1099 category by
selecting "Print 1099s/1096" from the "Vendors" menu. In the "1099 and
1096 wizard" click "Map Accounts" in step 2. (Set up your 1099 Account
mapping). This will open the Tax:1099 Preferences window. Users then
can change which accounts are linked to 1099 categories.
12. Generate the "1099 Summary" report to verify that the appropriate amounts are
reported as 1099 payments.
a. Select "Vendors & Payables" and then "1099 Summary" from the
"Reports" menu.
b. Specify the correct date range for the report.
c. Modify the report by selecting "Ignore thresholds" from the third
"1099 Options" drop down list. (QuickBooks automatically generates the
report to include only cumulative payments that equal or exceed the
1099 threshold amounts.)
d. Review the modified report.
(1) Double click on any amount that seems too low for a particular
1099 vendor. QuickBooks then generates the "1099 Detail" report
that lists all transactions relating to that amount.
(2) Display any missing transactions by selecting "All allowed accounts"
from the second "1099 Options" drop down list.
Date
Completed
Done By
(3) Review the detail report for missing transactions. (A transaction may
be missing if the payment was not charged to an account linked to
a 1099 category.)
(4) Double click on any payment charged to an incorrect account.
(5) Select the correct account in the "Expenses" tab of the check detail.
13. Generate the "1099 Summary" again after verifying 1099 vendors, accounts,
and amounts.
a. Select "Vendors & Payables" and then "1099 Summary" from the
"Reports" menu.
b. Specify the correct date range for the report.
c. Set the 1099 options for "Only 1099 vendors," "Only 1099 accounts," and
"Use thresholds."
d. Verify that the report includes the correct amounts for each vendor that
should receive Form 1099 MISC.
Printing 1099s
14. Verify that maintenance releases and other updates have been downloaded.
(See further discussion beginning in paragraph 401.11.)
15. Verify the information in the "1099 Summary" report.
16. Verify taxpayer identification numbers and address information for 1099
vendors.
a. Select "Print 1099s/1096" from the "Vendors" menu. In the "1099 and 1096
Wizard" click "Print 1099s" in step 4. (Print 1099s and 1096 Summary) and
specify a date range. Review the "Select 1099s to Print" window to verify
whether a valid identification number and address have been set up for
each 1099 vendor.
b. Select "Preview 1099" in the "Select 1099s to Print" window and verify
vendors' taxpayer identification numbers and addresses.
c. Correct missing or incorrect addresses and taxpayer identification
numbers by clicking "Vendor Center" on the toolbar, selecting the vendor,
clicking the "Edit Vendor" button, and editing the "Address Info" and
"Additional Info" for 1099 vendors.
17. Verify the accuracy of the company's address, phone number, and federal
taxpayer identification number by selecting "Company Information" from the
"Company" menu.
18. Select "Print Forms" and then "1099s/1096" from the "File" menu (or
"Print 1099s/1096" from the "Vendors" menu).
19. In the "1099 and 1096 Wizard" click "Print 1099s" in step 4. (Print 1099s and
1096 Summary).
20. Specify the correct date range in the "Printing 1099 MISC and 1096 Forms"
window and click "OK."
21. In the "Select 1099s to Print" window, verify that each vendor for which a
Form 1099 MISC should be printed is checked.
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22. Click the "Preview 1099" button in the "Select 1099s to Print" window.
23. Click the "Print" button in the "Print Preview" window to print the 1099s on blank
paper.
24. After reviewing the 1099s for accuracy and making any necessary corrections,
reselect "Print Forms" and "1099s/1096" from the "File" menu (or "Print
1099s/1096" from the "Vendors" menu).
25. Click "Print 1099s" in step 4. (Print 1099s and 1096 Summary.)
26. After selecting the correct date range, verifying that each vendor for which a
Form 1099 MISC should be printed is checked, and previewing the 1099s, click
the "Print 1099" button in the "Select 1099s to Print" window and print the
1099 MISC forms on the actual forms.
Printing Form 1096
27. Select "Print Forms" and then "1099s/1096" from the "File" menu (or "Print
1099s/1096" from the "Vendors" menu).
28. In the "1099 and 1096 Wizard" click "Print 1099s" in step 4. (Print 1099s and
1096 Summary.)
29. Specify the correct date range in the "Printing 1099 MISC and 1096 Forms"
window and click "OK."
30. In the "Select 1099s to Print" window, verify that each vendor for which a
Form 1099 MISC was created is checked. (Verify the "1096 Summary
Information" located at the bottom of the "Select 1099s to Print" window.)
31. Verify that the company's name, address, and taxpayer identification number
on Form 1096 match the company information on the supporting
Forms 1099 MISC.
32. Click the "Print 1096" button.
33. Enter a contact name on the "1096 Information" window and, if applicable,
check the "This is my Final Return" box.
34. In the "Print 1096" window, click "Preview" to review the Form 1096, and then
click "Print."
Correcting 1099s
35. If an error on a vendor's Form 1099 MISC is detected after the form is mailed
to the vendor but before Forms 1099 MISC and Form 1096 are filed with the IRS,
make any necessary corrections and issue corrected 1099 forms.
a. Select "Print Forms" and "1099s/1096" from the "File" menu (or "Print
1099s/1096" from the "Vendors" menu).
b. In the "1099 and 1096 Wizard" click "Print 1099s" in step 4. (Print 1099s
and 1096 Summary).
c. Specify the correct date range in the "Printing 1099 MISC and 1096
Forms" window and click "OK."
d. Note the "1096 Summary Information" at the bottom of the "Select 1099s
to Print" window. (QuickBooks automatically updates that information to
reflect any corrections.)
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e. Select only those vendors that need to receive a new Form 1099 MISC .
f. Preview and print the selected 1099s. (Do not reprint 1099s for all vendors
unless corrections are being made for all vendors.)
g. If Form 1096 already has been printed, it must be reprinted after selecting
all vendors for whom a Form 1099 is being transmitted.
h. Give the corrected copy of Form 1099 MISC to the vendor after manually
marking an "X" in the "Corrected" box at the top of the vendor's copies.
i. Void Copy A of the original Form 1099 MISC by manually marking an "X"
in the "Void" box at the top of the form.
j. Send the voided original Copy A, the corrected Copy A, and the new
Form 1096 to the IRS when all of the Forms 1099 MISC are filed. The
corrected Copy A should not be marked corrected.
36. If a Form 1099 MISC already has been filed with the IRS but does not include
a taxpayer identification number or includes an incorrect number or an incorrect
name and address, generate two new 1099 forms.
a. Manually create the first new Form 1099 MISC.
(1) Enter an "X" in the "Corrected" box at the top of the form.
(2) Enter the payer, recipient, and account number information exactly
as it appeared on the original incorrect form.
(3) Enter "0" (zero) for all money amounts.
b. Correct the information in QuickBooks and use QuickBooks to print the
second new Form 1099 MISC. Include all the correct information on this
form (including the correct taxpayer identification number, name, and
address). Do not enter an "X" in the "Corrected" box at the top of this form.
c. Prepare a new Form 1096 and manually write "Filed To Correct TIN, Name,
and/or Address" in the bottom margin of the form.
d. File Form 1096 and Copy A of the two new Forms 1099 MISC with the IRS.
Do not include a copy of the original return that was filed incorrectly.
37. If a Form 1099 MISC already has been filed with the IRS but the form should not
have been filed or the form includes an incorrect money amount or address,
generate one new 1099 form.
a. Correct the information in QuickBooks and use QuickBooks to print the
new Form 1099 MISC. Include the payer, recipient, and account number
information exactly as it appeared on the original incorrect form. However,
include the recipient's correct address and all correct money amounts as
they should have appeared on the original form.
b. Mark an "X" in the "Corrected" box at the top of the form.
c. Prepare a new Form 1096.
d. File Form 1096 and Copy A of the new Form 1099 MISC with the IRS. Do
not include a copy of the original return that was filed incorrectly.
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