The Fundamentals of QuickBooks Federal Tax Withholding

In case you do not know what withholding is it is better to know more about it before trying to deduct QuickBooks federal tax withholding from your employees. It is what happens when an employer subtracts a certain amount from the employees’ gross earnings including compensation and other benefits like Medicare and Social Security.

How much money is deducted actually depends on the city that the employee is from. This is because the state and the city may have different tax rates in terms of payroll. Once the employer has made these deductions, they are required to pay these amounts along with their own taxes to the respective governments on time.

Is the withheld money always for taxes?

Sometimes, the employer has to withhold certain money that is not related to taxes. This money is often collected for savings plans, retirement funds, garnishments that have been ordered by the court, dues owed to the union, insurances or other similar reason. 

It is compulsory to withhold taxes for employees but not so in the case of subcontractors. They have to do their own taxes, so any payments that you make to a subcontractor is not taxable in any way except for a few times where federal taxes have to be withheld. 

In these separate situations, the employer is always informed by the IRS if that particular subcontractor has to comply with backup withholding. There is an option to fill this specific form of tax in your QB software under the Preferences section of the menu. 

If you are unsure about which category your subcontractor comes under or need help regarding other aspects of QuickBooks like how to Install QuickBooks For multiple User, then you can read our blogs or let our experts know.

How do I perform QuickBooks Federal Tax Withholding?

To make the necessary deductions from the gross incomes of your employees and show the same in the invoice, one way involves creating a credit memo that is traced to a tax expense account with the help of an item. You will most likely need to build such an account first, so here are the steps to do this- 

1. Click New when you open the Gear icon, followed by Chart of Accounts.
2. Go to the Account type section and choose Other Expense from the drop-down list.
3. Select Other Expense again when you move to the drop-down menu in the Detail Type section.
4. Save it after you name it as Withholding Tax Expense. 

You have now created a Tax Expenses accounts. Now, you can create and enter any items in the credit memo if you want to withhold tax- 

1. Choose the New option when you click the Gear icon and select the Products and Services item under this section.
2. Decide the type of Service.
3. When you get the choice to name this service, type Withholding Tax.
4. Click on the Income Account column and choose the same account that you have just created, named as Withholding Tax Expense account and save it. 

The next thing to do in this process is the create a new credit memo. Here are the steps- 

1. Click the Plus icon (+), and then select Credit Memo.
2. Choose the Withholding Tax item and the amount needed from the drop-down menu which appears under the Product/Service column.
3. Complete the other important details and then click Save. 

Now, you can use this credit memo to deduct the money that is to be paid by the client and complete the process of QuickBooks Federal Tax Withholding for your business. 

1. Open the Plus icon (+) and click on Receive Payment.
2. Choose the name of the customer whose data you need to apply changes to and add every necessary detail as asked.
3. Click on the invoice that you have to apply the withholding tax to- you can do so by opening the Outstanding Transactions section.
4. Choose the credit memo that you have created just now- you will find the option under the Credits column- and type in the amount. Click Save.

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The Fundamentals Of QuickBooks Federal Tax Withholding

How Federal Tax Withholding is Set-Up in Finance Software- Account Cares

Employers are supposed to pay a certain amount in various kinds of taxes that are claimed on behalf of both the state and the federal governments. While some are levied on the employee itself, other such expenses have to be paid by the employer on behalf of the employees.

These charges are paid by remitting or deducting the required amount from the employees’ salaries. This process has been termed as Withholding. Here, we will talk about Federal tax withholding from your employees’ paychecks.

As an employer, you will need to follow some steps in order to set up Accounting Software Set Up Federal Tax Withholding in your system, before leaving it to the software. In the event that your employee list is not saved with all the necessary changes in QB, please make sure that it is done along with the other requirements that may be needed before proceeding.

For any doubts about this, you can contact Account Cares so that we can assist you with any query. We are available to guide you through the process as smoothly as possible.

If you are not sure about the details that you need to keep track of, just take a look at the list below- all of the data that you may possibly need has been mentioned here. Think of this as a checklist of a kind and cross each off as you fulfill the requirement:-

Setup Finance Software Federal Tax Withholding Checklist:

• Your Federal Employer Identification Number or FEIN
• The Employee Training Tax (ETT) and other such rates for your particular state
• The necessary forms that you are required to file for Payroll expenses
• The User Id and Password that you use to access the relevant bank account
• The exact schedule for FT payments, including Payment and Deposit
• Relevant Business contact Information (legal name of your company, e-mail, phone numbers, mailing address etc.)
• Your bank account as well as routing numbers for electronic payment
• Important dates, such as the Birth and Hire, for each and every employee

The same goes if you are preparing to pay State levies, with the addition of the following-

• The account number for your state
• SUI or State Unemployment Insurance Rates
• The correct timetable to complete Deposit and Payment details for state fee payments

How to Setup Federal Tax Withholding in Accountant Software

Now, assuming that your checklist is complete, Given below are the steps to do so:

Step 1 – Access the Tax Center in Finance Software- you can find it on the left in the menu bar.  

Step 2 – Open the Payroll Tax Center. Select “Payroll Tax”.

Remember that sales levy can also be tracked in the Online version.

Step 3 – Check all the settings in Payroll Taxes Setup for consistency such as the important dates and other required information of the employees. This is where the birth and hire dates that you had kept for reference are going to come in handy as you Setup Account Software Federal Tax Withholding.  

Step 4 – Add your business information. Some of the details to be filled in are-

1. The legal name of your company entered on each return filing.
2. The address that you entered for your business during payroll setup will automatically show based on records. If you want to change your address then in place of ticking the box you will see the corresponding field to enter this data in.
3. The date at which you are planning to run the first payroll. This is very important if you want to track all of your payments correctly.
4. Date of hire for the first employee, which is to check when you have started hiring employees.

Step 5 – Enter all the required information for FT. This includes the FEIN and any forms that needed to be filled to complete this procedure. In case you do not have the FEIN as of now, then click on “No”. It is necessary to have one if you want your business to get credit for payment of surcharges, however, so make sure that you do.

Step 6 – Add information about your state. This step may be skipped for people in one of the seven states where this is not needed. Otherwise, enter details like the employer account number, SUI, ETT etc. for the state in particular.

Step 7 – Select the options for setting up your mode of payment- you can choose from E-filing and E-pay or manual payment. This step may not be available to you if you have QuickBooks Basic Payroll.

Now you can proceed to pay the resulting amount by selecting the “Pay taxes” option. If you ever want to adjust the settings that you made in the above steps, then simply go to the respective settings and make your changes.

Account Cares and its team are here to handle your concerns or problems with respect to Finance Software. If you are not ready to Setup Federal Tax Withholding, then we can do it and save you some time as well.

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