Resolve QuickBooks Payroll Not Calculating Taxes | Step-by-Step

Are you facing issues with QuickBooks Payroll not calculating taxes correctly? This frustrating problem can disrupt your payroll process, leaving you unable to manage employee payments effectively. Common causes include incorrect employee, tax, or payroll item setups, outdated tax tables, reached wage limits, incorrect federal filing status, employees not meeting the taxable wage base, or employees set to “Do Not Withhold” for taxes. In this comprehensive guide, we’ll dive into the reasons behind QuickBooks Payroll tax calculation failures and provide clear, step-by-step solutions to help you resolve the issue and restore accurate payroll processing.

Why is My QuickBooks Not Calculating Payroll Taxes?

There isn’t a specific cause why QuickBooks is not calculating taxes correctly. Below, we will discover all the possible reasons why this hindrance occurs: 

• The QuickBooks Desktop version is not up-to-date
• Using an outdated version of payroll or the tax table 
• Incorrect filling status in QuickBooks 
• You might have updated the tax system 
• Not having an active payroll subscription 
• The payroll tax item might be duplicated 
• Incorrect QuickBooks payroll tax setup 
• The employee wage limit might be crossed

What to Do When QuickBooks Payroll Not Calculating Taxes?

After understanding the reasons for the incorrect tax calculation in QuickBooks Desktop, finding suitable fixes to resolve these issues is crucial. Proceed below to explore the troubleshooting methods to get past the problem and ensure accurate tax calculation: 

1. Update QuickBooks Desktop and the payroll tax table 

Using outdated software for payroll or tax tables is often the reason why ‘QuickBooks payroll not calculating taxes‘ due to incorrect rates or certain features.

Keep your QuickBooks Desktop up-to-date to the latest release and get the payroll tax table updates in the steps below: 

1. Go to the Employees menu.
2. Choose Get Payroll Updates.

• To see which tax table version you use:
  • Review the number next to You are using tax table version:.
  • To see if it’s the correct version, check the latest payroll news and updates.
  • For further details on your tax table version, click Payroll Update Info.
• To get the latest tax table:
  • Click Download Entire Update.
  • Select Update. This will open an informational window once the update is downloaded.  

2. Ensure payroll tax settings are correct

Payroll tax settings can be responsible for why QuickBooks Desktop payroll not calculating state taxes:

• Navigate to Employees in the menu bar.
• Choose Employee Center.
• Double-click on any employee’s name to open their profile. 
• Go to Payroll Info.

• In the Pay Frequency drop-down menu, review the info for accuracy. 
• Hit the Taxes button.
• Move to the Federal tab and make sure the Filing Status and Allowance details are correct, then make the required changes to ensure the accuracy. 
• Finally, click OK.

3. Verify the Filing Status

Ensure the filling status isn’t set to ‘Do not Withhold‘ otherwise, you might see QuickBooks Desktop not calculating payroll taxes. To verify this, you can check your employee’s profile. Here’s how:

• Go to Employees at the top. 
• Select Employee Center. 
• Find the employee’s name and double-click on it. 
• Now, go to the Payroll Info tab and click Taxes.
• Under the Federal and State tabs, check your Filing Status.

4. Revert Paychecks

The update to the tax system may affect tax calculations in QuickBooks Desktop Payroll. For accurate tax calculation, let’s revert your employee’s paycheck so any changes that ensued will be applied to the paychecks in the following steps: 

• Navigate to Employees at the top.
• Select Pay Employees, then Scheduled Payroll or Unscheduled Payroll.
• Hit on Resume, Scheduled Payroll. You’ll notice there are yellow-highlighted employee names. These are the employees who have had changes.
• Right-click on each employee’s name highlighted in yellow. 
• Select Revert Paychecks.

5. Verify the QuickBooks payroll subscription

If QuickBooks is not calculating payroll taxes, you must review the payroll subscription in QuickBooks Desktop. Let’s proceed to the following steps: 

• Select the QuickBooks icon on your computer and access the QuickBooks Desktop Payroll.  
• Sign in to your QuickBooks Desktop company file as the Primary Admin or Payroll Admin. 
• Select Employees at the top and click on Payroll Center. 
• Go to the Payroll tab. Now, you will see which payroll service you are using under the subscription Statuses.

If the payroll subscription isn’t active, the payroll won’t calculate your taxes. Proceed to the steps below to ensure the subscription isn’t active: 

Get the payroll subscription 

Here’s how to get the payroll subscription: 

a. Through your company file

The best and easiest way to turn on the payroll service is directly from your QuickBooks Desktop company file: 

• In your QuickBooks company file, go to the Employees menu and choose My Payroll Service.

• Now, click on Account/Billing Info.

• Sign in to your Intuit account using the admin credentials. This will open the QuickBooks Account page. 
• Select Resubscribe under Status. 
• Follow the on-screen instructions to reactivate the payroll service.

b. Through your Intuit account

You can also get your payroll services back from the web:

• Sign in to your Intuit account as you normally would. 
• Select Resubscribe under Status. 
• Follow the instructions on your screen to reactivate the payroll subscription. 

Note: The tool may take up to 24 hours to reactivate the subscription to finish the process. Once the reactivation is done, the subscription will show Active. 

6. Delete the Duplicate Payroll Tax Item

If a payroll item is duplicated in the records, it can result in incorrect tax calculations or may even be the reason why ‘QuickBooks Payroll not calculating taxes’ correctly. Let’s delete the double entry by following the steps below: 

• Launch QuickBooks Desktop.
• Go to the Employees menu. 
• Choose Employee Center, double-click on your employee’s name.
• Select Payroll Info and click the Taxes option.
• Hit on Other and look for the duplicate payroll tax item.
• Select Delete to remove the duplicate payroll tax item and click OK.

7. Verify employee wage limit

The reports below provide detailed information on how QuickBooks Desktop calculates the tax amount for each employee and the wage basis range for each employee for each tax period.

• Navigate to Reports.
• Hit on Employees & Payroll.
• Choose Payroll Detail Review.
• Select This Calendar Year in the Dates drop-down menu.
• Click Refresh.

8. Make sure the QuickBooks payroll tax setup is correct

An incorrect payroll setup means that either the information is not correct or the settings are not selected correctly. This can be the reason why payroll taxes not calculating in QuickBooks Desktop and may result in taxes not being deducted from payroll. Let us follow the steps below to ensure that the payroll tax setup is correct:

• Go to Employees in the menu bar. 
• Choose Payroll Setup, then Taxes. 
• To set up your tax, you will need the following: 
  • the federal Employer Identification Number (EIN)
  • state account numbers 
  • state unemployment insurance rate 
• Click on Continue.
• Select the form, such as Form 941, Form 944, or none of these IRS requires you to report your wages and taxes paid. 
• If you are not sure about the form, look for the same on your EEIN letter from the IRS. 
• Select a State, and the state box will open. It shows all of your tax states. 
• To add the SUI rate, choose the Unemployment item, then Edit. Select Next and then add the rate in the table. 
• You can pay and file your taxes and forms if you use QuickBooks Desktop Payroll Enhanced. 
• Set up the bank account first in the Chart of Accounts. 
• Select Schedule Payments to add the account number and deposit frequency. 
• Enter the information required for each tax. 
• In the Payment Method drop-down, choose E-file and E-pay.
• Select Enrollments to see instructions on how to enroll in electronic payments and filing with the IRS and in your state.
• Finally, your federal and state tax setup is complete.

Conclusion 

We’ve outlined several methods to help you troubleshoot and resolve issues with QuickBooks Payroll not calculating taxes correctly. We hope this guide has helped you identify the root cause and implement the necessary fixes to ensure accurate tax calculations.

For additional support, our QuickBooks experts are available 24/7 to assist you. Contact them now by dialing our toll-free number +1(866)500-0076!

Frequently Asked Questions 

Why is my QuickBooks not calculating payroll taxes? 

QuickBooks payroll may fail in calculating taxes due to outdated software or tax tables, incorrect employee setup, tax-exempt employees, exceeding annual wage limits, low gross wages, incorrect payroll subscription, or incorrect payroll setup.

 Are QuickBooks tax deduction errors causing payroll problems? 

Yes, tax deduction errors in QuickBooks Payroll can absolutely cause payroll problems, such as incorrect pay stubs, missed tax payments, and even penalties from the IRS, because the system relies on accurate tax settings, up-to-date tax tables, and proper employee configurations.

How do I revert a paycheck if QuickBooks is not calculating taxes? 

To revert a paycheck in QuickBooks when taxes aren’t calculated, open the Employees tab, go to Pay Employees, and then select Resume Scheduled Payroll or Start Scheduled Payroll. Locate the employee name highlighted in yellow and right-click on it, then choose Revert Paychecks. This will allow you to correct the paycheck data and ensure taxes are computed correctly before you save and close. 

What happens if you don’t file taxes in QuickBooks? 

Failure to file taxes is a serious matter with significant consequences from tax authorities, regardless of whether you use QuickBooks. The software is simply a tool for organizing your financial information; it does not handle the official filing process with the IRS or other tax agencies for you. 

Does QuickBooks calculate payroll taxes if an employee claims tax-exempt? 

Yes, QuickBooks can handle tax-exempt employees for payroll, but this depends on the type of tax exemption. When an employee claims tax-exempt status, QuickBooks will stop calculating and withholding certain taxes from their paychecks, but not all of them.