How to Correct Payroll Exemptions in QuickBooks Online (without Calling Tech Support) - dummies

How to Correct Payroll Exemptions in QuickBooks Online (without Calling Tech Support)

By Elaine Marmel

It happens. Payroll exemptions come up at some point,but QuickBooks Online gives you the tools to fix it. Consider this example. You pay an employee, perhaps several times, and then discover that the employee should have been exempt from State Unemployment Insurance. Or you discover that the employee was set up as exempt and shouldn’t have been exempt.

You can fix this issue yourself, without calling Intuit Technical Support. And, once you’ve updated the employee’s settings, QBO will adjust payroll information and, if appropriate, set up a reimbursement for the employee. You might need to pay additional taxes based on the change, and you will probably need to deal with your state to amend tax returns you filed and arrange for payments or credits to future taxes due, as needed.

In the United States, it doesn’t matter where you live; QBO makes adjustments for all 50 states and District of Columbia. In general, when you change the exempt status for SUI for an employee, QBO will, for the current calendar year only:

  • Recalculate employee paid taxes (such as CA SDI).
  • Pay amounts owed to employees on the next check.
  • Recapture amounts owed from employers on the next check.
  • Recalculate Federal unemployment tax (FUTA) to 6%.

Although you also can change exemption status for Social Security/Medicare and for FUTA, QBO will not, at this time, adjust your books for erroneously withheld Social Security/Medicare and FUTA the way it will make adjustments for erroneously withheld SUI. To adjust your books (and tax liabilities) for Social Security/Medicare and FUTA, you need to talk to your accountant or to Intuit Technical Support. Watch for additional payroll-related changes that you’ll be able to make without calling Intuit Technical Support as QBO advances over time.

Here’s how you change an employee’s SUI exemption settings in QBO:

  1. Click Employees in the Navigation pane and click the employee whose status you need to change.
  2. In the Pay section of the Employee Details page that appears, click the pencil icon to edit the employee’s pay information.
  3. On the page that appears, click the pencil icon under the withholdings question.
  4. On the Payroll Taxes Setup and Compliance page that appears, scroll down and click Tax Exemptions.
  5. Click the state tax to be exempted.
  6. Click Done in the lower right corner of the page.

QBO displays a message like the one below, explaining what’s going to happen when you click Continue. After you click Continue, a page appears with a message at the top explaining that you successfully updated tax exemptions and, if appropriate, QBO adjusted for FUTA and SUI employer taxes. The message contains a link to the Payroll Tax Center, where you find details of additional payroll tax payments you might need to make; don’t forget to file amended tax returns. And, QBO will ensure that the employee’s next paycheck includes any appropriate reimbursements if you added exemptions or deductions if you removed exemptions.

payroll exemptions QBO
A message like this one explains what QBO will do based on the changes you made.

Do you need to void or delete a paycheck? Display the list of paychecks you’ve issued by clicking Paycheck List in the upper right corner of the Employee page, just below the Run Payroll button (click Employees in the Navigation pane). Select the paycheck you need to void or delete and click the Void or Delete button above the list. QBO will walk you through a series of questions that will help you get the job done.