You may have received a letter stating that you must deduct an additional tax amount from an employee's paycheck due to outstanding amounts due to tax agencies.
The Wage Garnishment Order will provide the necessary information, such as the account or case number, for how to post the money.
If you have multiple employees that has this type of garnishment, you should create a new payroll item for each employee. Each item can have the employee's initials in the name of the payroll item, e.g., TAX LEVY-AKA.
Generally, attachments are honored/paid according to the following priorities (there can be exceptions.
American Payroll Association
- Child support orders
- Chapter XIII bankruptcy orders
- Federal tax levies
- Federal agency garnishments
- State tax levies
- Local tax levies
- Creditor garnishments
- Student loan garnishments
Once the garnishment has been deducted from the paycheck, you will be able to pay the appropriate agency as a liability in QuickBooks Desktop.
You know the amount of the garnishment you want to deduct.
Note: If you have more than 1 employee with a wage garnishment, you need to set up separate payroll items for each garnishment because liability agencies require a case number to distinguish how much is paid for each particular employee.
To set up a Garnishment Deduction Item through EZ Setup or Customer Setup:
- From the Lists menu, click Payroll Item List.
- Click the Payroll Item button, and select New.
- Select EZ Setup or Custom Setup, and click Next. (For EZ Setup, follow the onscreen instructions.)
- Select the Deduction option, and click Next.
- Type a name for the payroll deduction, such as Child Support Smith for employee Bob Smith, and click Next.
- Enter the name of the agency in which the liability is paid. If you currently do not know the name of the agency, you can add it later.
- Click Next.
- Click the Tax Tracking Type drop-down arrow, and unless instructed otherwise by your accountant, select None.
- Click Next.
- In the Default Taxes window click Next.
- In the Calculate Based on Quantity window, be sure Neither is selected, and click Next. Note: Do not select Hours or Quantity, as those will not calculate the garnish correctly.
- In the Gross vs. Net window, choose Net to calculate amount after taxes. If you choose Gross, it will calculate the deduction the amount before taxes.
- Enter a Default Rate and Limit (if there is one).
- If it's a percentage, add the percentage sign.
- If it's a dollar, add the decimal.
- Click Finish.
To set up the Garnishment Deduction Item on the employee record. (e.g., for child support):
Note: To perform the tasks below, switch QuickBooks Desktop to single-user mode.
- Click the Employees drop-down menu, and select Employee Center.
- Double-click on the Employees name.
- Click the Payroll Info tab.
- In the section for Additions, Deductions, and Company Contributions, click in a blank area under Item Name and select your new garnishments item.
- In the Amount column, enter the amount to be deducted every pay check.
- Click OK.
Note: If the garnishment item was edited, you may need to delete the item from the employee setup and enter the edited garnishment item.
Note: Regarding Wage Garnishment Order of Precedence (Net Garnishment), the order in which the net deductions based on an percentage, are entered on the employee profile in QuickBooks Desktop, should not matter, but always confirm the calculated amount is correct.
Note: Assisted Payroll customers: Assisted Payroll does not pay this liability, so you will be responsible for paying this to the appropriate agency. See the garnishment order for payment information. For child support, you can also view the Office of Child Support Enforcement contact information website.
For information about how to make the garnishment payment see Set up and pay scheduled or custom (unscheduled) liabilities.