Those who do payroll in QuickBooks will find it necessary from time to time to create a payroll item. One of the most common is when a wage garnishment order for an employee is received.
When that happens, here is how to accomplish the task.
Navigate to Lists->Payroll Item list in order to display the list of payroll items. Either select the Payroll Item button in the lower left, or right-click your mouse anywhere within the actual list itself.
From the resulting menu, pick New.
In this post, we will use the Custom Setup method. It allows us more flexibility at setting up the item. That should let us see the specifics of the item setup in a little more detail.
You can see the many types of payroll items that can be selected in the graphic above. While the examples for the type selected suggest union dues, retirement plans, etc., a wage garnishment is definitely a deduction. So, we will choose Deduction as the payroll item type.
The next window in the wizard wants a name for the item. If you create a wage garnishment item for each wage garnishment order received, you will be able to create the checks to disburse the withheld amounts more easily. That’s what has been done in this example. Gregg Schneider is the employee whose wages will be garnished.
This screen allows you to specify the agency for payment of the withheld funds. It also contains a field for the number that identifies your employee to the agency. This is why we created the payroll item for only one specific garnishment order. Otherwise, this information could not be filled in here.
There is also a field for the liability account QuickBooks will use when creating paychecks and withholding the specified amounts. By default, QuickBooks will suggest Payroll Liabilities. Using an account like Wage Garnishments Payable allows much better tracking of the amounts coming in and going out of the account.
The Tax Tracking Type window is critical. The selection made from the dropdown menu shown will determine the taxability of wages, how those wages are reported on government forms, and how they affect W2’s.
There’s quite a list of available options and if setting up something other than a simple wage garnishment, you’re likely to find on the list exactly what you are looking for. For our purposes, a wage garnishment does not affect taxes. None is the correct choice.
The next window (not shown) will allow very specific setup of the effects the new payroll item will have on tax withholdings. Generally, if you feel something in that window needs to be changed, you should seek professional payroll advice from your accountant or bookkeeper. Rarely would anything in that window need to be altered.
If the payroll item were to be based on quantity, like mileage, we could specify that in this window.
A wage garnishment will be deducted from net pay.
The last window in the setup process allows us to set a default rate. This can be either a dollar amount of a percentage. In the example, we have specified 25% of the employee’s net check.
If there were an annual limit, that could be set in this window as well.
Next post, how to set this up with an employee to automate payroll processing.
Hector Garcia, CPA
Certified Advanced QuickBooks ProAdvisor