QuickBooks Not Withholding Federal Taxes? Follow these Steps!

Last Updated on January 9, 2025

If your QuickBooks not withholding federal taxes, then it can cause problems while calculating the wages and processing payroll. This issue is a common occurrence and can arise due to an outdated payroll function or a wrong employee setup. Different penalties under federal and state laws may be incurred due to incorrect payroll calculations; therefore, resolution of this problem is required urgently. In this article, we will learn about the best solutions to fix the QuickBooks not withholding federal taxes.

You can resolve the issue of QuickBooks not withholding federal taxes payroll by following the instructions below. However, if you are unwilling to troubleshoot the issue on your own, you can contact our team of specialists at 1.855.738.2784 as a faster resolution avenue to fix the payroll problems.

Leading Reasons Why Federal Taxes Are Not Being Taken Out in QuickBooks

If your QuickBooks not withholding federal taxes, then the following common reasons might be responsible for the issue –

1. Your QuickBooks Desktop, the payroll function, or the tax tables might be old or outdated.
2. The QuickBooks payroll item setup might be incorrectly set in the application.
3. If the total annual salary of the employee is more than the limit in QB payroll, this issue can arise.
4. The gross wages from the employee’s last payroll might be lower than the minimum taxable wage base.
5. If the employee’s filing status has been set to “do not withhold” or “exempt,” it can cause problems while deducting federal taxes.
6. Your QB payroll subscription status might be outdated, inactive, or expired while calculating the payroll taxes.
7. The year-to-date amounts in the paychecks might be incorrect, or the check might have zero net pay.
8. If the SUI rates or the filing status in the W-4 form is wrongly set, it can be another reason why taxes are not being deducted.

Solutions to Undertake If Federal Taxes are Not Deducted Correctly in QuickBooks

Until the tax calculation and settings are corrected, you won’t be able to deduct the correct tax amount from the employee’s payroll in QB. Thus, you must follow the instructions in the troubleshooting solutions mentioned below to address this payroll issue –

Solution 1 – Update QBDT and Payroll Tax Tables

An outdated QB or payroll tax table can be why your QuickBooks payroll is not taking out taxes. To address this issue, ensure QB is updated, and the latest tax table updates are installed. Implement the steps given in this detailed blog to download and install QBDT updates and upgrade it to the latest version. 

After QBDT is updated, download and install the payroll tax table updates using the process below –

1. Launch QuickBooks Desktop, navigate to the Employees menu, select Get Payroll Updates, and hit the Download Entire Update button.
   
2. Next, click Update, wait for the informational window to appear, indicating the download process is complete, and exit the process.

Once done, you must rerun QB payroll and check if the federal taxes are being calculated. However, if the taxes are still not withheld in employee paychecks, follow the steps in the next solution to fix the issue.

Solution 2 – Revert the Employee Paychecks

You need to revert the employee’s paycheck using the instructions below to refresh the payroll info and recalculate the taxes with accuracy –

1. Open the Employees tab in QuickBooks Desktop, click Pay Employees, and select the Scheduled Payroll option.
2. Next, choose Resume Scheduled Payroll, right-click on the employee for whom you wish to undo the changes, and select Revert Paychecks.
3. Find the yellow highlight indicating the employee has a pending paycheck, click Open Paycheck Detail, enter the payroll details, and hit Save & Close.
   Note: If you have already issued the employee’s paycheck, you must void or delete the paycheck and recreate it from the beginning.

Once the paycheck is reverted, check if the issues with the tax deduction are resolved. If there is still no federal withholding while calculating payroll, move to the next troubleshooting solution.

Solution 3 – Ensure your Subscription Status is Active

An inactive or expired payroll subscription can be another reason for tax deduction issues in QB Desktop. Thus, if your subscription is expired or outdated, reactivate it by implementing the thorough steps provided below –

Via your company file

1. First, make sure the QuickBooks Desktop company file is opened, proceed to navigate the Employees menu, and then click My Payroll Service.
   
2. Next, go to the Account/Billing Info section, sign in using your Intuit Account login, and move to the QuickBooks Account Page.
3. Finally, go to the Status section, select Resubscribe, and follow the onscreen prompts to reactivate your QB payroll service.

Via your Intuit account

1. Sign in to your account using your Intuit credentials, then go to the Status tab to refresh your subscription. 
2. Finally, choose Resubscribe and follow the on-screen steps to reactivate your payroll service. Wait for 24 hours, and once reactivated, your QB payroll subscription status will display as Active.

After reactivating the subscription, rerun the QuickBooks payroll and check the federal tax calculation. If QuickBooks payroll did not take out federal taxes, follow the next troubleshooting solution to dismiss the problem. 

Solution 4 – Check the Payroll Tax Setup and Filing Status

If the employee’s filing status in the federal W-4 form is set to Exempt or Do not withhold, the taxes will not be withheld, leading to this issue. To resolve it, you need to review and change the tax filing status using the instructions below –

1. In QB Desktop, move to the Employees menu, select Employee Center, and select each employee’s name one at a time.
2. Click Payroll Info on the left panel and review the Pay Frequency to ensure it is correct.
3. Now, click the Taxes button, move to the Federal tab, and review the Filing Status and Allowances fields.
4. If the employee’s filing status displays as Exempt or Do not withhold, change the status and hit OK twice to confirm.

Once the filing status is reviewed, rerun QB payroll and check if the taxes are being deducted correctly. If QuickBooks payroll taxes are not being taken out, move to the next solution.

Solution 5 – Review the Employee Withholding Report

Incorrect year-to-date or quarter-to-date wage or tax information can also cause problems while taking out taxes from the employee’s payroll. You can check the taxes of all the active employees in the withholding report using the following steps to fix the federal tax calculation – 

1. Open QBDT, select Reports, and head to the Employees and Payroll section.
2. Click Employee Withholding, then tap on the Customize Report tab, and pick the columns that meet your requirements.
3. In the Display List menu, click the Items you want to see on your report, and click OK to save the changes.
4. Now, ensure that your employees are set up accurately for state, local, and federal taxes, and proceed to edit the information. 
5. Move to the Employee Info window, choose the Employee’s name, and wait for the Employee information window to emerge.
6. Select Payroll Info, navigate to the Taxes tab, and click on the Federal, State, and/ or Other options.
7. Lastly, ensure that the employee is marked correctly for taxes and that the wage and tax information are correctly set in QB payroll. 

Once done, rerun QuickBooks payroll and check if the application is able to take out the payroll taxes. However, if QuickBooks not withholding federal taxes, follow the instructions in the next solution to eliminate the issue.

Solution 6 – Check if the Annual Limit is Exhausted

If QuickBooks payroll did not deduct taxes, run the tax and wage summary report to check if the annual limit has been reached using the instructions below –

1. Select Lists, click Payroll Item List from the top menu and right-click on the payroll item that you want to change. 
2. Now, choose Edit Payroll Items, scroll to the Next screen until the Limit Type screen appears, and verify that the box at the bottom is correctly set.
3. If the limit is correct, the employee’s payroll should stop calculating at that limit; otherwise, you need to update the amount.
4. Under the Limit Type menu, ensure that you have picked the right option from the following –
   • Annual – Restart every year
   • Monthly – Restart every month
   • One-time limit
5. If the option is incorrect, you can change the default limit or Limit Type selection to suit your preferences and use Finish to end the process.

Once the process ends, open QuickBooks and check how the taxes are calculated. If the federal withholding is not calculated, move to the steps in the next solution to tackle the issue.

Solution 7 – Correct the Payroll Deduction Item

If none of the above solutions work and the payroll taxes are not being taken out, examine how the payroll item for tax deduction is set. Start by checking the deduction item, and if it is incorrectly set, correct it in the following manner –

1. Open QuickBooks Desktop, select Payroll Item Lists from the Lists menu and right-click Deduction.
2. Select Edit Payroll Items, click Next, and open the Net/Gross window to review the deduction item. 
3. If the deduction item is correctly set, exit the process; otherwise, correct it by going back to the Lists menu. 
4. Click Payroll Item List, double-click the payroll deduction item set up incorrectly, and modify the item name by adding ‘Do Not Use’ at the end of the incorrect item’s name.
5. Further, select Next until Finish appears, then select Finish, and choose the Payroll Item from the dropdown menu. 
6. Click New, set up a new payroll item for deduction to replace the wrong one, and select the correct tax tracking type and taxability while creating the item.

You can use the same steps to correct the payroll item for wage, addition, or company contribution in QB Desktop. Once done, create a payroll summary report to determine the YTD amount of the incorrect item before calculating the taxes.

Lastly, the payroll will be processed again, and the tax calculation will be checked to ensure the federal taxes are being taken out. The solutions provided in this blog are curated by experts to help you resolve the problems while taking out taxes in QB payroll. However, if QuickBooks not withholding federal taxes even after troubleshooting the issue, you must contact our professional team at 1.855.738.2784 to get quick assistance with this payroll tax issue.

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Edward Martin

Edward Martin is a Technical Content Writer for our leading Accounting firm. He has over 10 years of experience in QuickBooks and Xero. He has also worked with Sage, FreshBooks, and many other software platforms. Edward’s passion for clarity, accuracy, and innovation is evident in his writing. He is well versed in how to simplify complex technical concepts and turn them into easy-to-understand content for our readers.