- Open Quickbooks desktop and click on the Lists menu and select Payroll Item List.
- Note: If payroll is not turned on in your Quickbooks file, then you will not see the Payroll Item List selection.
- You will need to create a new payroll item for the employee deduction portion of an employee’s 401(k) company-sponsored plan, so to do this click on Payroll Item at the bottom of the screen, or simply select Ctrl+N.
- Please Note: Do not confuse this setup with Employer Match contributions to these same 401(k) accounts. Employer Match contributions are a completely different payroll item setup in QuickBooks.
- Please Note: Do not confuse this setup with a Roth 401(k) plan.
- Select Custom Setup and click Next.
- Click Deduction and click Next.
- Enter a name for your new payroll item, such as 401(k) Deduction and click Next.
- Choose the vendor name whom you will be submitting these 401(k) payments to, such as Charles Schwab, or the like.
- Select the Payroll Liability account where the 401(k) deductions will be tallied up for later payment.
- Note: This selection is important because this is the liability account where 401(k) deduction liability payments will be applied against for future bookkeeping.
- Click Next.
- For the Tax Tracking Type, choose 401(k).
- Note: This selection is important because it reduces wages for federal income tax withholding reporting, such as for the IRS Form 941 and the employee’s W-2. This means the employee gets a withholding tax break by having their wages reduced now.
- Click Next.
- Click Next. Note: You should not need to change anything in the Taxes section of this wizard.
- If you plan on having the payroll software calculate the 401(k) employee deductions based on a manual quantity you enter in on EACH PAYCHECK or based on the employee’s hours worked on EACH PAYCHECK, then choose one of these selections.
- Note: Most of the times you probably will select Neither as this amount probably will be preset within each employee’s payroll profile, either as a flat amount or a percentage of wages (be sure you understand gross vs. net wages here).
- Click Next.
- Enter a Default Rate & Limit only if you want this information to be the company default choices for all employee profiles.
- Note: Most of the times you probably will want to leave this section blank as it is most accurate to simply set up the actual amounts manually within each employee’s profile.
- Click Finish.