1. Open Quickbooks desktop and click on the Lists menu and select Payroll Item List.
    1. Note: If payroll is not turned on in your Quickbooks file, then you will not see the Payroll Item List selection.
  2. 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.
    1. 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.
    2. Please Note: Do not confuse this setup with a Roth 401(k) plan.
  3. Select Custom Setup and click Next.
  4. Click Deduction and click Next.
  5. Enter a name for your new payroll item, such as 401(k) Deduction and click Next.
  6. Choose the vendor name whom you will be submitting these 401(k) payments to, such as Charles Schwab, or the like.
  7. Select the Payroll Liability account where the 401(k) deductions will be tallied up for later payment.
    1. Note: This selection is important because this is the liability account where 401(k) deduction liability payments will be applied against for future bookkeeping.
  8. Click Next.
  9. For the Tax Tracking Type, choose 401(k).
    1. 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.
  10. Click Next.
  11. Click Next. Note: You should not need to change anything in the Taxes section of this wizard.
  12. 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.
    1. 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).
  13. Click Next.
  14. Enter a Default Rate & Limit only if you want this information to be the company default choices for all employee profiles.
    1. 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.
  15. Click Finish.
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