A pastor's in-kind housing allowance should be deducted before calculating the local withholding taxes. How can this be corrected?

Welcome to the Community. Thanks for posting.

I'd be happy to share some information that could help you clear things up.

You can set up pre-tax and after-tax deduction items in your QuickBooks Online Payroll. If you're unsure how the deduction is taxed, I suggest consulting your accountant. 

You can also set up general deductions such as uniforms, tools, commuter benefits, or miscellaneous. Refer to this article for the steps and additional information: Set up, change, or delete employee-paid payroll deductions.

On the other hand, if you've run payroll with incorrect deduction items, I'd recommend contacting our QuickBooks Online Payroll Support team. They have equipped tools to guide you and give possible fixes.

Here's how you can reach out to them:

1. Go to Help (?), then click Contact Us.
2. Please enter your question and select Let's talk.
3. Review and Select from the following: Ask the community, Have us call you, or Chat with us.

Please know that when contacting our support, ensure to reach out to them during their available hours.

Here's a link with articles about managing your payroll reports in QuickBooks Online that you can use in the future: Run payroll reports in QuickBooks Online.

Feel free to reach us again for further concerns. Stay safe!