How do I return a city tax that was deducted from my employee. I did not realize this deduction was optional to the employer

Hello there, @happyhealthy. Let me help you on how to return a city tax that was deducted from your employee. 

Reimbursements are used to reimburse employees for expenses they have incurred on behalf of the company. You can refund the employee in the next payroll to return the deducted tax. 

To reimburse your employee, you can follow the steps mentioned below: 

1. Create a reimbursement item.
2. Define accounting preference.
3. Run payroll with a reimbursement amount.

You can check this article for more detailed steps to refund your employee: Reimburse your employee in QuickBooks Payroll.

Also, I suggest reaching out to your accountant for further guidance to account for the reimbursement made. 

Moreover, if you need to pay the employee, you need to create a journal entry to record your books correctly. Also, I suggest contacting your accountant to account for the journal entry made. In addition, you can create a check or an expense as a record of the payment you've made for your employee.

Furthermore, you can delete the City Tax in your payroll settings for that specific state so that when you run the next payroll, it won't deduct the employee's paycheck.

For more information on handling over or under-collected employee paid taxes, please refer to this article: Handle overwithheld or underwithheld employee-paid taxes. 

The Community space is always available if you need further assistance returning a city tax deducted from an employee by hitting the reply button below.