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FNSTLTUG
February 4, 2025
Question

Handling St. Louis City Earnings Tax in QuickBooks & W-2 Reporting Issues

  • February 4, 2025
  • 1 reply
  • 0 views

Hello QuickBooks Community,

I’m looking for some insight on properly handling St. Louis City’s 1% Earnings Tax for employees who occasionally work within the city limits.

Our business and employees are located outside St. Louis City, but when work is performed inside city limits, we are required to withhold the 1% earnings tax for the wages earned there. Here's how we currently manage it in QuickBooks:

  1. Tracking City Wages:

    • All employees are hourly.
    • Work done inside St. Louis City is tracked separately and assigned its own pay type ("City Wages").

  2. Withholding the 1% Earnings Tax:

    • We created a St. Louis City Earnings Tax Deduction (set up as Other Deduction - Other Tax Deductions).
    • The tax amount is manually calculated since QB doesn’t seem to allow deductions to apply only to specific wage types.

The Problem:
This setup works fine—until it’s time to generate W-2s. Since the tax is recorded as an "Other Deduction" rather than a recognized local tax, it does not appear in Box 19 on the W-2, which is required for local tax reporting.

Has anyone found a workable solution for this issue? Is there a way to configure QuickBooks to properly categorize this deduction as a local tax for W-2 purposes?

Any thoughts or best practices would be greatly appreciated!

Thanks in advance!

1 reply

J
JorgetteG
February 4, 2025

You are right, FNSTLTUG. QuickBooks does not support reporting Other Deductions in Box 19 of the W-2, as this section is intended solely for local, city, or other state income taxes, not general deductions or adjustments. 

 

Other Deductions in QuickBooks generally accommodate non-tax deductions from employees' paychecks, like garnishments, union dues, or health insurance premiums, which are not required to be reported in Box 19.

 

Since QuickBooks Online (QBO) currently does not automatically handle deductions specific to certain wage types, your method of manually calculating the 1% earnings tax is correct. However, to ensure this appears in Box 19 of the W-2 form, we can adjust the type of payroll item you are using.

 

Here are the steps to appropriately categorize the deduction for W-2 reporting:

 

  1. Create a Local Tax Item:
    • Instead of setting up the St. Louis City Earnings Tax as an Other Deduction, create a new Payroll Item specifically for this local tax.
    • If a deduction is incorrectly set up as an "Other Deduction" instead of a "Local Tax," QuickBooks will not process it as a tax, and consequentially, it will not appear in Box 19 on the W-2. Instead, it will only be reflected in the deduction sections of employee pay statements.
  2. Assign the Payroll Item:
    • Apply this payroll item to the relevant employees to withhold the 1% tax on their City Wages.
    • Since QuickBooks does not automatically segregate wages based on work location, you will need to continue manually tracking and calculating the hours worked within St. Louis city limits versus outside.
  3. Review and Adjust W-2 Setup:
    • Ensure the local tax item is designated to show in Box 19 on the W-2 forms.
    • Generate a payroll summary report to verify accurate tax calculations.

 

It's essential to accurately select categories and types for deductions and taxes in QuickBooks, as the system sorts and handles payroll items based on these settings, important for proper W-2 reporting.

 

By creating a Local Tax payroll item specifically for the St. Louis City Earnings Tax, QuickBooks should automatically handle the W-2 reporting requirements more effectively, reducing the need for manual adjustments at year-end.

 

Furthermore, you may benefit from these resources, as they provide essential insights and guidance for tax filing:

 

 Lastly, if the setup becomes too complex, consider consulting with a QuickBooks expert or accountant. They can offer a deeper dive into your settings and ensure compliance with local tax laws.

It's admirable you're actively managing the St. Louis City Earnings Tax for eligible employees in QuickBooks Online. We appreciate your efforts to streamline this process and are here to provide any additional clarifications you might need.

    F
    FNSTLTUGAuthor
    February 5, 2025

    Dear JorgetteG,

    Thank you so much for your detailed response! I truly appreciate the time and effort you put into clarifying the situation.

    I wanted to let you know that I don't appear to have the ability to create and label a payroll deduction as "local tax." While I do have the option to select local taxes, it seems that QuickBooks suggests these based on the proximity of my business and employee addresses. When I select the local tax in question, it calculates the 1% earning tax based on the total gross pay, but unfortunately, the amount cannot be adjusted to reflect the applicable wages.

    Would this be a limitation of Payroll Core, or would I likely encounter the same issue with Premium or Elite versions as well?

    Thank you again for your assistance, and I look forward to hearing from you.

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