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How to Set Up Voluntary Deductions in QuickBooks Online Payroll

· 8 min read
Debits

Introduction​

Voluntary deductions in payroll refer to amounts that are deducted from an employee’s paycheck based on their choice, such as retirement contributions, health insurance premiums, or other benefits. QuickBooks Online Payroll makes it easy to set up and manage these voluntary deductions, ensuring that they are accurately reflected in employee paychecks and your company’s financial records.

In this guide, we will walk you through the steps to set up voluntary deductions in QuickBooks Online Payroll, ensuring that you can seamlessly manage deductions like health insurance, retirement plans, or garnishments for your employees.

What Are Voluntary Deductions?​

Voluntary deductions are amounts taken out of an employee's paycheck by choice. These deductions typically include contributions to health insurance, retirement accounts (such as 401(k) plans), health savings accounts (HSAs), flexible spending accounts (FSAs), and other benefits programs. Unlike mandatory deductions (e.g., taxes), voluntary deductions are usually offered as part of an employee’s benefits package, and the employee can opt in or out.

Some common examples of voluntary deductions include:

  • Health Insurance Premiums: Employee contributions to health, dental, or vision insurance.
  • Retirement Contributions: Deductions for 401(k), 403(b), or IRA contributions.
  • Health Savings Account (HSA): Employee contributions to an HSA for medical expenses.
  • Flexible Spending Account (FSA): Deductions for FSAs that cover healthcare or dependent care expenses.
  • Garnishments or Child Support: Certain legal or court-ordered deductions.

Step 1: Access Payroll Settings in QuickBooks Online​

Before setting up voluntary deductions, you need to access the payroll settings in QuickBooks Online Payroll.

1.1: Log Into QuickBooks Online​

  1. Log into your QuickBooks Online account: Use your login credentials to access your QuickBooks Online account.
  2. Ensure Payroll is Enabled: Make sure you are subscribed to QuickBooks Online Payroll, as this feature is only available in payroll-enabled accounts.

1.2: Go to Payroll Settings​

  1. Click on the Gear Icon: In the upper right corner of the QuickBooks Online dashboard, click the Gear Icon.
  2. Select Payroll Settings: Under the Your Company section, select Payroll Settings.

Step 2: Set Up Voluntary Deductions​

Once you’re in Payroll Settings, you can begin setting up the voluntary deduction types that are relevant to your business.

2.1: Access the Deductions and Contributions Section​

  1. Navigate to Deductions/Contributions: In the Payroll Settings, find the Deductions/Contributions section, and click on it to open the list of available deduction types.
  2. Select Add a New Deduction/Contribution: Click on Add a New Deduction/Contribution to create a new voluntary deduction.

2.2: Choose the Deduction Type​

  1. Select the Deduction Type: In the Deduction/Contribution Type dropdown, choose the type of deduction you want to set up. For example, if you’re setting up health insurance, select Health Insurance.
  2. Choose the Provider: You can also select the benefits provider from the dropdown if applicable. If you don’t see your provider, you can choose Other or manually add it.
  3. Choose the Deduction Category: QuickBooks will automatically assign the deduction to an appropriate category, such as Pretax or After-tax, based on the deduction type you select.

2.3: Customize the Deduction Details​

  1. Deduction Name: Enter a name for the deduction, such as “401(k) Contribution” or “Health Insurance Premium.”
  2. Amount or Percentage: Specify the deduction amount. You can either set a fixed amount per pay period (e.g., $100 per paycheck) or a percentage of the employee’s gross pay (e.g., 5% of each paycheck).
  3. Limit (Optional): If there’s a limit to the total amount an employee can contribute annually, you can set that limit here. For example, the IRS imposes contribution limits for 401(k) and HSA accounts.

2.4: Apply the Deduction to Employees​

  1. Assign the Deduction to Employees: Once you’ve entered the deduction details, you’ll be prompted to assign the deduction to the appropriate employees.
  2. Select Employees: Check the box next to each employee to whom this deduction applies. You can also set individual amounts or percentages if the deduction differs for each employee.
  3. Save the Deduction: After assigning the deduction to employees, click Save to apply the settings.

Step 3: Review and Confirm Deduction in Payroll​

After setting up the voluntary deduction, it’s important to review the changes during your next payroll run to ensure that the deduction is applied correctly to employee paychecks.

3.1: Process Payroll with Deductions​

  1. Go to Payroll > Run Payroll: In the left-hand menu, go to Payroll and select Run Payroll.
  2. Review Employee Paychecks: When reviewing employee paychecks, ensure that the voluntary deductions are being applied correctly.
    • Deductions Column: Under the Deductions column in each employee’s paycheck, you should see the newly added deduction, such as “Health Insurance” or “401(k).”
    • Verify Amounts: Confirm that the deduction amounts are correct and align with the settings you configured (either a fixed amount or percentage).

3.2: Finalize and Submit Payroll​

Once you’ve reviewed the employee paychecks and confirmed the voluntary deductions are applied accurately:

  1. Click Submit Payroll: Complete the payroll run by submitting payroll as usual.
  2. Check Payroll Reports: After payroll is processed, you can generate payroll reports to review the deductions applied across all employees.

Step 4: Edit or Remove Voluntary Deductions (If Necessary)​

If at any point you need to edit, update, or remove a voluntary deduction, QuickBooks Online makes it easy to manage these changes.

4.1: Edit an Existing Deduction​

  1. Go to Payroll Settings > Deductions/Contributions: Navigate back to the Deductions/Contributions section in Payroll Settings.
  2. Find the Deduction: Locate the voluntary deduction you want to edit.
  3. Make Adjustments: Click Edit next to the deduction to adjust the name, amount, or other details. You can also change the employees assigned to the deduction.
  4. Save Changes: After making the necessary changes, click Save to apply the updated deduction settings.

4.2: Remove a Voluntary Deduction​

  1. Go to Employee Profile: To remove a deduction for a specific employee, go to the Employees section, then click on the employee’s profile.
  2. Edit Deductions: In the employee’s profile, navigate to the Deductions and Contributions section.
  3. Remove the Deduction: Click Delete or Remove next to the deduction you wish to stop for that employee.
  4. Save Changes: Save the updated employee settings to ensure the deduction no longer applies to their future paychecks.

Step 5: Review Payroll Reports with Deductions​

QuickBooks Online Payroll provides detailed reports that allow you to track and review deductions, ensuring that all voluntary deductions are accurately reflected in your payroll records.

5.1: Access Payroll Reports​

  1. Go to Reports > Payroll Reports: In the left-hand navigation menu, click Reports and search for Payroll Reports.
  2. Select Payroll Summary: Generate a Payroll Summary report, which will show the deductions applied to each employee’s paycheck.
  3. Filter by Date Range: Customize the report by selecting a specific pay period or date range to review deductions over time.

5.2: Verify Deductions​

  1. Check Deductions Column: In the payroll report, verify that the correct deductions have been applied for each employee.
  2. Export or Print Reports: If needed, export the report to Excel or print it for review, especially if you need to share deduction details with a benefits provider or tax professional.

Troubleshooting Common Issues​

6.1: Deductions Not Showing in Payroll​

  • Issue: The voluntary deduction is not appearing in employee paychecks.
  • Solution: Double-check that the deduction was applied to the employee in their payroll profile. Also, ensure that the deduction is set up correctly in the Payroll Settings.

6.2: Incorrect Deduction Amounts​

  • Issue: The wrong deduction amount is being applied to employee paychecks.
  • Solution: Review the deduction settings and verify whether the deduction is set as a percentage or fixed amount. Adjust the amount in the Deductions/Contributions section if necessary.

6.3: Deduction Not Saving​

  • Issue: Changes to a deduction are not being saved in QuickBooks.
  • Solution: Try clearing your browser’s cache or switching to a different browser. Ensure that all required fields are filled out correctly before saving the deduction.

Conclusion​

Setting up and managing voluntary deductions in QuickBooks Online Payroll ensures that employee benefits, such as health insurance or retirement contributions, are properly deducted from paychecks. By following the steps outlined in this guide, you can easily configure and apply voluntary deductions, making payroll processing more efficient and accurate.

For businesses offering multiple benefits or managing various deductions, QuickBooks Online Payroll provides the flexibility and tools to streamline your payroll processes while keeping accurate financial records. For more payroll tips and best practices, explore additional QuickBooks resources and tutorials.