What to do if QuickBooks not calculating FUTA correctly unemployment?

QuickBooks is designed to make payroll tax calculations like FUTA (Federal Unemployment Tax Act) seamless and automated. However, there are times when users notice that FUTA isn’t calculating correctly, or isn’t showing up at all. This can be frustrating, especially when it’s time to file your payroll taxes.

Here’s a comprehensive Q&A guide that walks you through why this happens and how to fix it step by step.

Q1: What is FUTA, and why is it important?

A: FUTA (Federal Unemployment Tax Act) is a federal payroll tax that employers pay to fund unemployment compensation to workers who lose their jobs. The current FUTA rate is 6.0% on the first $7,000 of each employee's wages annually, with a standard credit of 5.4% for most employers who also pay into state unemployment. This results in an effective FUTA rate of 0.6% for most businesses.

Q2: What does it mean when QuickBooks isn’t calculating FUTA correctly?

A: It typically means:

FUTA tax is missing from your payroll liabilities or payroll summary.
FUTA tax is being under- or over-calculated.
FUTA is not being applied to all employees correctly.
The taxable wage base limit (usually $7,000) isn't triggering calculations properly.

Q3: What are the common reasons FUTA isn’t calculating in QuickBooks?

A: Common causes include:

FUTA is not set up properly in the Payroll Item List.
The employee or wage item is not subject to FUTA.
The FUTA tax rate or wage limit was changed manually or became outdated.
Payroll subscription is inactive or outdated, so tax tables aren’t current.
The employee exceeded the $7,000 wage limit, and no further FUTA is due.
You have manual entries or overrides that interfere with calculations.
State unemployment tax (SUTA) setup issues may affect FUTA credit reductions.

Q4: How do I verify FUTA is set up correctly in QuickBooks?

Go to Lists > Payroll Item List.
Look for Federal Unemployment (FUTA) in the list.
Double-click to edit the item.
Ensure:
- It’s marked as Company-paid.
- The rate is correct (usually 0.6% after credit).
- The wage base is $7,000 per employee.
- It’s assigned to the correct expense account.

If any of these are incorrect, fix them and save.

Q5: How do I check if an employee is subject to FUTA?

Go to Employees > Employee Center.
Double-click an employee name.
Click the Payroll Info tab.
Then click Taxes > Federal.
Ensure Subject to FUTA is checked.

If it’s unchecked, QuickBooks won’t apply FUTA for this employee.

Q6: Can payroll tax table updates affect FUTA calculation?

A: Yes. FUTA is part of federal payroll tax laws, which are updated yearly or when legislative changes occur. If your payroll tax table is outdated:

FUTA may not calculate correctly.
Wage limits or rates may be wrong.

To fix this:

Go to Employees > Get Payroll Updates.
Check Download Entire Update, then click Download Latest Update.
Restart QuickBooks and run payroll again.

Q7: What if FUTA isn’t showing up for some employees but works for others?

A: Here’s what to check:

Make sure all employees are marked as subject to FUTA (see Q5).
Check if those employees have already earned over $7,000 this year.
Go to Reports > Employees & Payroll > Payroll Summary and set the date range for the calendar year.
Look at the Taxable Wages for FUTA—if it’s over $7,000, FUTA is no longer due for that employee.

Q8: How do I check if QuickBooks is applying FUTA correctly on reports?

Go to Reports > Employees & Payroll > Payroll Summary.
Choose This Calendar Year or Year-to-Date as the date range.
Look for a column labeled FUTA and Taxable Wages.
Check if FUTA is 0.6% of the first $7,000 of wages per employee.

If it's not, use the Payroll Item Detail Report to dig deeper.

Q9: What if FUTA is calculating, but at the wrong rate?

A: That usually means:

The rate was manually overridden in the payroll item.
A state credit reduction is in effect, raising your effective FUTA rate above 0.6%.

To check:

Go to Lists > Payroll Item List, edit FUTA.
Review the rate field—if it’s not 0.6%, check IRS guidance or your state’s FUTA credit reduction status.
Some states lose the full 5.4% credit, making the FUTA rate higher.

You can find updated FUTA credit reduction states on the IRS website each year.

Q10: Can customizing payroll items or using manual checks affect FUTA?

A: Yes. If you’ve added custom payroll wage items or use manual checks without the proper tax items selected, FUTA won’t apply.

To fix:

Edit the custom payroll item and make sure it’s taxable for FUTA.
Recalculate payroll or delete and recreate the manual check using standard payroll procedures.

Q11: How do I fix FUTA if it's not showing on my payroll liabilities?

Go to Employees > Payroll Taxes and Liabilities > Create Custom Liability Payments.
Set the correct date range.
If FUTA is still missing:
- Check Payroll Summary Report to confirm whether any is owed.
- If FUTA is due but missing, rebuild the payroll using the Recalculate Earnings tool (under Help > Troubleshoot Payroll).

Q12: How do I fix payroll liabilities if FUTA was missed earlier?

A: If you missed FUTA in earlier payrolls, you can:

Edit each affected paycheck to add FUTA.
Use the “Make Liability Adjustment” tool:
1. Go to Employees > Payroll Taxes and Liabilities > Adjust Payroll Liabilities.
2. Set the date, select Federal Unemployment, enter the correct amount, and provide a reason.
3. Choose Company Adjustment, not Employee.

Keep notes and ensure your liability reports reflect this correction.

Q13: Should I contact Intuit support for FUTA issues?

A: Yes, if:

You’ve updated everything and FUTA still isn’t calculating.
You’re seeing tax form errors due to missing FUTA.
You’re using QuickBooks in a state with complex credit reduction rules.
Your payroll subscription is active, but tax table issues persist.

They can run diagnostics and correct deeper file or payroll setup issues.

Q14: Can I manually override FUTA for a paycheck?

A: While not recommended, you can:

Open the paycheck.
Click Unlock Net Pay.
Add or adjust the FUTA line item manually.
Save and close.

Be cautious—manual changes can throw off your payroll tax liabilities and reports.

Final Tips for Preventing FUTA Errors

Always keep your payroll subscription active and updated.
Run Payroll Summary reports regularly to catch issues early.
Review Employee Setup after hiring or making status changes.
Avoid editing payroll items manually unless you’re sure of the impact.
Keep backups before making adjustments.

Search This Blog

haydenleon71