How does FreshBooks Payroll pay my taxes?

FreshBooks Payroll powered by Gusto uses automated processes to calculate payroll taxes and submit payments and filings to tax agencies on time. This is based on information you enter in your account:

  • All employee payroll runs, including any added historical payroll runs will be included in tax calculations and filings
  • FreshBooks Payroll will attempt to pay and file taxes once the first payroll run has been completed successfully
  • Taxes from previous payroll runs must be paid outside of FreshBooks, unless you selected for FreshBooks Payroll to pay them during your historical payroll data setup
  • If your Payroll Journal report does not reflect all of your employees’ wage payments for this year, reach out to our Support team

To confirm successful receipt of tax payments, reach out to your tax agencies directly.

 

Important: FreshBooks Payroll cannot determine tax requirements for businesses or complete registrations on behalf of companies. FreshBooks is unable to assist with what tax settings to use or help businesses register with tax agencies.

 

 

Access Tax Documents

FreshBooks Payroll pays taxes as close to the deadline as possible to allow time for changes and updates. Tax documents including payroll setup documents can be accessed in the following areas:

  • Payroll Setup Documents - If you need to sign any business documents, review them in your Payroll Settings
  • Payroll Tax Documents - All available tax-related documents for your business, including direct deposit authorizations, Form 941, Form 8655, Form W-2 for employees which also includes Form W-3, and Form 1099 for contractors can be accessed through View Tax Documents

 

Federal Tax Information

FreshBooks Payroll powered by Gusto uses Gusto’s tax payment system to file and pay your federal taxes on time. Payments for Federal Income Tax, Social Security, and Medicare are made according to the IRS’ semi-weekly deposit schedule, and FUTA tax is typically paid yearly after the year is over. Quarterly (Form 941) or Yearly (Form 944) tax filings will be submitted according to the selection made during payroll setup - reach out to our Support team to change your filing frequency.

Federal Income Tax is calculated using the IRS’ Publication 15-T, based on the information provided in each employee’s Federal tax settings. If an employee’s Federal Income Tax calculations needs to be corrected, use these steps:

  1. Collect a completed and signed Form W-4 (Employee’s Withholding Certificate) for each employee that requires updating
  2. Then in FreshBooks, go to Team Members
  3. Then select the employee
  4. In the employee’s profile, under the Payroll section, select Federal Tax
  5. Enter the line item amounts from the completed W-4 Form in the corresponding fields
  6. Then select Save. The new withholding information will be used for all future payroll runs, any payroll runs already submitted will not be affected.

 

For more Federal Tax details, review the following:

 

State and Municipal Tax Information

FreshBooks Payroll powered by Gusto uses Gusto’s tax payment system to file and pay your state, and municipal payroll taxes on time. This requires the following:

  • Your business is registered with the tax agency
  • The required tax account information is entered in FreshBooks
  • You’ve authorized Gusto to pay and file taxes on your behalf with each tax agency - also known as third party authorization

For detailed state tax registration and authorization information, review Gusto’s State Registration and Resources for your specific state(s).

 

State Tax Statuses

When adding or editing taxes, your state tax's status will display as either:

  • Not Started - No requirements have been entered yet
  • In Progress - Some requirements have been entered, but onboarding cannot be completed yet
    • This status is also used if you're using a temporary New Employer rate for State Unemployment Tax, the rate can be updated later once you receive the details
  • Complete - All requirements have been entered without default rates to complete onboarding, you may need to enter more information later to ensure successful tax filings
     

 

Add New Tax Details

If you’re entering new tax details for the first time in FreshBooks Payroll, use the below steps:

  1. Select the Payroll section on the left
  2. Then select the More Actions button in the top right corner
  3. Select Payroll Settings
  4. Then select State Tax Details
  5. Select one of the states listed, which are populated by any work location or employee home addresses entered
  6. Select Start setup
  7. Update the fields as needed, then select Save
  8. In the State tax requirements section, select Continue to save and finish. The status for this state will update to Complete if all minimum information is completed.
     

After the state tax information has been updated, a Tax Reconciliation Payroll Run will automatically be processed, debiting or crediting your bank account to correct the amount of taxes previously processed.

 

Update Existing Tax Details

Most state tax agencies will provide business owners with new rates to use. If you need to finish completing your state tax setup, or update your existing tax information with new rates, use the following steps: 

  1. Select the Payroll section on the left
  2. Then select the More Actions button in the top right corner
  3. Select Payroll Settings
  4. Then select State Tax Details
  5. Select one of the states listed, which are populated by any work location or employee home addresses entered
  6. Next, either:
    1. Select Continue setup or Edit tax settings
      1. Update the fields as needed, then select Save
    2. Select Manage tax rates
      1. Next, select the Add tax rate button
      2. Choose an Effective date and enter the new rate in the fields provided
      3. Then select Save tax rate
      4. Next, select the Back to states button
  7. In the State tax requirements section, select Continue to save and finish.

 

After the state tax information has been updated, a Tax Reconciliation Payroll Run will automatically be processed, debiting or crediting your bank account to correct the amount of taxes previously processed.

 

State Tax Exemptions

If there are any payroll taxes that your business is not required to pay, reach out to our Support team with the following information to have this applied to your FreshBooks Payroll account:

  • The specific name of the tax
  • The effective date for the tax exemption
  • The reason provided by the relevant tax authority for the exemption

 

State Unemployment Tax

If you have not registered for State Unemployment Tax with your state’s tax agencies, FreshBooks Payroll can still deduct an estimated amount based on the New Employer Rate for your listed state. Once you receive your state tax account number, update your State Tax Details in your Payroll Settings. The updated rate will be used when filing and paying state taxes, and a Reconciliation Payroll will be completed automatically to debit or credit your bank account based on the finalized amount of the tax liability.

If this information is not entered prior to your tax deadline dates, there may be penalties and interest for late payments. In some cases, state taxes will have to be paid by your business outside of FreshBooks.

 

Failed Tax Filings

State Tax payments and filings made by Gusto’s automated tax system can be rejected by tax agencies for a variety of reasons:

  • The tax account number entered in FreshBooks is incorrect
  • Gusto has not been authorized to pay a specific tax on your behalf
  • A filing from another source has already been accepted for the same reporting period
  • The information entered in FreshBooks does not match what the tax agency is expecting

If you’ve received an email notification regarding a failed tax filing, update your State Tax account information and confirm with the tax agency that Gusto has been authorized to pay and file on your behalf.

Two more attempts will be made to pay and file state taxes, using the most recently updated information entered in FreshBooks. After the third attempt, the funds debited for that tax will be returned to you so it can be paid and filed outside of FreshBooks. FreshBooks Payroll is not responsible for late deposit penalties or interest charges accrued from late payments.

Reach out to our Support team if you have any questions or concerns about your state tax payments or filings.

 

Tax Resources

Review tax-related information from these resources:

FreshBooks