Workforce Module 2 — Understanding Payroll: The Money, the Taxes & Who Actually Pays What

Resistance Accountants · QuickBooks Workforce Certification Prep · Federal rules verified for 2026

We’ve made it to payroll taxes. They suck. I know this. But here we are. Because it’s important.

And if you’ve ever looked at a paycheck and wondered why the amount you earned and the amount you actually received seem to belong to two completely different financial universes, congratulations.

You’re in the right module.

Gladys has reviewed the situation and determined that everyone should be paid in snacks.

Wallace would like to remind her that snacks are not a universally acceptable payroll method.

Gertrude is already examining the tax implications.

This is why we cannot have nice things.

But here’s what I want everyone to understand before we start:

Payroll isn’t just calculating a paycheck. It’s calculating what belongs to the employee, what belongs to the government, what the employer owes separately, and when all of it must be paid.

And when we get something wrong, the consequences aren’t confined to a messy report.

People can be underpaid. Taxes can be underreported. Businesses can owe penalties.

So we’re going to understand the rules before trusting the software to apply them.

FICA, FUTA and SUTA: Three Acronyms, Different Jobs

Payroll taxes are not one enormous government collection bucket.

Different taxes fund different programs, have different wage limits, and may be paid by different parties.

The first distinction is employee withholding versus employer expense.

Employee withholding reduces the employee’s paycheck.

Employer payroll taxes are an additional cost to the business.

Those are separate obligations, even when the rates happen to match.

FICA: Social Security and Medicare

FICA stands for the Federal Insurance Contributions Act.

For most covered employees, it includes two taxes.

Social Security

• Employee: 6.2%
• Employer: 6.2%
• 2026 annual wage base: $184,500

Medicare

• Employee: 1.45%
• Employer: 1.45%
• No annual wage cap

That produces the familiar 7.65% employee FICA withholding and a corresponding 7.65% employer FICA contribution, until the employee reaches the Social Security wage base. Special employment exceptions exist, so don’t apply these rates blindly to every worker.

Let’s use a simple example.

An employee earns $1,000 in wages fully subject to Social Security and Medicare.

Tax	Employee pays	Employer pays
Social Security	$62.00	$62.00
Medicare	$14.50	$14.50
Total	$76.50	$76.50

The employee has $76.50 withheld.

The employer separately owes another $76.50.

The employer does not take both halves out of the employee’s check.

That distinction alone is worth remembering.

Additional Medicare Tax: The Extra 0.9%

Here’s where things get more interesting.

The employer must begin withholding an additional 0.9% Medicare tax once it pays an employee more than $200,000 in Medicare wages during the calendar year.

There is no employer match for Additional Medicare Tax.

And the employee’s final tax liability may depend on their filing status and combined income.

So remember two separate questions:

When must the employer start withholding? Above $200,000 paid by that employer.

What does the employee ultimately owe? That depends on the applicable tax-return threshold and circumstances.

The employer doesn’t wait until the employee explains their marriage, spouse’s income, and entire financial autobiography.

FUTA: Federal Unemployment Tax

FUTA stands for the Federal Unemployment Tax Act.

For ordinary covered employment, FUTA is an employer-paid tax.

It is not withheld from employee wages.

The standard federal rate is 6.0% on the first $7,000 of FUTA-taxable wages per employee each calendar year.

However, employers who qualify for the maximum 5.4% credit generally pay an effective 0.6%.

That maximum credit depends on applicable state unemployment taxes and other conditions.

A credit-reduction state can increase the effective FUTA rate.

Do not memorize 0.6% as an unconditional universal rate.

SUTA: State Unemployment Tax

SUTA generally refers to state unemployment taxes.

And now we’ve reached the part where fifty states and their assorted rules refuse to make our lives easy.

Rates and taxable wage bases vary by state. Employer experience ratings and other factors can affect the applicable rate. Some states also require employee contributions.

So we do not teach SUTA as automatically employer-only everywhere.

Before troubleshooting state unemployment calculations, establish:

• Which state or states apply?
• What rate has the state assigned?
• What’s the applicable wage base?
• Does the state require employee contributions?
• Are the employer’s state account and payroll settings correct?

If the client doesn’t know their assigned rate, we don’t invent one because a dropdown looks promising.

We find the official state notice or appropriate agency guidance.

W-2 Employee or 1099 Contractor? You Don’t Get to Choose Based on Convenience

This is one of the most important lessons in the module.

A business owner cannot turn an employee into an independent contractor simply by issuing a 1099.

Nor does somebody automatically become an independent contractor because they work from home, own a laptop, or choose their hours.

The IRS evaluates the actual working relationship using three broad categories:

Behavioral control: Who has the right to direct how the work is performed?

Financial control: Who controls the business and financial aspects of the work, including investment, expenses, opportunity for profit or loss, and availability to other customers?

Relationship: What do the contracts, benefits, duration, and nature of the relationship indicate?

No single detail automatically settles the question. The actual facts matter more than the label on the agreement.

The Contractor Who Owns a Laptop

Imagine Resistance Coffee & Books hires a graphic designer.

The designer works from home.

Uses their own computer.

Chooses their schedule.

Those facts may support contractor status.

But before deciding, we need to know more.

Does the designer run an independent business serving multiple clients?

Can they negotiate rates?

Can they realize a profit or loss?

Does the coffee shop control their working methods?

Is this an ongoing integral role?

Are there other circumstances indicating an employment relationship?

We investigate the relationship before changing the worker’s classification.

And if the facts genuinely don’t resolve the issue, the IRS provides Form SS-8 to request a federal worker-status determination. State employment-law tests can differ.

What QuickBooks Does With Contractors

QuickBooks provides contractor-management functionality, including collecting W-9 information, tracking eligible payments, and supporting 1099 preparation.

The current Intuit workflow allows contractors to be added under All apps → Payroll → Contractors, with an option to invite them to provide tax information.

But here’s the distinction:

QuickBooks records the classification you set up. It does not establish whether that classification is legally correct.

And QuickBooks can support contractor direct deposits through its contractor-payment workflows.

Don’t confuse the availability of a payment feature with a determination of employment status.

Gross Pay, Taxable Wages and Net Pay: Three Different Numbers

Now we’re getting to the part that trips up nearly everybody.

Gross pay is what an employee earns before deductions.

Taxable wages are the amounts subject to a particular tax.

Net pay is what’s left after applicable employee taxes and deductions.

And here’s the detail that makes payroll interesting:

There isn’t always one taxable-wage number.

Federal income-tax wages may differ from Social Security wages.

Social Security wages may differ from Medicare wages.

State taxable wages may follow other rules.

That’s why saying “subtract all pre-tax deductions, then calculate all taxes” is too simplistic.

Example: A Traditional 401(k)

Suppose an employee earns $2,000 and contributes $100 to a traditional 401(k).

Ignoring other adjustments:

Item	Amount
Gross wages	$2,000
Traditional 401(k) deferral	$100
Federal income-tax wages	$1,900
Social Security wages	$2,000
Medicare wages	$2,000

Why?

Because ordinary traditional 401(k) elective deferrals generally reduce current federal income-tax wages but remain subject to Social Security and Medicare taxes.

That is explicitly documented by the IRS.

And that is precisely why we don’t throw every pre-tax deduction into one bucket and assume it reduces everything.

A Practical Paycheck Example

Let’s take an employee earning $2,000 in a pay period.

They contribute $100 to a traditional 401(k).

For illustration, assume their federal income-tax withholding is $150, they have no state or local income-tax withholding, no other deductions, and their wages are fully subject to ordinary FICA rates.

Paycheck walkthrough

Gross pay	$2,000.00
Traditional 401(k)	−$100.00
Federal income tax (assumed)	−$150.00
Social Security (6.2%)	−$124.00
Medicare (1.45%)	−$29.00
Net pay	$1,597.00

The $150 federal income-tax withholding is an assumed example, not an amount calculated from Form W-4 or IRS withholding tables.

And the employer separately owes its own Social Security and Medicare amounts, plus applicable unemployment taxes and any other employer obligations.

That’s why net pay is not the employer’s total payroll cost.

Overtime: Salary Is Not a Magic Exemption

Here’s another trap.

A business owner says:

“They’re salaried. We don’t pay overtime.”

Not necessarily.

Under the federal Fair Labor Standards Act, covered nonexempt employees generally must receive overtime pay of at least 1.5 times their regular rate for hours worked over 40 in a workweek.

Paying somebody a salary does not automatically make them exempt.

Exempt Versus Nonexempt

For the common executive, administrative, and professional exemptions, employers generally need to evaluate the applicable salary basis, salary level, and actual job duties.

As of October 2026, the federal standard salary threshold for most of these exemptions is $684 per week, following the court’s vacatur of the 2024 rule and the Department of Labor’s 2026 regulatory correction.

But satisfying the salary threshold alone doesn’t establish an exemption.

The duties test still matters.

State law may provide greater protections.

Our $40,000 Executive Assistant

Imagine an executive assistant earning $40,000 annually who works 48 hours in one workweek.

The employer says:

“But they’re salaried!”

And we say:

“Okay. What are their actual duties, and how is their salary structured?”

An impressive job title doesn’t establish exemption.

If the employee performs routine clerical/support duties and doesn’t satisfy an applicable exemption, overtime is generally required.

But we still need to calculate it correctly.

For a salary covering a specified 40-hour workweek, the regular hourly rate can be determined by dividing the weekly salary by 40. Overtime hours are then generally paid at 1.5 times that regular rate.

Other lawful salary arrangements can use different calculations, so we don’t assume every salaried nonexempt employee uses exactly the same formula.

Three Payroll Disasters Worth Avoiding

Disaster 1: Classifying people by job title or convenience.

A salary doesn’t automatically establish overtime exemption.

A contractor agreement doesn’t automatically establish contractor status.

The facts matter.

Disaster 2: Assuming all pre-tax deductions reduce all taxes.

They don’t.

Always identify which taxes a deduction affects.

Intuit’s current deduction setup guidance explicitly recommends confirming the deduction’s tax treatment with the plan administrator or accountant.

Disaster 3: Assuming the payroll software must be correct because it calculated something.

Software calculations depend on the underlying configuration.

If unemployment tax looks wrong, investigate the applicable wage base, rates, taxability, employee wages, state setup, and reporting period.

A payroll report showing an unexpected balance is a reason to investigate, not proof of one particular software defect.

The Resistance Accountants Payroll Scavenger Hunt

The situation

Resistance Coffee & Books has expanded.

The owner has hired an executive assistant and a graphic designer.

Payroll has been running for several months, but nobody is entirely confident that the setup is correct.

Naturally, they’ve brought us in.

Gertrude has requested a complete audit.

Gladys has requested lunch.

Mission 1 — The Designer

The graphic designer works remotely, owns their equipment, and controls their schedule.

They’re currently classified as a W-2 employee.

What additional information must you investigate before deciding whether that classification should change?

Mission 2 — The Executive Assistant

The executive assistant earns $40,000 annually and works 48 hours in a week.

The employer says no overtime is owed because the employee receives a salary.

What must you establish before calculating overtime?

Mission 3 — The Missing Employer Taxes

The owner looks at payroll and sees employee Social Security and Medicare withholdings.

They assume those amounts represent the company’s entire payroll tax expense.

What employer-paid taxes or contributions should you investigate?

Mission 4 — The Deduction Mystery

An employee earns $2,000 and contributes $100 to a traditional 401(k).

Why might federal income-tax wages show $1,900 while Social Security and Medicare wages remain $2,000?

Bonus mission

Find the relevant payroll-tax setup and reports in your practice environment.

Identify where the applicable employer tax rates, liabilities, and tax forms can be reviewed.

Don’t change actual payroll settings just to complete the scavenger hunt.

Scavenger Hunt Answers

Mission 1: Investigate behavioral control, financial control, and the nature of the working relationship. Do not automatically reclassify the designer based on remote work or equipment ownership.

Mission 2: Determine whether the employee is exempt or nonexempt under applicable law, then establish the salary arrangement, regular rate, hours worked, and correct overtime calculation.

Mission 3: Investigate the employer’s separate Social Security and Medicare contributions, FUTA, applicable SUTA, and any other relevant employer payroll obligations. The employee’s withholding total is not the employer’s total tax expense.

Mission 4: Traditional 401(k) elective deferrals generally reduce current federal income-tax wages but not Social Security or Medicare wages.

Bonus: Intuit’s current payroll guidance places relevant functions under payroll setup, payroll tax, and payroll reporting. The interface and available features depend on the product and subscription.

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Before We Leave Payroll

I want to emphasize something.

Payroll is one of those subjects where knowing why matters every bit as much as knowing how.

A wrong tax setting isn’t just a wrong number.

A worker classification isn’t just a dropdown.

An overtime calculation isn’t just a formula.

Every one of those decisions affects a real person and a real business.

And yes, QuickBooks can automate an enormous amount of this work.

That’s useful.

That’s the point of having the software.

But the moment something doesn’t make sense, we need to know enough to investigate rather than trusting a number simply because a machine produced it.

Gladys has suggested we simplify payroll by giving everybody the same salary.

Gertrude has rejected the proposal.

Wallace has offered to explain the wage-base rules again.

Use the machine. Train the human.

And for fuck’s sake, verify the taxes.