How to Change Tax Rates in QuickBooks?

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Change Tax Rates in QuickBooks

Tax rates fluctuate. Sales tax, unemployment tax, state tax and default tax rates must be constantly updated in QuickBooks. For that very same reason, QuickBooks is designed with the purpose to enable users to create predefined tax rates. These tax rates can then be altered as per the user’s preferences.

Read this article in case you want to change a tax rate in QuickBooks.

If you are a beginner then figuring out, how to change tax rates in QuickBooks may be challenging for you. But you need not to worry as we have you back.

Tax Rates in QuickBooks

While QuickBooks is quite user-friendly and helps in keeping the finances and the taxes up to date for your business, there are few things that as a user you need to be updated about. One such thing is continuously updating taxes.

How to Change the Unemployment Tax Rate in QuickBooks?

Most employers pay both federal and state unemployment tax, which are used to provide funds to unemployed workers who have unemployment insurance. The employer must file the IRS Form 940 and pay the unemployment tax. Many states charge an unemployment tax as well. You can save both the federal and state tax rates in QuickBooks.

To change the unemployment tax rate in QuickBooks, follow the steps provided below:

  • From the main menu, select List.
  • Click on Payroll Item List.
  • Find the item for unemployment. Click on Edit.
  • Change the Tax Rate.
  • Click ok.

You have updated your unemployment tax rate. You can make changes to the state unemployment tax rate by finding the item in the provided list.

How to Change Sales tax Rate in QuickBooks Online?

If you’re using custom tax rates in QuickBooks, then you need to update the sales tax according to government’s guidelines. To change sales tax rate in QuickBooks online, follow the steps provided below:

  1. Go to the left menu, and select Taxes. Select the correct tax agency before beginning the editing process.
  2. Click on the Edit dropdown menu located on the top right corner.
  3. Click on Edit Rates.
  4. A tax rate table will be displayed to you. Select the sales tax rate which you wish to change. Click on Edit.
  5. The Edit Tax Rate window will appear. Enter the new tax rate and/or enter a new name for the sales tax.
  6. Enter an Effective Date. The new sales tax rate will apply from the selected date.
  7. Click on Save.

There are many things that you need to be aware of when you change the sales tax rate. Here are some things that you need to take care of when changing the sales tax rate:

  • We recommend that you enter an Effective Date. This is the date from which the new tax rate will be applicable.
  • Any transaction dated before the effective date will have the old rate applied to it.
  • Not entering an Effective Date will lead to the new tax rate applied to transactions dated before the tax rate change.
  • If you wish to change the tax rate on pre-entered transactions, then you’ll have to do this manually. The tax rate already applied on old transactions will not change automatically on updating the tax rate.
  • If there are transactions which use both tax rates in the same period, then they’ll show up in the reports with the appropriate tax rate applied to them.
  • Templates used for creating transactions will apply the new tax rate.

How to Change Tax Rates in QuickBooks?

Every state changes and updates the tax rates every year, so you are required to update the tax rates every March 31st to match up with the government guidelines. Here is what you would need to do for changing sales tax rate in QuickBooks

  1. Open your QuickBooks company page and go to the Reports on the main menu on the top.
  2. Click on Reports and from the drop-down menu select List.
  3. From the drop-down menu click on Item List.
  4. It will show all the items that are in QuickBooks. If you want you can customize it.
  5. To do that go to the menu bar on the top and locate Customize Report and click on it.
  6. A new window will open, there click on Filter.
  7. Next pick Account and from the drop-down menu select All liabilities.
  8. Next click OK.
  9. You will notice that this will give you only your sales tax.
  10. It is recommended that you can print the sales tax list out.
  11. To do that go to the Print icon on the menu bar, from the list select Report.
  12. A new window will open, in which you have to select your printer and click on the Print button.

Note:

Next go to the internet and search for the recent sales tax details of your state and locality. You might notice that depending on the countries and cities the sales tax rate might change from the old one. This is where the old sales tax print out comes in handy as you can see the changes rather than going back and forth.

  • After checking the sales tax rates from the website on the QuickBooks page click on List on the menu bar.
  • From the drop-down section click on Item List.
  • Instead of going to the list of cities that has changed the rates and editing them, you can make the old rates inactive, by right clicking on the city or county and clicking on the Make item Inactive.

Note: This method is recommended, as there might be some invoices pending from the time before the taxes have been changed.  So instead of getting confused or deleting the old tax items after all the invoices from the time frame before the rate changes have been done, make the item inactive.

  • Next go down of the page and click on Item
  • From the list click on New
  • A new page will open, click on the Sales Tax Item for the Type.
  • Write in the name of the county or district or whichever way you want to identify it for Sales tax Name
  • Under the Description, enter Sales Tax City of (name).
  • Under the Tax Rate check the tax rate of the city from the Tax rate website and enter it.
  • Next under the Tax Agency Vendor, you have to enter the name that you collect it from. There is a drop-down list, select it from there. You can check the vendor from Internet.
  • Next click on OK.

How to Change the Sales Tax Rate in QuickBooks Desktop?

Here users have two options.

  1. Edit the Existing Sales Tax Rate.
  2. Deactivate the old tax and Create a new one.

Both these solutions will work perfectly fine. Transactions already stored in QuickBooks will have the old tax rate applied to them. Transactions entered after changing or entering the new tax rate will have the new tax rate applied to them. Here, we will list both the methods for you. You can follow the method which suits your preferences.

To mark the old sales tax rate as inactive, follow the steps provided below:

  • From the main menu, click on Lists.
  • Click on Item Lists.
  • Click on Sales Tax Item.
  • Mark the checkbox against the option Item is inactive.
  • Click on Ok.

The old sales tax rate is inactive and won’t be applied to any new transaction. Now you can set up the new tax rate by following the steps provided below:

  1. From the main menu, click on Edit.
  2. Select Preferences, and click on Sales Tax.
  3. Go to the Company Preferences Tab.
  4. For the option ‘Do you charge sales tax?’, mark Yes.
  5. Click on Add Sales Tax Item.
  6. Enter the name and rate for the tax. You can also enter a short description.
  7. Type in the name of the Tax Agency, if applicable.
  8. Hit Ok.
  9. Enter a Sales Tax Code. These codes make it easier to track the taxable and non-taxable sales.
  10. Select accrual or cash for tax basis.
  11. Select for what period the taxes must be paid. (annually, quarterly, monthly)
  12. Hit ok.

To simply edit the sales tax code in QuickBooks Desktop, follow the steps provided below:

  1. From the main menu, select Lists.
  2. Click on Item List.
  3. Right click on the Sales Tax list item.
  4. Select Edit Item.
  5. Enter the New Tax Rate. You can also edit other information related to the tax.
  6. Click on Ok.

How to Change the Default Tax Rate in QuickBooks?

Default tax rate in QuickBooks usually refers to the default sales tax rate. This tax rate is automatically applied to all the transactions recorded in the accounting software. You can change the default tax rate in QuickBooks by following the methods provided above.

I hope the above mention information will help you to change the sales rate in QuickBooks. If you are not able to change the sales rate in QuickBooks then get in touch with our QuickBooks ProAdvisors at +1-800-865-4183.

Frequently Asked Questions about Sales Tax Rate in QuickBooks

1. Does changing the Sales Tax Rate apply the new Tax Rate on my old transaction?

No. You must manually the tax rate applied on old transactions. The new tax rate will be automatically applied to all transactions entered after the effective date for the new tax rate.

2. What is the Effective Date in Sales Tax Rate?

The effective date is the date from which the new tax will be applicable. All transactions entered after this date will have the new tax rate applied to them.

3. QuickBooks Online is applying the Sales Tax Rate Depending on my Location. How do I Change this?

By default, QuickBooks online automatically applies the sales tax based on your location. However, you can select the custom tax option to enter a specific tax rate. If you choose custom tax, then you’ll have to create a new sales tax item first.

4. What is the Default Tax Rate in QuickBooks?

Many users refer to sales tax as the default tax rate. This rate is automatically applied to transactions on the basis of your location. You can create a new tax item to change the default tax rate.