How to reverse IRS wage levy

Thank you for the detailed information, @FedPUser! We have three processes for you to follow to successfully reverse the levy liability and refund your employees.

First off, let's inactivate or zero out the Federal Tax Levy item within the Deductions and contributions tab. This prevents future deductions but leaves the existing liability balance in place. Also, you can always activate it or add the amount back once you need it.

Next, create a reimbursement item under the Additional pay types tab in the employee's profile so we can add it to a paycheck. Once set up, run a regular payroll to issue the refund:
 

1. Go to the Payroll menu and select Employees.
2. Click Run payroll and select the specific employee.
3. Locate the Reimbursement field you created and enter the total levy amount to be refunded.
4. On the paycheck preview, manually zero out all other tax withholdings to ensure the net check matches the refund amount.
5. Click Save, then Submit payroll.

Finally, clear the remaining liability balance using a journal entry. In the Debit column, select the Payroll Liability account to zero out the levy balance. In the Credit column, choose the Payroll Expense or Reimbursement account to offset the refund expense. However, I highly recommend consulting with your accountant on this final entry to ensure your books remain perfectly balanced and clean.

By the way, you can run the Payroll Details report to revie the pay checks you've created, including the amount, taxes, and deductions.

Please let me know if you have clarifications or additional concerns. The Community is always here to help!