Payroll that calculates every paycheck and posts it to your books

What does ClearBooks Payroll calculate?

Each paycheck is computed by one payroll engine, the same code whether you run payroll in the app, through the REST API, or by asking the AI agent. For every employee it calculates:

• Federal income tax withholding from the 2026 IRS Publication 15-T percentage-method tables, supporting both the 2020-and-later Form W-4 (filing status, multiple jobs, dependents, other income, deductions, extra withholding) and pre-2020 W-4s with allowances.
• Social Security and Medicare, including the employee's 0.9% Additional Medicare Tax on wages over $200,000 and the Social Security wage base cutoff.
• Supplemental pay such as bonuses and commissions, using either the aggregate method or the 22% flat rate, with the mandatory 37% rate on supplemental wages above $1 million in a year.
• FUTA, including any state credit reduction (the 2026 reduction is entered as a setting until the Department of Labor finalizes it).
• State withholding, unemployment and disability for the supported states (see below).
• Pre-tax and post-tax deductions: traditional and Roth 401(k), Section 125 health premiums, HSA, dependent care FSA, post-tax deductions and garnishments, each reducing the correct wage bases, with annual limits applied across the year.

Earnings can be regular, overtime (1.5x), double time (2x), paid time off, holiday, sick, bonus or commission, on weekly, biweekly, semimonthly or monthly pay schedules. Salaried employees are converted to an hourly equivalent on a 2,080-hour year for overtime and PTO.

Which states are supported?

Three states are fully modeled from each agency's published 2026 figures:

Your own assigned unemployment rate and account number can be entered per state, and unemployment wages, liabilities and deposits are tracked separately for each state.

An employee in any other state is not fully supported. The engine withholds only the flat per-check state amount you enter on that employee's profile and shows a warning on the paycheck, so check with the state before relying on it.

How does payroll post to the general ledger?

Because payroll lives in the same database as your books, there is no export and import step and no separate payroll journal to reconcile:

1. Create a pay run. It starts as a draft that you can recalculate as often as you like. Nothing touches the ledger yet.
2. Approve it. The run is locked and the accrual is posted as one journal entry: wages and employer taxes go to expense accounts, and withholding, FICA, FUTA, state taxes, deductions and net pay go to liability accounts. Payroll accounts are created in your chart of accounts if they don't exist.
3. Mark it paid. Once net pay leaves the bank, ClearBooks posts the payment against Net Payroll Payable.
4. Record tax deposits. The Taxes tab lists what is owed to each agency for each deposit period, with due dates on a monthly or semiweekly federal schedule, and recording a deposit clears the liability.

The database itself builds these entries from the stored paychecks, so the app, the REST API and the AI agent cannot post a payroll entry that disagrees with the paychecks. Overlapping regular pay runs are refused, and an approved run can only be undone by voiding it in the app. Payroll expense accounts also feed the officer compensation, wages, pension and employee benefit lines of the Form 1120 draft described on the tax page.

What forms does it prepare?

From approved and paid pay runs, ClearBooks prepares:

• Form 941 figures for each quarter, by line number.
• Form 940 figures for the year, including the FUTA credit reduction.
• Forms W-2 and W-3, with box 12 codes (D, AA, DD, W) and California SDI in box 14. Employee copies can be printed. These are not the scannable Copy A.
• California DE 9 and DE 9C, Texas C-3 / C-4, and Arizona UC-018, A1-QRT and A1-R figures.
• Printable pay stubs for each paycheck.

Every return is a set of figures and printable copies for you to enter or submit yourself. ClearBooks does not file them.

What ClearBooks Payroll does not do

To be explicit about the limits:

• No direct deposit or ACH. ClearBooks does not pay employees. You can record an employee's payment method and the last four digits of their account, but the money moves through your bank, and you mark the run paid afterward.
• No e-filing or tax payments. Forms 941 and 940 go through IRS e-file or by mail, W-2s and the W-3 through SSA Business Services Online, and state returns through each agency's portal. Federal deposits are made through EFTPS.
• 2026 tax tables only. Withholding tables are loaded for 2026, so it is not a tool for re-running payroll for earlier years.
• Three states. Employees in other income-tax states get a flat withholding amount, not a calculated one.
• Employees only. Contractors are not run through payroll. They stay in personnel and are reported on Form 1099-NEC.

Who is it for?

ClearBooks Payroll fits early-stage companies with a small number of W-2 employees in California, Texas or Arizona, often founders paying themselves, that want payroll and bookkeeping in one system and are comfortable submitting their own deposits and returns. If you need a provider that moves the money and files on your behalf, a full-service payroll company is the better fit, and you can still keep your books in ClearBooks. See pricing or the documentation for setup details.

Frequently asked questions