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Fringe Benefits and Liabilities

Forum|Forum|1 year ago
February 26, 2025
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I added a fringe benefit payroll item (Company Contribution type, Fringe Benefits tracking type) to increase gross pay for two employees without increasing net pay. That worked fine. The problem I'm having is the Company Contribution type of payroll item required a liability account to be assigned. Therefore, after creating a paycheck for the employees with the fringe benefit item added, the payroll liability account was increased by the ENTIRE amount of the fringe benefit, rather than just the amount of the withholding taxes pertaining to that fringe benefit. I can't figure out how to eliminate the excess liability (total fringe benefit minus withholding taxes) from my balance sheet.

Thank you for whatever help you can provide.

(FYI - I used the Company Contribution type of payroll item because the employees didn't receive cash as a fringe benefit, but a benefit where all expenses had been paid by the company.)

QuickBooks Desktop Payroll

Best answer by Rainflurry

@CM114

"The problem is, I need to increase the debit side (payroll expense) but I don't know of anything I can put on the credit side that will neither affect the balance sheet or the profit & loss statement."

You already recorded the expense so you need the credit entry to cancel/offset the debit entry. If you record it as a payroll expense, you will double-count the expense and have an erroneous credit entry - that's the reason this was an issue in the first place. That's why the same payroll expense account should be used for the expense (debit) and the liability (credit) on the payroll item.

The only thing you're trying to accomplish is to increase your employee's W-2 wages, not change your P&L or balance sheet because you already incurred the expense and you don't owe anything to anyone. This will accomplish that.

"But since the employees must report that fringe benefit on their taxes, I must increase their total compensation by that much, which would increase the debit side."

Right, which is why the credit side has to be the same as the debit side to offset it. That shouldn't reduce their wages.

Here is another thread on the same topic with the same advice:

https://quickbooks.intuit.com/learn-support/en-us/employees-and-payroll/taxable-fringe-benefit/00/210981

A

Aldren18

I appreciate your diligence in navigating the complexities of fringe benefits and liabilities in QuickBooks Online Payroll, CM114. Let me assist you in finding the support for your business.

I recommend contacting your accountant to effectively manage the liability account and ensure compliance with tax regulations. They can offer tailored advice and support in managing these adjustments effectively.

If you don't have an accountant yet, consider utilizing the QuickBooks Certified ProAdvisor website to assist you in finding a qualified professional.

Here’s how to connect with a ProAdvisor:

Visit the QuickBooks Certified ProAdvisor website.
Click on the Find an Accountant tab.
Complete the necessary details such as Location, Services provided, Industry served, and Product supported.
Browse through the profiles of certified accountants and message the one that best fits your needs.

Additionally, I'll share this article to check your employees' year-to-date totals and payroll liabilities: Run payroll reports.

The Community team and I encourage you to revisit this thread if you have any further questions or require assistance with fringe benefits or other QuickBooks features. We're always happy to help.

Rainflurry

@CM114

Do not make a journal entry as suggested by @Aldren18. It's unnecessary and should be avoided.

Rainflurry

@CM114

Use the same expense account for both the expense account and the liability account on the company contribution payroll item. You don't want your expense to increase (you already incurred that expense) or the liability account to increase when added to the employee's paycheck. Assigning the same account to both the expense and liability account on the payroll item will offset the two entries.

C

CM114Author

Thank you for your input... When I used the same liability and expense account in the fringe benefit payroll item, it did eliminate the liability on the balance sheet. However, I do need the fringe benefit to be added as a payroll expense for the person who received the benefit, so it will increase their total compensation by the fringe benefit amount and will reflect what must be reported on their W-2. By canceling each other out, that payroll expense, of course, disappears.

I experimented with putting different payroll account numbers in the exp & liab fields in the payroll item and then moving them to the correct accounts with a journal entry, but that didn't work either. It either leaves an excess or a shortage by the amount of the fringe benefit on the debit or credit side. No matter what I've tried so far, that's what happens.

If you have any other suggestions, I would sure appreciate it.

C

CM114Author

The problem is, I need to increase the debit side (payroll expense) but I don't know of anything I can put on the credit side that will neither affect the balance sheet or the profit & loss statement. And I don't know of a way to only add something on the debit side and nothing on the credit side.

Like you pointed out, the original expense to the company (which became the fringe benefit to the two employees) was previously accounted for with the expenses on the debit side and cash (credit card/bank account) on the credit side. But since the employees must report that fringe benefit on their taxes, I must increase their total compensation by that much, which would increase the debit side. But there's nothing on the credit side to balance it out. The default account for the Company Contribution payroll item is a liability account, but that's the problem; I then can't eliminate the liability from perpetually being on the balance sheet.

RainflurryAnswer

@CM114

"The problem is, I need to increase the debit side (payroll expense) but I don't know of anything I can put on the credit side that will neither affect the balance sheet or the profit & loss statement."

You already recorded the expense so you need the credit entry to cancel/offset the debit entry. If you record it as a payroll expense, you will double-count the expense and have an erroneous credit entry - that's the reason this was an issue in the first place. That's why the same payroll expense account should be used for the expense (debit) and the liability (credit) on the payroll item.

The only thing you're trying to accomplish is to increase your employee's W-2 wages, not change your P&L or balance sheet because you already incurred the expense and you don't owe anything to anyone. This will accomplish that.

"But since the employees must report that fringe benefit on their taxes, I must increase their total compensation by that much, which would increase the debit side."

Right, which is why the credit side has to be the same as the debit side to offset it. That shouldn't reduce their wages.

Here is another thread on the same topic with the same advice:

https://quickbooks.intuit.com/learn-support/en-us/employees-and-payroll/taxable-fringe-benefit/00/210981

C

CM114Author

I just saw your reply. I do appreciate the time you're spending on this to assist me. I can't take time right now to think a lot about what you wrote, but I will later. I also read the post you referenced, and I will revisit it too.

The one question I have at this point is, if I use the same acct numbers in the exp and liab fields so they cancel each other out, the fringe benefit amount will appear, as it should, on the employees' paystubs, but it's not reflected in the total compensation for the employees on the P&L statement. Are you saying that's okay and I should simply add the amount of the fringe benefit to their W-2s, but the W-2s will not agree with the P&L? It seems odd that QB can't handle a situation properly and you have to manually work around it.

Along with this--if I understand it correctly--the whole purpose of the Company Contribution (vs. the Addition) type of payroll item is to add compensation without increasing net pay for an employee. That's so the additional compensation will appear both on their paystub as a fringe benefit and increase their total compensation on the P&L report (by use of the expense account defined in the payroll item) so it will match the W-2s. And, of course, it also normally adds an equal liab to the bal sheet--which is the original problem I had. If you must "cheat" the system, so to speak, by setting the exp and liab accounts the same, is QB designed incorrectly?

I'm not expecting you to answer all this, but these are the questions that are hanging me up at this point. I'll look into it later.

Thanks again...

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