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Clay803
September 30, 2024
Question

Fundamental Mechanics of Payroll Tax entries in QBO

  • September 30, 2024
  • 1 reply
  • 0 views

Please help.  Can someone explain to me in basic accounting terms what happens *after* initial Pay Day transactions.  I have tried twice to get some of these answers from the QBO reps when I contacted them for help.  Unfortunately, I had no luck.

 

When I “Run Payroll”, here is what I think happens:

 

Gross wages are recorded as a debit to the expense account; net wages (as paid to the employee) are credited to cash; taxes withheld from the employee (disability insurance, social security, et) are credited to a liability account.

 

Taxes to be paid by the employer (e.g. social security, Medicare, etc) are recorded as a debit to expense and a credit to a liability account.

 

    Is that right?

 

When Paying the Payroll Taxes to State/Fed

(I pay my taxes through EFTPS and State website)

 

Specific Questions:

 

1.  In QBO, when I go to Payroll Taxes>Payroll Tax Center>Payments>”Record tax payments (prior tax history”), at the bottom of the page, I see there is an option to “add payment” with details (type, payment date, etc).  It does not have the option to record penalties and interest.  What is Quickbooks doing when I “add” that payment?  Is it relieving the liability account?  Or… is this identifiable to “match” the actual payment if I categorize the cash transaction from the bank feed?

 

2.  From the same Payroll Tax Center>Payments> page, on the top right, there is an option to click/view “Payment History.”   There is a list of payments, most showing “Marked as paid on (date)” in the notes.  Where does this information feed from?  The register?  If it is NOT “marked as paid”, does this mean the liability account would not be relieved, even if the Cash transaction was directed to the liability account?

 

3.  Reviewing the account register for the Fed Tax Liability account, I see credits to the cash account for payments to the IRS but under the “type” column, I see two different descriptions for tax payments.  One says “Tax Payment” and the other says “Expense”.  I assume one is wrong?  Which one?  How did this happen and how do I correct it?

 

4.  Hypothetical:  If I “add” a tax payment from the Payroll Tax Center, and I rely on the bank feed for categorizing the payment, will I end up with duplicate transactions to cash and/or liabilities?

 

5. From the Chart of Accounts, for a Payroll Tax expense account for the current year, I ran a “Quick Report.”  It shows a “beginning balance” for the year.  How can an expense account have a “beginning balance”.

 

Thank you.

1 reply

F
FaithA
September 30, 2024

Hello, Clay803. I appreciate you detailing your concerns. Let me share a comprehensive response to your questions on the fundamental mechanics of payroll tax entries in QuickBooks Online (QBO).

 

To answer your first question, yes, gross wages are recorded as a debit in the Wages sub-account of the Payroll expenses account. On the other hand, regarding the employer taxes, it's important to note that we can only share the technical process of recording payroll transactions in QBO and not the specific accounts where they're posted. It's always a good idea to collaborate with your accountant to verify this. You can also consider running a Journal report if you have already processed your payroll transactions. Here's how:

 

  1. Select Report from the left panel.
  2. Enter Journal report on the search bar.
  3. Filter the appropriate date on the Report period column.
  4. Once done, you can select Save.

 

I'll enumerate the answers to your specific questions on "Paying the Payroll Taxes to State/Fed":

 

  1. In QBOP, we don't have the option to record penalties and interest as we set the program to report the payment accurately but you can manually record it as a check or expense for the QBO accounting side. Additionally, when you add that payment, this is relieving the Liability account only.
  2. This list of payments isn't coming from the register. The notes are actually from QuickBooks automatically adding them after manually marking the payroll tax as Paid. And yes, you're right, if it isn't tagged Marked as paid, the tax liability would not be relieved.
  3. Generally, the transaction type for tax payments are Tax Payment, and the Expense transaction type is not necessarily wrong since it may have been recorded for other payroll tax fees.
  4. To avoid duplicate entries, if you "add" a tax payment in the Payroll Tax Center, do not categorize the payment from the bank feed as a separate transaction. Use the Find Match feature to link the bank transaction to the existing recorded payment.
  5. Typically, expense accounts do not have a beginning balance however in the quick report, using the Modern View option, the beginning balance indicates the expense amounts prior to the reporting period you've selected.  

 

Additionally, please feel free to refer to these Community articles for additional information on these processes:

 

 

Furthermore, feel free to refer to this helpful article for future reference on how to close your previous fiscal year and prepare for the new one: Year-end guide for QuickBooks Online.

 

Should more questions arise about the mechanics of Payroll Tax entries, don’t hesitate to jump back into this discussion. The Community is here to provide any further assistance and clarity regarding payroll issues. Take care.

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