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Active Member

Which account do I debit when I pay payroll taxes quarterly?

This is mostly for my understanding.

My QBO has (4) payroll liability accounts set up.  These (4) accounts are sub accounts of "Payroll Liabilities" which I see totals the (4) liability accounts.  The accounts are as follows:

"Payroll Liabilities"
Payroll Liabilities>Federal Taxes (941/944)
Payroll Liabilities>Federal Unemployment (940)
Payroll Liabilities>MD Income Tax
Payroll Liabilities>MD Unemployment Tax

When I issue a paycheck(I'm using enhanced payroll subscription), the withheld amounts from each check are stored into the correlating liability accounts mentioned above - this much I understand.  

I then also have an expense account called "Payroll Expenses:Taxes".
My question is how to categorize payments of these taxes when I pay them quarterly.  

So, when I write a check to pay for example my quarterly Federal taxes(941), how do I categorize this transaction?  Do I post it to the mother liability account "Payroll Liabilities" or do I post it to the expense account "Payroll Expenses:Taxes"?

The way I understand this is that as I issue paychecks, the system adds the withholdings to the liability accounts, and when I pay my liabilities, it clears the liability account out and transfers the data to the expense account.  Why am I so confused?
6 Comments
Not applicable

You are on the right track here, just need a little light...

You are on the right track here, just need a little light shed on the process. 

When you run your payroll, QBO will debit the payroll tax expense and credit the liability. This records your expense when you are incurring it rather than waiting until you pay it. When you are ready to pay the taxes, you will debit the related liability account and credit your cash account. So when you pay your Federal 941 taxes you should debit the Payroll Liabilities - Federal 941. 

Experienced Member

Re: Which account do I debit when I pay payroll taxes quarterly?

If you are using the same QB to run payroll and pay taxes, the accounts should be adjusted accordingly. I think the confusion you are having is what is an expense and what is a liability. Remember, the bulk of your tax payments are from the employee and have already been expensed as payroll. That is why these amounts are held in liability account until the payments clear them. But, every employer has additional taxes as they match FICA. Additionally, there are other 'taxes' like UI that cost the employer amounts over the gross payroll. These are typically added as an expense to the payroll tax account. Some just include these amounts in the general payroll expense account along with wages, but I prefer to break it out to 'Payroll:Wages' which is gross payroll, and 'Payroll:Taxes' which are additional amounts paid by the employer (Not withheld from paycheck). As with most items in QB the setup is based on the preferences of you and/or your bookkeeper.

Active Member

Re: Which account do I debit when I pay payroll taxes quarterly?

So, each time you pay a payroll tax (during the payroll period), the liability account for 941 will zero out. But then you get a quarterly amount because, in theory, the 941 was underpaid, and this quarterly payment makes up for what is ACTUALLY owed. This quarterly payment can't come out of the liability account because there is nothing in it (in theory). So is this a payroll tax EXPENSE? That's what make sense, but I just wanted to see if someone knew for sure.

Thanks!

QuickBooks Team

Re: Which account do I debit when I pay payroll taxes quarterly?

Hi there, Shell-Bookkeeping.

 

Payroll taxes are already part of the gross pay-payroll expense. Check out these guide articles for more details: 

 

Visit us again in the Community if you have other questions. 

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Community Contributor *

Re: Which account do I debit when I pay payroll taxes quarterly?

cards and not make them mandatory.

Payroll cards are reloadable debit cards that are funded with employee wages each pay period. Employers that opt to use such cards can save on the cost of printing and mailing paychecks. Employees who don't have bank accounts may also benefit from pay cards, because workers can use the cards to pay bills and avoid check-cashing fees.

The biggest federal issue with payroll cards is that businesses can't mandate that the funds be redeemed at a specific financial institution, said Richard Greenberg, an attorney with Jackson Lewis in New York City. Such a mandate would violate the Electronic Fund Transfer Act (EFTA), which covers direct deposits and payroll cards.

Frequent Explorer **

Re: Which account do I debit when I pay payroll taxes quarterly?

When you pay your quarterly payroll taxes if you are using QBO payroll, you go to Taxes on the left side, then select Payroll Taxes at the top tab. There should be a green button there that says "Pay taxes". Use this button when paying your quarterly payroll taxes. Select from the list which of your quarterly payroll taxes you are paying (or do each, one at a time), then create payment. If your company bank account from which you pay payroll taxes is linked in Quickbooks, you can pay electronically direct to the tax agency. If not, you will not have that option, and you will enter a manual payment there.  Quickbooks does the rest of the work for you to enter the payroll tax transaction if your payroll settings are set up correctly. But if you are entering a manual payment, keep in mind you will either need to physically mail your check to the agency, or pay electronically online on the agency's website. If you are entering the check in Quickbooks Online, you can enter it in either a taxes paid expense (if on cash basis) or on accounts payable for the agency you paid.