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Intuit

How BAS-W1 and BAS-W2 tax codes work when using QuickBooks Payroll powered by KeyPay

When you finalise a pay run in QuickBooks Payroll, journal entries containing the pay run data will be exported to QuickBooks Online.

To view journal entries associated with payroll:

  1. Select Accounting on the left menu, then select Chart of Accounts.
  2. In the search box, type in the name of the Default Payment account associated with your payroll. By default, this is the Payroll Clearing account.
  3. Select Account history under the Actions column.
  4. You will now be presented with a list of transactions. The transactions marked as Journal under the Type column (2nd column) are payroll journals.
  5. Select the payroll journal you want to open, then select Edit to view the journal entry.

Note: Payroll journals exported to QuickBooks are dated to the date the pay run is paid.

Some journal entries will display the BAS-W1 and BAS-W2 tax codes in the GST column. These codes are allocated to the following transaction types:

Transaction TypeTax CodeNet effect
Wage ExpenseBAS-W1Credit
PAYG LiabilityBAS-W2Credit
Pre-tax deduction liabilityBAS-W1Debit
Pre-tax deduction payment to bank accountBAS-W1Debit

For more information on what these tax codes mean, refer to this article from the ATO.

How to exclude earnings from being included in BAS-W1

  1. Select Employees on the left panel.
  2. Select Payroll Settings, then select Pay Categories.
  3. Select the pay category you don’t want to be reported as W1 on your BAS.
  4. Select the Exclude from W1 in journals tickbox.
  5. Select Save.

How Salary Sacrifice Arrangements affect BAS-W1

According to the ATO, any amounts relating to a salary sacrifice arrangement with an employee should not be reported as W1 on your BAS. 

When a pre-tax deduction or salary sacrifice super amount is recorded in the pay run as a deduction, the BAS-W1 tax code will automatically be assigned to this amount, with the net effect of reducing the BAS-W1 amount to be reported in the BAS.

Note: This applies to all pre-tax deduction categories regardless of the payment method (bank account, super fund or manually paid).

If you have entered pre-tax deductions in your pay run, the corresponding journal entries will show the deductions as a separate entry, in order to apply the BAS-W1 tax code to it.

For example, you have:

  • Total earnings in a pay run of $1000
  • $100 in pre-tax deductions which are included in the earnings

In the journal entry:

  • Wages Expense will be Debited for $1000 and Credited as W1 on the BAS.
  • Payroll Clearing will be Credited for $100 and Debited from W1 on the BAS.

The net effect is $900 reportable as W1 on the BAS, ultimately excluding the pre-tax deduction amount from W1.

Note: there is no change in the tax code of W1 for post-tax deductions as this is included in the gross wage amount and is therefore not exempt from being reported as W1 on the BAS.

 

Content sourced from KeyPay

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