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jarid
Level 1

choosing the right account for posting my paycheck withholding

When I receive a paycheck, I post the gross in an income account called "W2 Income," the net in my checking account, and then I post paycheck withholding under "Taxes Withheld," using sub accounts for each withholding like FIT, SIT, FICA, SDI, etc. I am dispatched for work via a union and so I have many employers; this system allows me reconcile proper withholding from each employer's W-2 at the end of the year .

For years I have categorized these accounts as expenses, but I sense they should be in either an asset or equity account since when posted as an expense, it doesn't give me a true accounting at my expenses.

 

Is my spidy sense correct? What say  you all?

 

Thank you.

9 Comments 9
john-pero
Community Champion

choosing the right account for posting my paycheck withholding

W2 wages are personal items in relation to whatever business you operate when you are not someone else's employee. You will get proper W2 from each employer before 1/31 of following year. You also get a paystub, paper or digital, for each paycheck and can compare week to week if there are errors that need to be addressed. There is no non-ocd reason to track your deductions, which are personal, in a businessvsetting.

 

If you are depositing your net paychecks into your business those are Owner Equity Contributions and tgat is the only entry necessary

Teri
Level 9

choosing the right account for posting my paycheck withholding

@jarid - 

 

If you put your W-2 net pay as income on your business books, you are going to end up paying tax on those amounts for a second time.  Nobody wants to double pay payroll taxes or income taxes.  Those payroll taxes are not expense on your books. You are simply taking money from your personal bank account and making an investment in your business, which is called equity and you are using money that was already PR taxed.

jarid
Level 1

choosing the right account for posting my paycheck withholding

Thanks for the replies, though I guess my question is not clear.

 

I have two QB accounts, a business account for my contract work, and a personal account for my payroll work as an employee, for which I get hired via a union and therefore have many employers, and where I keep track of personal expenses. In the original question posed, I am talking about my personal account where I deposit my payroll checks. None of this has to do with my business accounting.

 

For my purposes, I keep track of withholding from my paychecks so I can compare year end W-2 totals with what I know to be true from my year end totals after posting my withholding from each check as it comes in. Yes, perhaps a bit OCD, but that's the way I do it as a means of double checking the employers withholding.

 

I have always posted withholding amounts as expenses for lack of a better understanding of where to put them, but when posted as an expense, I get a skewed view of my true expenses..

 

SO, what account type would be a better choice than expense?

 

Thanks-Jj

jarid
Level 1

choosing the right account for posting my paycheck withholding

Thanks John, see my post above for clarification.

jarid
Level 1

choosing the right account for posting my paycheck withholding

Thanks @Teri, see my post below for clarification.

Teri
Level 9

choosing the right account for posting my paycheck withholding

Normally, you just compare your final YE pay stub to your W-2 from each employer(s).  

 

Did you say what type of entity your company is or files taxes as, like and S Corp or Sole Proprietor? Either way your business financial statements should show only business revenue and expenses of course. And any money you contribute from personal funds like paychecks would be a DR to Cash and CR Equity.

 

Have never seen anyone put their personal paychecks into QB as Income, but from what you are saying, you would need to post your GROSS Pay as income in order to deduct payroll taxes as expense and then if there was nothing else in that personal QB, your Net Income would equal your net pay for all employers. 

jarid
Level 1

choosing the right account for posting my paycheck withholding

Thanks Teri, I appreciate your feedback, though I think you are reading too much complexity into the question.

 

I don't get a year end pay stub from my employers since it's possible I may work for a particular employer only once or twice is a give year. Additionally, what I am asking has nothing to do with my business, as I stated already. I've been using QBs since 1999 and per all of my accountants advice over the years, I have always run two sets of accounts, one for business with biz (contract 1099) income/expenses posted to the biz account and one for personal with payroll (W-2) income/expenses posted to the personal account. I take a draw from the biz side to the personal side when needed or make an owners contribution from the personal side to the biz side when needed. At the end of the year, biz income/expense is reported on a Schedule-C and combined with personal W-2 income and reported on my 1040.

I have always kept track of withholding because, as John said, OCD, and because it's handy for tax planning to know how much SIT and FIT has been withheld before I receive a W-2.

 

I simply need to find a place to post withholding so it doesn't show up as an expense, perhaps as an equity account.

Teri
Level 9

choosing the right account for posting my paycheck withholding

If you are counting your Pay as Income, then Payroll taxes would be expense, why did you think not?

Teri
Level 9

choosing the right account for posting my paycheck withholding

@jarid  Wanted to make sure that made sense. 

Employee-paid payroll taxes are an expense that you pay out of your paycheck.

So for your personal books, Gross Income = Gross Pay, minus those expenses to equal net pay.

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