Federal Withholding tax as a payroll expense

jennabell · ‎January 14, 2025

Is federal withholding tax considered a payroll expense on a job the same way that social security and medicare is?

FishingForAnswers · ‎January 14, 2025

@jennabell Only the Company share of Medicare and Social Security taxes are considered a payroll tax expense.

Federal Withholding, as well as all taxes that come out of the employee's paychecks, are not payroll expenses.

This is because the employee's gross pay as a whole is already considered a payroll expense; considering the taxes that come out of said gross pay to also be payroll expenses would be double-booking.

You can't turn $100.00 in gross pay into $100.00 payroll expenses plus taxes, or you'd potentially be writing off up to $200.00 on every $100.00 you have in gross payroll, should the paycheck net pay be reduced to $0.00.

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Rainflurry · ‎January 15, 2025

@jennabell

Just to clarify, federal income tax (FIT) withholding was a component of the employees wage that was recorded as a payroll expense when you paid the employee. The withholding itself is a liability because you owe it to the US Treasury, but the reason it's listed as a liability is because you also recorded it as a payroll expense. The payroll expense is the debit to the FIT withholding credit (this is double-entry accounting after all). For example, if you paid the employee $2,000 and withheld $200 in FIT, that same $200 was recorded as an expense as part of their gross wage:

$2,000 (Payroll Expense - debit)

- $200 (FIT Withholding - credit)

=$1,800 (Net Pay - credit)

View solution in original post

FishingForAnswers · ‎January 14, 2025

@jennabell Only the Company share of Medicare and Social Security taxes are considered a payroll tax expense.

Federal Withholding, as well as all taxes that come out of the employee's paychecks, are not payroll expenses.

This is because the employee's gross pay as a whole is already considered a payroll expense; considering the taxes that come out of said gross pay to also be payroll expenses would be double-booking.

You can't turn $100.00 in gross pay into $100.00 payroll expenses plus taxes, or you'd potentially be writing off up to $200.00 on every $100.00 you have in gross payroll, should the paycheck net pay be reduced to $0.00.

Heide DC · ‎January 14, 2025

Yes, @FishingForAnswers is correct, jennabell.

The total gross pay that an employee receives is classified as a payroll expense for the company. It's important to note that the taxes deducted from this gross pay also fall under the category of payroll expenses. This means that both the employee's earnings and the associated taxes are accounted for in the overall payroll expenses.

If you want to view the total expenses you've incurred for a particular job, you can view the job profitability report:

Click Reports on the upper menu.
Select Jobs, Time & Mileage, then choose the Job Profitability Summary report.
Click Customize Report.
Go to the Filter tab, then select Name.
Select the specific Job, and click OK.

Also, if you want to ensure the correct mapping, you can run payroll reports that you can use to view useful info about your business and employees.

We're here to support you every step of the way whether it's clarifying details or offering additional guidance on using QuickBooks Desktop effectively. Don’t hesitate to contact us should any questions arise as you're working through this material, our dedicated team is always ready with tailored solutions for you.

BigRedConsulting · ‎January 14, 2025

No, Federal Withholding is not an expense to the company. Only company-paid taxes are expenses. The employee withholding taxes are the employees' money you've impounded and then will pay/paid to the governing agencies.

Rainflurry · ‎January 15, 2025

@jennabell

Just to clarify, federal income tax (FIT) withholding was a component of the employees wage that was recorded as a payroll expense when you paid the employee. The withholding itself is a liability because you owe it to the US Treasury, but the reason it's listed as a liability is because you also recorded it as a payroll expense. The payroll expense is the debit to the FIT withholding credit (this is double-entry accounting after all). For example, if you paid the employee $2,000 and withheld $200 in FIT, that same $200 was recorded as an expense as part of their gross wage:

$2,000 (Payroll Expense - debit)

- $200 (FIT Withholding - credit)

=$1,800 (Net Pay - credit)

Rainflurry · ‎January 15, 2025

EDIT: ~~employees~~ employee's wage

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Federal Withholding tax as a payroll expense