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manual payroll entries

We use a 3rd party payroll company so i enter the payroll manually.  I believe i have it set up incorrectly.  I set up the payroll tax under pre-paid accounts (asset) to include the FUTA and the employer responsibility portion of payroll

Then under ADP Payroll Expenses, I have:

ADP Fees

Partner Bonus

Payroll Taxes:

     payroll Taxes: GA SWT

     payroll taxes: FED FWT

     payroll taxes: FED SOC SEC

     payroll taxes: FED MEDICARE

Salaries and Wages

So when I enter a payroll check, i enter it as follows:

Gross wages

less FWT

less SOC SEC

less MEDICARE

less GA SWT

to arrive at take home amount

ADP submits two transactions to our bank account, One is the tax liability amount, the other is the total take home amount.

I create a JE for the tax liability, which includes the employer responsibility and the other I just match up to the paychecks.

My problem is, when I do the 941 it doesn't include the employer responsibility portion

So I am thinking I did the initial set up incorrectly and should not use the pre-paid account.

I need to get this cleared up before the end of the year, so your help in this matter is greatly appreciated.

Additionally, the payroll is set up for the owners of the business.  Their accountant advised them to draw a salary with holding taxes, even though we are an LLC.  There are 3 partners: a husband and wife team with their own LLC and the 3rd partner has his own LLC which they were drawing income as "partner draws".  At the beginning of 2018, they switched to payroll with ADP.   Won't they then be paying taxes twice?  Once as payroll and then again with the business taxes?

 

 

Solved
Best answer 12-13-2018

Accepted Solutions
Established Community Backer ***

Re: manual payroll entries

"Partner Bonus" is what? Partners take Draws, and that is Not Payroll and Not Expense; it is from Equity.

 

You have too many Expense accounts; these do not belong to employer expense:

State or Fed income tax withholding, Child Support, Retirement Deduction, Health insurance Deduction, Loan Repayment or Employee FICA. They are all split off of Gross Wages. You don't split it.

 

All you need is:

Gross Wages

Employer taxes

ADP fee, which is part of general office expenses, already. That isn't Payroll.

 

"ADP submits two transactions to our bank account, One is the tax liability amount, the other is the total take home amount.

I create a JE for the tax liability, which includes the employer responsibility and the other I just match up to the paychecks."

 

Like this:

 

Gross Wages Debit Expense

Gross Wages Debit Employer taxes

Credit Banking for Takehome total

Credit Banking for Tax Impound total

 

Now you have Two Banking entries.

 

You don't Split Liability, unless you, the Employer, will be making that payment yourself. ADP pays everything, so there is no Liability. Example:

Gross Wages Debit Expense

Gross Wages Debit Employer taxes

Credit Banking for Takehome total

Credit Banking for Tax Impound total

Credit to Liability for Child Support when the employer needs to Make that Payment

 

Because the employee took home Less of their takehome. A Wage Garnishment is a diversion of Takehome. Not an additional expense. Just separate banking the happens later to a different Payee name.

 

This is a problem. Let's review: "Additionally, the payroll is set up for the owners of the business."

 

Only if this Entity type has elected to be treated as a Corporation. Otherwise, No Payroll for "owners."

 

"Their accountant advised them to draw a salary with holding taxes, even though we are an LLC."

 

You need a New accountant. That is extremely bad guidance. It's a basic Error.

 

"There are 3 partners: a husband and wife team with their own LLC and the 3rd partner has his own LLC."

 

Uh, let's review: Some Entity Type cannot be owned by another. I don't know if you thought this is two individuals + an LLC, or three individuals. Honestly, your Accountant really should be fired, for leaving you with this confusion. Go to the LLC Formation documents, or look at the K-1 issued from the 1065.

 

"which they were drawing income as "partner draws""

From Equity and there is no Withholding. They pay their own 1040ES; it's not 940 or 941/944 taxes at all.

 

"At the beginning of 2018, they switched to payroll with ADP.   Won't they then be paying taxes twice?  Once as payroll and then again with the business taxes?"

 

It's worse than this and so much is wrong here...Get a New CPA before year end. There still is time to Reverse and Make Corrections.

 

View solution in original post

3 Comments
Established Community Backer ***

Re: manual payroll entries

"Partner Bonus" is what? Partners take Draws, and that is Not Payroll and Not Expense; it is from Equity.

 

You have too many Expense accounts; these do not belong to employer expense:

State or Fed income tax withholding, Child Support, Retirement Deduction, Health insurance Deduction, Loan Repayment or Employee FICA. They are all split off of Gross Wages. You don't split it.

 

All you need is:

Gross Wages

Employer taxes

ADP fee, which is part of general office expenses, already. That isn't Payroll.

 

"ADP submits two transactions to our bank account, One is the tax liability amount, the other is the total take home amount.

I create a JE for the tax liability, which includes the employer responsibility and the other I just match up to the paychecks."

 

Like this:

 

Gross Wages Debit Expense

Gross Wages Debit Employer taxes

Credit Banking for Takehome total

Credit Banking for Tax Impound total

 

Now you have Two Banking entries.

 

You don't Split Liability, unless you, the Employer, will be making that payment yourself. ADP pays everything, so there is no Liability. Example:

Gross Wages Debit Expense

Gross Wages Debit Employer taxes

Credit Banking for Takehome total

Credit Banking for Tax Impound total

Credit to Liability for Child Support when the employer needs to Make that Payment

 

Because the employee took home Less of their takehome. A Wage Garnishment is a diversion of Takehome. Not an additional expense. Just separate banking the happens later to a different Payee name.

 

This is a problem. Let's review: "Additionally, the payroll is set up for the owners of the business."

 

Only if this Entity type has elected to be treated as a Corporation. Otherwise, No Payroll for "owners."

 

"Their accountant advised them to draw a salary with holding taxes, even though we are an LLC."

 

You need a New accountant. That is extremely bad guidance. It's a basic Error.

 

"There are 3 partners: a husband and wife team with their own LLC and the 3rd partner has his own LLC."

 

Uh, let's review: Some Entity Type cannot be owned by another. I don't know if you thought this is two individuals + an LLC, or three individuals. Honestly, your Accountant really should be fired, for leaving you with this confusion. Go to the LLC Formation documents, or look at the K-1 issued from the 1065.

 

"which they were drawing income as "partner draws""

From Equity and there is no Withholding. They pay their own 1040ES; it's not 940 or 941/944 taxes at all.

 

"At the beginning of 2018, they switched to payroll with ADP.   Won't they then be paying taxes twice?  Once as payroll and then again with the business taxes?"

 

It's worse than this and so much is wrong here...Get a New CPA before year end. There still is time to Reverse and Make Corrections.

 

View solution in original post

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Re: manual payroll entries

Ok so I am following up on my original topic re: entering payroll manually.  I deleted all the transactions that were in the "prepaid" account, removed the 940/941 entries since ADP pays that, and re-entered using the following accounts:

 

debit gross wages

debit employer taxes

credit banking for take home pay (ADP Clearing)

credit banking for tax impound

 

then once the transaction hits the bank account, i do a transfer from the ADP Clearing to our bank account. 

So this issue is resolved!  thanks so much for your help!

The next issue I had was with the owners taking a salary.  Well as it turns out, they have their individual LLC's along with the business LLC, which apparently you can't pay from one to the other.  So they were advised to take a salary or "reasonable compensation" based on industry standards, and have with holding taxes taken out.  Our company is an SCorp, which puts the tax burden on the individuals.  So I am still not sure about all that, but my boss says he checked with 2 separate accounting firms and they both advised him to do the same.  So on that note, I have to believe that it is the correct procedure and thank you again for your help with these issues!  Have a wonderful new year!

 

Established Community Backer ***

Re: manual payroll entries

If an entity is running as a Corporation, then these people are Individual Employees. They get paid through payroll. They don't get Draws from Equity.

 

If the S Corp has Shareholders that are the LLCs, not the individuals, then the individuals are just Employees, like you. They are not the Shareholders.

 

Don't take the boss's input from the people he contacted. Ask them to bring a CPA to talk to you, directly. These things matter. Get it First hand, and get your Questions answered in person from the CPA or Professional; not from your own boss.

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