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GCC13
Level 3

Payroll Liabilities desktop

The person who held my position before me did not know about paying the liabilities through the payroll center. She paid through checks and bill payment. This started 3 years ago. I am not sure when she contacted the accountant about it. The accountant told her to use the oldest one and pay it for the current period so they are continuously late now. I read the article about changing them, but it does not cover this particular issue. The oldest liability I now have is dated 11/22/19, and the earliest check/ bill payment I found in the vendor center is dated 9/15/17. Since the books are closed on previous years, is there anything that can be done? Thanks in advance, it is driving me crazy!!!

Solved
Best answer July 31, 2020

Best Answers
john-pero
Community Champion

Payroll Liabilities desktop

Can you verify that the actual tax payments have been made and that you are current? 

 

Here is a method that I believe will work. In the payroll center select Pay Liabilities and select all for a particular tax. Run the check but add a negative line item posting to owner equity.  The check amount should be zero.

 

Paying tax liabikities from a closed period is same as paying a vendor bill from closed period. You just cannot edit the actual liability without opening the closed period.

 

Depending on how the previous bills and payments were set up it is possible that payroll tax expense was overstated and that can be more complicated and could, if significant, require amending tax returns for the past three years but defer to your tax accountant on that.

View solution in original post

4 Comments 4
john-pero
Community Champion

Payroll Liabilities desktop

Can you verify that the actual tax payments have been made and that you are current? 

 

Here is a method that I believe will work. In the payroll center select Pay Liabilities and select all for a particular tax. Run the check but add a negative line item posting to owner equity.  The check amount should be zero.

 

Paying tax liabikities from a closed period is same as paying a vendor bill from closed period. You just cannot edit the actual liability without opening the closed period.

 

Depending on how the previous bills and payments were set up it is possible that payroll tax expense was overstated and that can be more complicated and could, if significant, require amending tax returns for the past three years but defer to your tax accountant on that.

View solution in original post

GCC13
Level 3

Payroll Liabilities desktop

Thank you! I believe this will work. Except its not taxes it is employee liabilities, would I use the payroll expense account instead of equity? Also, do I use the date they were actually paid or will that affect previous year accounts? I was thinking because it is a zero amount it should be fine to use the original date.

john-pero
Community Champion

Payroll Liabilities desktop

Usually employee liabilities and employer liabilities are lumped together by type in the payroll center. Federal 941 will include employee deductions as well as employer share of FICA.  The payroll expense has already been posted and taken for the employer share and what is shown here is a liability. Since (presumably) all employer AND employee share in past years has been submitted and accounted for in P&L under Payroll expenses all you are doing at this point is clearing out the hanging liabilities. And by balancing these to zero against equity is still proper. You do not want to offset these to any expense account because, as I said, the expense is already recorded.

 

You may be able to create the zero amount checks in the prior periods, but if not it truly changes nothing other than cleaning this up. Even if you are cash basis the employer taxes post accrual and you get the benefit of the expense when incurred and not when you actually submit the payments. End of year is a great example; you get to write off your employer share of December taxes despite not making a payment to IRS or other authority until January

Leantax
Level 1

Payroll Liabilities desktop

I am familiar with the situation and thought I could share:

Medical insurance monthly bills were being paid by bill payments instead of Pay Scheduled Liabilities. This overstated Medical Insurance cost on P&L in that period and overstated Payroll Liabilities.

The initial Payroll Item set up was that employees were contributing Pre-tax percentages of the Medical cost from their net pay. Plus we also Job costed Medical insurance thru Paychecks. Knowing that is essential to identify the correction.

Originally - the Medical insurance was overstated when paid by Bill Payment and while Job Costed on Paychecks. This resulted in Payroll Liability account on the Balance Sheet having carried over balances from a couple of years to the current year. I added all bills paid for Medical insurance each year and compared this total to Employee contributions plus Job costed subtotals.

The Journal entry to correct was to Debit Payroll Liability and credit Prior Period Adj-Expense type account.

I did this cumulative adjustment in the current period so we did not have to mess with previous periods and Retain Earnings adjustments.

We also prevented this mistake from happening again by designating sub-accounts for all payroll liability Payments: 401K, FICA+Federal, State+City, Unemployment, FPL, SDI. I learned a lot about QuickBooks too :))

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