Posting Third Party Sick Pay to an Employee's Wages

Hello there, tmarie2. I'm here to guide you in properly recording your employee's third-party sick pay In QuickBooks Desktop.

When posting a third-party sick pay, determine its type first if it's Taxable or Non-taxable. Then, set up an expense account to keep track of your employees' third-party sick pay.

Once done, create an additional payroll item for the sick pay. Here's how:

1. Select Lists, then Payroll Item List.
2. Click the Payroll Item ▼ dropdown, then New.
3. Choose Custom Setup, then Next.
4. Select Addition, then Next.
5. Enter a name for the Addition item. Select Next.
6. In the Expense Account window, select the expense account you created in Step 2, then Next. 
7. In the Tax Tracking type window, select: 
   • Compensation for taxable third-party sick pay
   • Non-taxable Sick Pay for non-taxable third-party sick pay
8. Click Next three times.
9. In the Gross vs. Net window, select net pay (only applies to Non-taxable Sick Pay tax tracking), then Next.
10. Select Finish.

After that, proceed to Steps 4, 5, and 6 in this article: Track and report third-party sick pay in QuickBooks Desktop Payroll Enhanced. The article includes instructions on how to track third-party sick pay on paychecks.

However, if it still causes a negative balance on the Net amount, you can write a check for the third-party sick pay.

1. Go to Banking then select Write Checks.
2. In the Pay to the Order line, select QuickBooks Payroll Service.
3. The Date of the check should be the date the bank account was debited.
4. On the Memo line, enter Third-Party Sick Pay for Period MM/DD/YYYY (as indicated in the cover letter in the Amendment paperwork you received).
5. Select the Expense tab.
6. Depending on your payroll accounting setup:
   • In the Account section, select Payroll Expense (or the appropriate expense account for the taxes being debited; this might be Payroll Expenses, Federal Tax Expenses, etc.)
   • In the Amount section, enter the amount for taxes or the total debit amount.
   • In the Memo section, enter Third-Party Sick Pay.
   • If you enter the amounts individually for Social Security Company, Medicare Company, Federal Unemployment Tax, State Unemployment Insurance, etc., you must repeat steps a, b, and c for each item.
7. Select Recalculate.
8. Click Save and Close.
9. Repeat Steps 1 through 8 if more than one debit has occurred. 

Then, you can adjust your payroll liability after creating the checks. For more details, see this article: Adjust payroll liabilities in QuickBooks Desktop Payroll.

I'll share resources that will help you pull up payroll reports and fix incorrectly calculating paychecks in QuickBooks:

• Run payroll reports
• Troubleshoot paychecks calculating incorrectly

You can also post here again if you have any additional QuickBooks-related concerns. We got you covered, and we'll help you again. Stay safe.

I have done all this and have gotten the employer FICA to work, however; with the "new payroll item" being a positive wage amount and the "new deduction payroll item" being a negative wage amount, how can her YTD wages be correct? Won't it just be a wash?

Managing year-to-date (YTD) wages in QuickBooks Payroll Desktop ensures accurate tax reporting, regulatory compliance, tmarie2. Let me provide details about this.

You can correct your employees’ YTD payroll info in QuickBooks Desktop Payroll by creating a liability adjustment. This step will ensure you and your employee's information is accurate for tax filings and financial statements. I'll guide you through the process.

First, If you're on QuickBooks Desktop Basic, Standard, and Enhanced Payroll, you'll need to run a payroll checkup or a payroll summary report for the month or quarter you need to adjust.

Next, adjust your payroll liability. Here's how:

1. Go to Employees, then pick Payroll Taxes and Liabilities. 
2. Choose Adjust Payroll Liabilities.
3. In the Date and Effective Date fields, select the last paycheck date of the affected month or quarter.
4. In the Adjustment is for: section, select Employee Adjustment to correct your employee’s YTD info. Then select the employee's name. Do this even if the item being adjusted is a company-paid item.
5. In the Item Name column, select the SUI and SDI. Then, enter the Amount of the adjustment. Since the items are over-withheld, enter a negative amount. 
6. Enter the amount under the Income Subject to Tax column if you need to make a wage base adjustment.
7. Under Memo, you can enter a note about the adjustment. 
   • Select Accounts Affected, then OK. Select Do not affect accounts to leave balances unchanged for the liability and expense accounts. The adjustment will only change the year-to-date amounts on your payroll reports.
   • Click Affect liability and expense accounts if you want the transaction to reflect in the liability and expense accounts.
8. Hit  OK to close the Affect Accounts? window.
9. Tap OK to save the changes.
   

Finally, check if the liabilities are updated by running a:

1. Payroll summary report again to check if everything is correct.
2. Payroll liability balances report to check if the amounts to be paid are accurate.

By following these steps carefully, you can effectively correct your payroll tax liabilities and ensure compliance with tax regulations. If you have any questions or need further assistance during this process, please feel free to add a reply. I am committed to supporting you in navigating this journey with efficiency and accuracy.

I realize/know this, I just want to know if posting a negative and positive payroll item within payroll processing will reflect true YTD wages for my employee? Or, do I have to make wage adjustments through the liability process afterwards?

Good afternoon tmarie2,

Thanks for reaching back out! For a question like this, it would be best to connect with an accountant to see what would be the best option for the company. If you dont have an accountant, you can use our ProAdvisor service. Many even include a free consultation. Here's how it's used:

1. Go to this Find my Accountant link.
2. In the Find an expert in section, choose what you're looking for, then use your search field to enter a City or ZIP code.
3. Select Search.
4. Browse through the results and find one that works best for your business. You can click on each ProAdvisor's profile to learn more information about them.
   

If you have any other questions, I'm just a post away. Have a wonderful day!