I have a client who uses Quickbooks Online but another payroll provider. I manually enter the payroll journal entries each month. So this is not a question about how to handle a pretax deduction in Quickbooks payroll. It is a question about how pretax deductions (i.e. employee health care premiums) are properly reflected on the employer p&l.
This is the journal entry I have been recording:
Debit Wages Expense for Gross Wages amount
Debit Payroll Tax Expense (employer portion)
Credit Payroll Tax Liability
Credit Payroll Clearing Account (liability account) for employee pretax deduction
Credit Bank Account for net wages
When the employer pays the premium:
Debit Employee Health Care Premium expense for employer portion
Debit Payroll Clearing Account for employee portion
Credit Bank Account
I have even found this method documented in accounting study materials online. My understanding is that the pretax deductions amount is a reconciling item between wages expense on the p&l (which equal gross wages per the payroll system) and wages on the W-3. However, my client's tax accountant says that this is incorrect and wages on the p&l MUST agree to the W-3 without exception. He wants wages reduced and employee health care premiums expense increased. I am unable to verify this anywhere despite hours spent googling this topic.
If someone could please shed some light on this subject, I would be very appreciative. Even better, if you can point me to a documented source of guidance on the topic, that would be fabulous. Thank you!
