Cash basis 12/31 payroll - how to record?

n1njah · ‎August 02, 2022

Hello,

I'm confused on how to record for payroll based on two scenarios if i am a cash basis business.

I'm assuming I can accrue as cash-hybrid for payroll ...

Scenario 1:

12/15/21-12/30/21 pay period with check date 12/31/21

Would I accrue payroll tax expense with liabilities and debit wage expense and credit cash on 12/31?

Scenario 2:

12/16/21-12/31/21 pay period with check date 01/01/22

Would I only accrue payroll taxes with liabilities and on 01/01/22 debit wage expense and credit cash...?

Or do i also accrue wages on 12/31?

Or do I not accrue at all since im cash basis? Little confused here.

All help is appreciated. Thanks.

BigRedConsulting · ‎August 02, 2022

One a cash basis, your payroll is considered to have happened on the date you pay your employees. Similarly, the government considers the resulting liabilities to exist only on the date you pay your employees, not before.

This is true regardless of the work period you're paying your employees for, which could be after the work period by a day or a week, or even during the work period.

Be sure to include only the payroll you've paid in a reporting period - such as quarterly or annual - on quarterly or annual forms for that period. Using your example, if you pay your employees on 1/1/2022 for work in 2021, that payroll is reported on tax forms in 2022.

View solution in original post

BigRedConsulting · ‎August 02, 2022

One a cash basis, your payroll is considered to have happened on the date you pay your employees. Similarly, the government considers the resulting liabilities to exist only on the date you pay your employees, not before.

This is true regardless of the work period you're paying your employees for, which could be after the work period by a day or a week, or even during the work period.

Be sure to include only the payroll you've paid in a reporting period - such as quarterly or annual - on quarterly or annual forms for that period. Using your example, if you pay your employees on 1/1/2022 for work in 2021, that payroll is reported on tax forms in 2022.

n1njah · ‎August 03, 2022

Thank you very much. I've been reading a lot of conflicting information. This cleared it up.

Dheath1156 · ‎February 21, 2023

What is the code section that states that?

Rainflurry · ‎February 21, 2023

@Dheath1156

§1.461-1(a)(1):

Taxpayer using cash receipts and disbursements method. Under the cash receipts and disbursements method of accounting, amounts representing allowable deductions shall, as a general rule, be taken into account for the taxable year in which paid.

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Cash basis 12/31 payroll - how to record?