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.

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

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 :))