Understand payroll tax accounting in QuickBooks

QuickBooks Online Payroll automatically updates your accounting records for payroll taxes if your payroll and accounting are in the same company. If you use standalone payroll or QuickBooks Desktop for accounting, you need to manually export these transactions from the Export Center. This ensures your bank, tax holding, and tax liability accounts remain accurate.

How do payroll tax events affect my accounts?

When you pay payroll taxes electronically through QuickBooks, your accounts are updated based on the specific event. 

What happens when I run or adjust payroll?

When you create paychecks, your payroll tax liability accounts increase by the amount of taxes owed. If you adjust these paychecks later, the liability accounts will increase or decrease based on the change in tax amounts.

How do tax withdrawals and payments work?

When we make a tax withdrawal from your bank account, your bank asset account decreases and the tax holding asset account increases. There’s no impact on your tax liability accounts at this time. Later, when we pay the tax agency, the tax holding asset account decreases and the tax liability account decreases.

If you receive an overpayment refund, your bank account increases while the tax holding account decreases. If an overpayment is applied forward to a future withdrawal, your bank account only decreases by the net amount withdrawn, and the tax holding account increases by the same amount.  There’s no impact on the payroll tax liability accounts. 

What if I pay the tax agency directly?

If the IRS or another agency debits your bank account directly—such as when Automated Taxes is off—your bank asset account and payroll tax liability account both decrease. This also applies if your tax payment is due the business day immediately following the paycheck date.

How do I manage taxes without a tax holding account?

If you use QuickBooks Desktop and export standalone payroll data, you may not have a Tax Holding account yet. In this case, tax withdrawals decrease your bank account and liability accounts. Payments to the agency are not reported to the books because liabilities were already reduced during the withdrawal.

You can use a journal entry to move excess balances from the Payroll Liabilities parent account to specific sub-accounts. Once entered, sub-account balances should be $0 if the tax holding account is inactive, or match your Payroll Tax Center payments if it is active.