Splitting received payments

Hi there, @Ahr4156. I'll help you account for a withholding tax deduction on a customer invoice.

We can use a credit memo to charge off the withholding tax as an expense. First, we'll have to set up a withholding tax expense account and item.

Step 1: Set up a withholding tax expense account

1. From the Lists menu, select Chart of Accounts.
2. Select New from the Account drop-down menu.
3. From the Other Account Types drop-down, select Other Expense. 
4. Click Continue.
5. Name the account "Withholding Tax Expense," then Save & Close.

Step 2: Set up a withholding tax expense item

1. From the Lists menu, select Item List.
2. Select New from the Item drop-down menu.
3. Choose Service.
4. Name the item "Withholding Tax."
5. From the Account drop-down, select the withholding tax expense account that you’ve just created.
6. Click OK.

Step 3: Create a credit note

1. From the Customers menu, select Create Credit Memos/Refunds.
2. From the Customer:Job drop-down, select your customer.
3. Under the Item column, select the withholding tax item. Then, click OK.
4. Add the tax amount withheld by your customer.
5. Add other important info including your customer’s name, and then Save and close.
6. Select Retain as an available credit.
7. Click OK.

Step 4: Use the credit note on the invoice payment

1. Go to the Customers menu and then select Receive Payments.
2. Select the customer’s name.
3. Under the Outstanding Transactions section, select your customer’s invoice.
4. Under the Unused Credits section, select Apply Credits.
5. Find and select the credit note you created.
6. Save and close.

You can also refer to this article on how to apply credits to reduce the next invoice balance: Create and apply credit memos.

Keep me posted should you need further assistance in applying customer credit notes or refunds. I'm always available to help. Have a great day.

Hi Liera Marie,

So I actually did this but the credit memo seems to apply to the invoice but also applies to future invoice balances too.

For example, If  invoice #1 is $1000, credit memo for $-200, my bank deposit reads $800. Once I try to receive a payment for invoice #2 of $2000, the remaining balance says $1800. 

I'm dating the credit memo's the same day as the deposit, should I date them a day before?

Welcome back to the Community, Ahr4156.

I appreciate following the solution shared by my peer and letting us know the result. We’ll have to configure your Payments settings in the company file to stop the credit memo from crediting to future invoices.

I’m here to help make sure the process is a breeze for you. Let’s go to the Preferences option in the company file to accomplish this task.

1. In your company file, tap the Edit menu at the top and choose Preferences.
2. Navigate to the Payments menu on the left panel and tap the Company Preferences tab.
3. In the Receive Payments section, uncheck the box for Automatic apply payments.
4. Click OK to apply the changes.

Here’s a reference that will help you perform any QuickBooks tasks easily. They’re grouped by topics so you can access each one smoothly. The guide contains topics such as customers, banking, taxes, and other accounting-related activities: Self-help articles.

Feel free to click the Reply button if you have other concerns or questions. I’ll get back to make sure you’re taken care of. Have a great rest of the day.