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Adjust payroll liabilities in QuickBooks Desktop

Learn how to use a liability adjustment to correct employees’ year-to-date (YTD) or quarter-to-date (QTD) payroll info. This includes company contributions, employee additions, and deductions.

When your payroll liabilities are incorrect, you can use a liability adjustment to fix them.

Tip: Adjusting payroll liabilities can be tricky. Use them only if you understand accounting or on the advice of your accountant. You can also find an accountant if you need one.

If you have Assisted Payroll or QuickBooks Online Payroll, contact us to make the adjustments. You won't be able to adjust liabilities on your own.

If you have Basic, Standard, or Enhanced Payroll, you can follow these steps.

  • To fix a Health Insurance Company Contribution set up with the wrong tax tracking type.
  • To correct YTD wages, deductions, or additions for an employee who will not be receiving more paychecks.
  • To change the amount for company contribution items such as Health Savings Account (HSA) or 401(k) Company match.

Make a payroll liability adjustment

Step 1: Find payroll discrepancies

This gets the info you need to make the adjustment.

  1. Run a Payroll Checkup. This tool helps find problems that affect your liabilities. The tool will:
    • Verify your current setup by scanning your payroll data for missing info and discrepancies.
    • Review employee records, payroll item setup, and wage and tax amounts.
    • Identify tax amount discrepancies on flat-rate tax. The tool will offer suggestions on how to fix the problem.
  2. Run a Payroll Summary report for the quarter you need to adjust. Note the amount on the Payroll Item or items that need adjusting.

Step 2: Adjust your payroll liabilities

  1. Go to the Employees menu, then Payroll Taxes and Liabilities, and select Adjust Payroll Liabilities.
  2. Use these tips to help complete the fields.
    • Use the same date as the last paycheck of the affected quarter. Use today's date if you’re working on the current quarter.
    • The Effective Date is used to calculate amounts on your 940 and 941 forms as well as the Payroll Liability Balances Report.

    Is the adjustment for the company or an employee?

    • Select Employee Adjustment if the item you're adjusting is a company-paid item. It updates the YTD info reported on the employee W-2 form.
    • Select Company Adjustment if you want the balance to be removed from the Payroll Liability Balances Report.
  3. Select the employee.
  4. Complete the Taxes and Liabilities fields.
    • Select the Item Name you want to adjust.
    • Enter the Amount of the adjustment. Use a positive number to increase or negative to decrease the amount.
    • Wage Base is rarely needed, even when you override a tax amount on a paycheck.
    • You only use Income Subject to Tax when making a wage base adjustment.
    • You can use the Memo field to enter a note about the adjustment for future reference.
  5. Select Accounts Affected and then OK.
    • Select Do not affect accounts to leave balances unchanged for the liability and expense accounts. The adjustment will only change the year-to-date amounts on your payroll reports.
    • Select Affect liability and expense accounts to enter an adjusting transaction in the liability and expense accounts.
  6. Repeat for other employees if you need to, and select OK.

Step 3: Make sure your liabilities are updated

Run the Payroll Summary report again to make sure everything looks right.

Step 4: (Optional) Correct a payroll liability check

Did you pay the liability already? You'll need to correct the liability check in QuickBooks.

  1. Go to Banking, then select Use Register.
  2. Select the register you use for payroll, then OK.
  3. Right-click the Liability Check, and select Edit Liability Check.
  4. Go to Payroll Liabilities and update them to match your changes.
  5. Select Save & Close, then Yes.

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