My payroll provider deducts employee contributions to a SIMPLE IRA on their pay stubs, but I make the actual deposits and matching contributions myself on the brokerage website. I now have now downloaded several of these transactions to QB from my business bank account but I’m unsure how to split the amounts and categorize them.
My matching contributions seem straightforward (a payroll expense), but must I create a journal entry for the employees’ contributions? I’m flummoxed as to what the steps should be since I have basically no experience with journal entries.
Should I set up an Other Current Liability account for the employee contributions and a Payroll SIMPLE IRA Expense account for my matching contributions? If so, what then must I do to show that that liability no longer exists since I actually deposited the amount into their accounts? Is that where the journal entry comes into play? If so, what might that journal entry look like? (I am confused because all the money is coming from my business checking account but, clearly, half of it is the employees' pre-tax earnings.)
We have a similar setup (outsourced payroll, employee contributions). How are you recording payroll now? You should already have liability accounts set up for federal/state withholdings and unemployment since these amounts are withheld or expensed as of the pay date but are paid at a later time.
Along the same line, you would create another liability account called 'Employee IRA Contributions' or something similar. Each paycheck, the employee deduction gets assigned to that liability account. Then, when you make the payment to the IRA account, you will write a check in QB for the total payment and split the payment amount between the liability account (employee contribution) and your company IRA expense (company contribution). This will clear the balance in the liability account and book the expense for the company.
Thanks for taking the time to reply, Rainflurry!
I record payroll through a series of accounts under a main Payroll Expenses account. They include Payroll Insurance Expense> Workers Comp> Disability>Insurance Fees and the SIMPLE IRA Matching Contributions, Employer Payroll Taxes, Net Payroll, Payroll Processing Fees. I also created a main Payroll Liabilities account wherein I have placed Employee Withholdings and SIMPLE IRA Employee Contributions. (My accountant, however, asked me to place the Employee Withholdings in a separate "Employees Withholdings Expense" account under the main Payroll Expenses account--I suppose because it otherwise appears that I still owe them that when, in fact, my payroll processor takes care of those amounts withheld on my behalf.
So, where you say that splitting the payment amount between the liability account (employee contribution) and your company IRA expense (company contribution) " will clear the balance in the liability account and book the expense for the company," does that happen automatically or does it involve some kind of journal entry?
Both the employee and employer SIMPLE IRA contributions should be put into a liability account on each pay date. Then, when you record the payment to the IRA, which includes both the employee and employer portions, write a check in QB. On the expenses tab, assign the liability account(s) and their amount(s). Writing that check will clear the liability account(s). Or, you can create a journal entry instead of a check - debit the liability account(s), credit your bank account. When you write a check in QB, it debits whatever accounts are on the expenses tab and credits your bank account - same as a journal entry.
This is beginning to make sense now, Rainflurry; thank you! So, it does not matter that there is no physical check going out to the SIMPLE IRA company for deposit. I presume, however, that when I download the transaction for the deposit to the IRA, it will match to the check that I have written in QB for each weekly deposit. Is that correct? Also, what do you mean by the "Expenses tab"? Is that something that appears when I write the check in QB?
Hello there, @Tío Pipo. Let me share some insights in recording your payroll outside of QuickBooks.
You can record your payroll outside of QuickBooks by creating a journal entry. However, before you do so, I recommend speaking with your accountant or an accounting professional to determine which account would receive the debit and credit sides of the transaction.
About the Expense tab, you can check it under the Transactions tab from the left menu.
For more details about this process, see the below articles:
If you have any other payroll-related questions, please leave a comment below. I'll be there to assist you. Have a nice day.