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Level 1

Cash Basis Payroll Expenses accounted for and reconciled to 940/941

I am currently wondering about payroll expenses. 

1. I have a business that uses the cash basis

2. I fill out 941's quarterly and 940 annually that are based on gross wages.

3. The Q4 941 is then paid in the subsequent year.

What I would like to know is if the following is correct and if not, what should I be doing?

For example, for 2018 tax purposes, I would would report any tax payments made to the IRS in 2018 (Federal income tax withheld, SS, & Medicare for Q4 2017, Q1-3 2018). I would then keep a document that would show the reconciliation between the 2018 940 amount and the amount reported for taxes.

 

Thanks!

2 Comments
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QuickBooks Team

Cash Basis Payroll Expenses accounted for and reconciled to 940/941

Please to have you here, @Sunshyne.

 

I'm here to he provide with information on how you can record your Payroll Expenses and Tax payments.

 

With QuickBooks Online, you have the ability to setup the specific account where you can record your payment expense  and tax payments.

 

Here's how:

  1. Go to the Gear Icon.
  2. Choose Payroll Setting.
  3. Click Preference tab.
  4. GO to Accounting Preferences. Payroll Pref.jpg

     

  5. Click Customize button. 
    Payroll Pref 1.jpg

     

  6. Select the payroll expense and tax payments you want to set up.
  7. Choose the specific accounts you'd like your paychecks and tax payments to go to.    payroll pref 2.jpg

     

  8. Click Ok.payroll pref 4.jpg

     

You can also set the date when you want the changes to take effect and whether you want to include your past transactions.

 

On the other hand, if you pay your payroll and taxes outside QuickBooks, you'll have to record total YTD of the 2018 payroll you've run for each employee.  Once recorded, you can create an expense account for your Tax Payments and associate you tax payments with it. You can run the Payroll Tax and Wage Summary report to verify if you have the correct  total and taxable wages that are subject to federal and province/region/state withholding.

 

That should do it! Please feel free to click the Reply button if you have other questions about managing your Payroll expenses. I'm always here to lend a hand. 

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Level 15

Cash Basis Payroll Expenses accounted for and reconciled to 940/941

The reason you don't do what you asked, is that your expense is incurred on the Date of payroll. You are confusing Cash Flow and Expense. The Cash Flow to pay liabilities is Expenditure, not Expense. It's similar to paying your Car loan or mortgage or credit card balance; the Principal is Cash Flow, required you to send money Out, as Expenditure. These are not Expense and do not hit the P&L. The money you pay later for payroll is paying out Liability.

 

Otherwise, think about this other side of the scenario: You would not report Gross Wages, since you Kept employee funds as withholding. You would need to report only Net Takehome as expense, because they "left money with you" and that would be your Income, if not already your liability to pay to tax agencies.

 

So, no, do not confuse Cash Flow with Expense. These are different functions.

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