How do I record a sales tax payment when no money was actually paid, but instead a credit was used to pay the sales tax?

I'm here to help apply that credit to your sales tax, @JKO.

You can add a tax adjustment for the credit. You can select an income account, such as "Other Income." Let's first create the account for the adjustment. 

Here's how: 

1. Go to Accounting from the left menu.
2. Select Chart of Accounts then hit New.
3. Choose Income from the Account Type drop-down. 
4. Pick the account’s Detail Type.
5. Name your adjustment account.
6. Click Save and Close.

After that, let's go to the Sales Tax section to add an adjustment. Let me show you how.

1. Go to Taxes from the left menu, then select the Sales Tax tab.
2. Locate the tax period you need to adjust and hit View return.
3. Click Add an adjustment.
4. Select Credit.
5. Choose the Account for adjusting sales tax, then enter the amount.
6. Click Add.
7. Then, select record payment.

For complete directions, check out this article: Create Or Delete A Sales Tax Adjustment. 

Once done, run your Sales Tax Liability report to review taxes you owe and why you owe them. Just go to the Reports or Taxes menu to complete this task. 

I've also added some pages about handling tax rates and other relevant topics:

• Learn how QuickBooks Online calculates sales tax
• Use automated sales tax on an invoice or sales receipt

I'm always here if you need any more help getting the balance data your business needs.

I have a similar issue, but have an actual credit note.

We received a notification that a previous years' amendment resulted in a significant credit.  This credit is more than enough to pay a month's taxes and then some.  The credit was added as a vendor credit, and applied to some penalties assessed, but there is a balance.  I want to record the payment in the sales tax center, but the adjustment is from a vendor credit, not an income account.    Do I have to do as above and JE to offset the income and the vendor credit?

Hi there, dLearned.

Welcome back to the thread and thank you for joining the thread. I appreciate you for sharing detailed information about your concern. I'll ensure to present further details about recording or adjusting sales tax payments.

Once you received a tax credit, discount, or fine, you can adjust the sales tax you owe. This way you don’t have to worry about making corrections when it’s time to file. With this, even the adjustment or credit is from a vendor credit, you can follow the steps provided above on how to record the payment in the sales tax center as a tax adjustment. 

Then, you have the authority to choose what specific account to use in recording sales tax adjustments to offset the vendor credit that was created. Please keep in mind that creating a journal entry in QuickBooks Online to offset the income and the vendor credit is not necessary. However, it's best to consult an accountant for guidance with posting accounts.

You can click this article to view information on how to record, adjust and delete sales tax payments in the sales tax Center: Manage sales tax payments in QuickBooks Online.

Please refer to this article to see details on how QuickBooks Online automatically calculates sales tax when you make a sale: Learn how QuickBooks Online calculates sales tax.

Please let me know if there's anything else I can do for you! Wishing you the best of luck with you and your company. Have a great day.

Thank you.  I think I am confused though...when I do an adjustment, it requires that I select an account.  Which do I select?  Nothing done on this screen would reduce the vendor credit present, so how do I reduce that?

Hello dLearned!

Thanks for the reply. Allow me to assist you in applying the sales tax credit to your payments.

It seems that you added your tax agency as a vendor. In QuickBooks Online, you don't need to do that. We just need to make sure to add the tax agency to your Sales Tax Center. Please follow the steps in this article: Set up where you collect sales tax in QuickBooks Online.

Also, you don't need to create a vendor credit to record the sales tax credit you received. We can simply create an adjustment to apply it to your penalties and payments. First, you'll need to set up an account to your Chart of Accounts that you'll use for the adjustment.

• Credit or applying a discount: set up an income account
• Fine, penalty, or interest due: set up an expense account

Follow these steps on how to add an adjustment:

1. Go to the Taxes menu and select the Sales Tax tab.
2. Find the tax period you need to adjust, and then select View return.
3. Click the + Add an adjustment.
4. Select a Reason, and Adjustment Date, and the Account.
5. Enter the Amount, and then tap Add.

I've also added this article: Set up and use automated sales tax in QuickBooks Online. This will explain more how QuickBooks Online can help you with the sales tax. This link includes steps on setting up, tracking, reports, and paying sales taxes.

Do you have other concerns? Leave a comment again here and we'll help you.

Hmm...ok, if I don't have it set up as a vendor, how do I keep track of outstanding penalty bills (there were many years ago) and keep track of the balance of outstanding credits (again, significant)?

Penalties have been paid separate from any tax payments (as they come in afterwards if the payment is late) and you can't pay that prior to receipt of the statement as while the penalty is fixes (10%), the interest is not.

In further reviewing your reply, I see that (contrary to what I thought), it seems I can make an adjustment without actually making a payment, so is it recommended that I do multiple "payments" on the same tax periods? (i.e. one for the payment, one for the penalty, one for the interest) and if so, how do I record the check numbers?

Thanks for getting back to us, @dLearned.

I'll share some information about recording sales tax payments. Yes, you can include your penalty and interest along with the tax amount you owe in one tax period. All you have to do is click on the adjustment link.

Let me guide you how:

1. Go to Taxes.
2. Select the Sales Tax tab.
3. Tap Record Tax Payment. Then, tick the box next to the Make Adjustment link.
4. Enter the adjusted amount in the Adjustment field, reason, and account.
5. Mark the Print a check box if you want to print the check.
6. Click Record Tax Payment. See attached screenshot below.

If you're using the automated sales tax feature, just click View return and then the +Add an adjustment link. See the image below.

Refer to these guides for more information:

• Manage sales tax payments in QuickBooks Online.

• Enter sales tax amount manually.

I'm also attaching this link in case you need help with other sales tax-related tasks. It has our general tax topics with articles: Manage taxes in QuickBooks.

I'll be right here if you have follow-up questions or concerns with sales tax adjustments. Don't hesitate to reply. Take care and stay safe.

Thanks, but this doesn't answer my questions.

1) how do you record multiple adjustment categories (penalties and interest are different)

2) since these were paid by check, how do I record my check number to facilitate bank reconciliation?

3) in cases where I am using a large credit to offset my penalties, how do I track the outstanding balance if I am not supposed to enter a vendor credit?

I am still looking for answers to these questions.

I have reported and recorded my tax liability for (for example) May 2021.  I paid the amount due.  On the sales tax center, I record the amount of my tax payment, and click "record tax payment".

I am assessed a late fee and interest.  I pay the amount via check.

How do I record this now?

Do I go into the sales center and do an adjustment for $50, category Late Fees?  This appears that a payment is made for $50 (actual check is for penalty and interest).

Do I go in and make a second adjustment for the interest?  This appears that a payment is made for the interest amount.

These two steps record my payment but would be multiple payments instead of one.  This is also a problem is the check pays penalties for multiple months.

I have now been advised that there is an outstanding credit on my tax account (from an amendment done years ago (2011)).  How do I record this (is it an adjustment or a negative tax payment?) and how do I keep track of the running balance (as I apply it to subsequent months)

Hi dLearned!

Let me further assist you and share additional details about sales tax.

You can add multiple adjustments to a single return. Click the + Add an adjustment button and enter the tax credit details, then tap Add to save it. Once done, do the same process to add the penalties. You can also follow the steps in this article: Create or delete a sales tax adjustment.

You can create a check to record the payment you've made for the penalties. This way, your books will be in balance and complete the reconciliation. Follow these steps:

1. Go to the + New button and select Check.
2. Enter the details needed. You can leave the Payee blank.
3. Tap Save and close.

If you connected your bank account to QuickBooks Online, you can also simply wait for the payment transaction to be downloaded so you can add it to your books.

QuickBooks Online is unable to track your sales tax credit balance. You'll want to visit the Apps menu and see if there's a third-party application that can track sales tax credits.

You can also review the tax payments you've made to see if you used all the credits. From the Taxes > Sales tax, click the Look at past returns section to see all recorded payments. 

Please check this link: Set up and use automated sales tax in QuickBooks Online. This will answer the common question about sales taxes including the report, setup, and calculations.

Leave a comment again here if you have additional concerns. I'll assist you.

It will not let me leave the tax payment field blank.  Since I've already recorded the payment, entering an amount here when I only want to enter a penalty amount would overstate the payments wouldn't it?

I can help you in recording the penalty amount, @dLearned.

That won’t overstate your payment. Just make sure to acknowledge it as an adjustment. Then, select an expense account to track the adjustment. 

Follow the steps below:

1. Go to the Taxes tab and proceed to the Sales Tax tab.
2. Click on the Record Tax Payment. Then, tick the box next to the Make Adjustment link.
3. Enter the adjusted amount in the Adjustment field, reason, and account.
4. Click Record Tax Payment.

Refer to the following article for more information about adjusting a sales tax payment caused by a penalty: Manage sales tax payments in QuickBooks Online. That'll also show you how to troubleshoot sales tax payment issues. 

For more information on how QBO calculates your sales tax and assigns tax categories with your products and services, see this article: Set up and use automated sales tax in QuickBooks Online. 

Let me know if you need more help in recording your tax payments by leaving a reply below. Keep safe and have a wonderful day!

OK, so to be clear.  Sorry if I'm dense

June 25, I paid the May remittance.  I enter $500 (example) into the tax amount, and click on Record Tax Payment.

July 15, I get a charge for $50 penalty and $.85 interest.  I send a check for $50.85.  In the tax center, I enter $500 into the tax amount, click on adjustment, put $50 into the adjustment amount and select my reason (late fees) and click on Record Tax Payment.  I then enter another record with $500 tax amount, and put $.85 into the adjustment amount (reason Interest paid) and Record Tax Payment.

I then add a check for the amount of $50.85 (to reconcile my bank) (which category/account do I use as I assume the tax center updates the expense? Sales Tax Payable?)

And these steps will show on the tax center as $500 tax paid and $50.85 adjustments, correct? And no additional transactions required to the liability register.

And if, instead of a check, I applied a credit, I would do a third tax entry of $500, adjustment of -$50.85 for reason...what reason do I select when it is a credit due to an amendment? Sales Tax Payable?

Would like a confirmation to my last message as I am still unclear on how to record my transactions.

Thank you for following up, dLearned.

You can go back and check the steps provided by my colleague above on how you can record the sales tax payment together with the penalties and interest. I also recommend consulting an accountant for the right category/account to be used. 

If that doesn't work, you can delete the sales tax adjustment to correct it.

Like this:

1. Go to the Gear icon at the top, then choose Chart of Accounts.
2. Find the income or expense account you used to add an adjustment.
3. Click on Run report.
4. Choose the adjustment you need to delete, then hit Delete.
5. Select Delete to confirm.

Once done, you can also check out this article and learn to enter sales tax amount manually.

I've added this link for more information about handling your sales tax payments: Manage sales tax payments in QuickBooks Online.

Let me know if you still have questions or clarifications about sales tax payments. I'm always here to help. Have a good one!

This did not work.  Because you cannot leave the tax payment field blank (neither can you put in a negative amount) anything you record in that field is added to that payment amounts recorded in the tax center.  My tax center now shows an incorrect amount and I am still unable to enter the credits for a previous overpayment.  The only way this works is if you record the exact adjustment amount into the tax amount field (which was unfortunately not clear in the instruction, especially as the field is called "tax amount" not "payment amount") and then do an adjustment for the same amount.  This doesn't work for credits.

I am now forced to do several journal entries to fix this as you cannot delete a transaction created by the system (tax center) and you cannot enter a negative amount to reverse the entry.

Hi @dLearned,

I have some information about recording sales tax payments. Creating sales tax adjustments is the correct way of recording your tax credits, discounts, fines, interest, penalties, and corrections for rounding errors. This is used to decrease or increase the amount of sales tax owed. You can also enter a positive and negative amount in the adjustment amount. Just make sure to use the following accounts:

• Credit or applying a discount: Select an income account, such as Other Income.
• Fine, penalty, or interest due: Select an expense account.
• Rounding error: Select an income account for negative errors, or an expense account for positive ones.

On the other hand, you can delete a tax payment to correct the amount. To delete:

1. Go to the Taxes menu.
2. Look for and select to highlight the payment you want to delete.
3. Select Delete Payment. Then, click Yes to confirm.

For details, check out this guide: Manage sales tax payments in QuickBooks Online.

I'm attaching this link to view articles related to taxes: Manage taxes in QuickBooks.

Please know that you're always welcome to reply to this thread. I'll be around for you. Take care and have a good one.

I must be incredibly thick.

I know you can enter a negative amount in the adjustment amount, but you still have to enter a value into the "Tax Payment" field.  This is the problem.  This month, I had a tax payable of 3874.14.  I have the $30 collection allowance (for prompt filing), I have a credit memo for $30 (for prompt filing that wasn't claimed when filed previously), and a further credit of $158.74 (residual left from a credit from doing a filing amendment years ago that we had no record of).  So 3 different sources of adjustment, and I can only add one at a time. Sure, I can "fudge" the numbers  ( record a single $60 credit instead of 2 $30s, and reduce the tax payment field by the $158 and not enter it anywhere) so that the amount paid appears correct, but the display on the tax center makes it look like I short paid if I reduce the tax payment amount instead of recording a credit.

FDOR applied the rest of the credit to various penalties and interest (many of which we had never received a statement for).  I can expense the penalties fine, but the credit I can't do properly.  For June, we had a tax payable of $2700, and the whole amount was covered by the credit...I can't enter any of these as an "adjustment" because they are adjustments from the sales tax payable account and not a "discount" or expense account.

I realize that this may require journal entries, since the system does not provide a mechanism to record amendments and track credits, but this still results in a tax center display that looks like taxes aren't being properly paid, and the liability reporting is off.  I am only hoping that my interpretation is incorrect.

Thank you for pointing out how to delete the payments, I had missed that on my screen.