I have created a Payroll Export form so I can import the payroll into our other accounting software system and for each employee, it is showing a debit for Employer FICA Expense, which is correct, and also Fed, Soc Sec Med Tax Payable as a credit, which is also correct, but it's taking out Fed, Soc Sec Med Tax Payable AGAIN. Why is the liability side being deducted twice? It is making my liability out of balance on my Balance Sheet. My Income Statement is also incorrect because it's recording the Employer FICA Expense with this Payroll Export form which I don't want because I'm already capturing the Employer FICA Expense with my 941 payment to the bank. Please advise what I need to do. I have attached a small sample of our payroll export form and you can see the highlighted area where the deduction is coming out twice.
First off, you need to understand the nature of payroll expenses and payroll liabilities. The expense to the company is the gross payroll amount plus the employer's share of payroll taxes. Everything else is a liability except to the net payroll check that is a credit to the bank account. Remitting your 941 payment reduces the liability.
Let's say John earned $100. Social Security is $6.20, Medicare is $1.45. Federal withholding is $5.00 and state withholding is $2.00. So John's net pay is $85.35.
The journal entry for this transaction would look like this: Debit Credit
Payroll expense $100.00
Payroll liability $6.20
Payroll liability $1.45
Payroll liability $5.00
Payroll liability $2.00
Payroll taxes (employer expense) $6.20
Payroll taxes (employer expense) $1.45
Payroll liability $7.65
Bank account $85.35
When you remit your 941 payment it would be:
Payroll liability $20.30
Bank Account $20.30
This leaves the $2.00 of state withholding as a liability that needs to be remitted to appropriate state taxing authority. There may also be a tax expense and tax liability for state and federal unemployment taxes.