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Re: Payroll taxes

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.