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ujjwal
Level 1

How do I configure withholding taxes which we need to deduct while making payment for services availed?

 
9 Comments 9
ReyJohn_D
Moderator

How do I configure withholding taxes which we need to deduct while making payment for services availed?

I can help you with your withholding tax concern, @ujjwal.

 

Withholding your taxes in QuickBooks Online is easy. I can share with you the steps to get this done right away.

 

Let's start by creating an expense account to track your withholding taxes. This process can be tricky. Thus, I recommend consulting your accountant for the best accounts to use.

 

Here's how:

 

  1. Go to the Accounting menu, and then choose Chart of Accounts.
  2. Click the New button.
  3. Select Other Expense from the Account Type drop-down menu.
  4. Choose Other Miscellaneous or Other Expense from the Detail Type drop-down list.
  5. Enter "Withholding Tax Expense" in the Name field.
  6. Click Save and close.

Then, you can proceed to create a withholding tax expense item. Let me guide you how:

 

  1. Navigate through the Sales menu, and then choose Product and Services.
  2. Click New, and then select Service from the Product/Service Information window.
  3. Enter "Withholding Tax" in the Name box.
  4. Go to the Purchasing information section.
  5. Choose the withholding tax expense account you've created from the Expense account drop-down.
  6. Click Save and close when you're ready.

Once done, it's time to create an expense or a bill. Then, include the withholding tax amounts to include them when making your payments. I've added a sample screenshot below for your reference:

 

Also, you can enter the tax withheld by your customers in QuickBooks Online. For more insights, please head to this link: How do I record tax withheld by my customer?

 

If you wish to monitor your withheld taxes, you can run an Account Quickreport. To do this, go to the Accounting menu. Then, select the tax withholding account you're created, and then click Run report.

 

When you're ready, you can begin filing and paying your taxes to stay compliant.

 

I'm still up and running for more tax concerns you may have. Feel free to add your reply in the comment section below. I'll be here to help you.

ujjwal
Level 1

How do I configure withholding taxes which we need to deduct while making payment for services availed?

Hi,

 

This does not help. Withholding taxes are supposed to reduce the net payment to be done to vendors. For example, if invoice value shared by vendor is 100 KSH and 5% is supposed to be the withholding tax, we are supposed to pay 95 KSH to the vendor. As per the method your recommended, 5% gets added to 100 KSH and 105 KSH becomes payable to vendor which is wrong.

 

For reference, I am attaching a screen shot which shows how the withholding taxes should work. I have taken this screenshot from QB India.

 

We need the same configuration here.

 

RCV
QuickBooks Team
QuickBooks Team

How do I configure withholding taxes which we need to deduct while making payment for services availed?

Thanks for coming back, ujjwal.

 

If you are referring to TDS (Tax Deducted at Source), we can enable it for a particular customer. While creating the invoice for that customer, you will get the option to select the TDS section and enter the TDS amount applicable in that invoice. QuickBooks Online (BO) calculates TDS based on the threshold defined under various provisions of the Indian Income Tax Act. 

For enabling TDS for already existing customers, follow the steps below:

  1. Go to Sales or Invoicing from the left menu.
  2. Select Customers at the top.
  3. Click on the name of the customer for whom you want to enable TDS and tap Edit.
  4. In the customer information pop-up, click on the Tax info tab and enter the PAN number and check the TDS Applicable checkbox.
  5. Press Save.

For more details about this one, see How to set up the TDS article. Feel free to visit our Taxes page for more insights about managing your taxes in QBO. 

 

I'll be right here to continue helping if you have any other concerns or questions about QuickBooks. Assistance is just a post away.

ujjwal
Level 1

How do I configure withholding taxes which we need to deduct while making payment for services availed?

TDS needs to be enable for a vendor. We need to withhold a portion towards TDS from the amount payable to vendors  and remit the net amount. For this, TDS or withholding tax keys needs to be configured in the same manner as showed in the screen shot I shared in my last reply.

CharleneMaeF
QuickBooks Team

How do I configure withholding taxes which we need to deduct while making payment for services availed?

I know a similar way to get this done in QuickBooks, ujjwal.

 

Since Tax Deducted at Source (TDS) is only applicable in QuickBooks India, we can create a liability account instead. Doing so helps us track your withholding taxes.

 

Here's how:

  1. Go to the Accounting menu and then select Chart of Accounts.
  2. Click the New button.
  3. From the Account Type drop-down, select Current liabilities.
  4. From the Detail Type drop-down, select Other current liabilities.
  5. Enter the name in the Name field.
  6. Once done, click Save and close.

 

Once done, make a bill transaction and enter the amount as negative on the supplier's behalf. Then, create an Expense to pay the portion of the tax on the supplier's behalf to the tax authority.

 

Aside from that, you can check which accounts are affected when a transaction is created by clicking More, then select Transaction Journal.

 

Additionally, I've added an article that'll help you account for a withholding tax deduction on a customer invoice. This way, you'll be able to record the details accurately: How do I Record Tax Withheld by my Customer?.

 

We're always here to share our ideas with you if you have other questions or concerns. I encourage clicking the Reply button to share the details with us.

PatrickSG
Level 1

How do I configure withholding taxes which we need to deduct while making payment for services availed?

"Once done, make a bill transaction and enter the amount as negative on the supplier's behalf. Then, create an Expense to pay the portion of the tax on the supplier's behalf to the tax authority."

This part is unclear to me, deducting an mount from a vendors bill reduces the final amount, yet Vat is on the full amount inclusive of the withholding figure.

SheandL
QuickBooks Team

How do I configure withholding taxes which we need to deduct while making payment for services availed?

Hi there, @PatrickSG. Let me clarify the recording of bills with withholding entries to ensure you're handling them correctly in QuickBooks Online (QBO).

 

Adding a negative amount to your supplier's bill is necessary to ensure that the payment reflects the correct amount after withholding taxes are deducted. This method will help us maintain a clear record of your vendor's balance and the taxes deducted on their behalf.

 

To do so, here's how:

 

  1. Head to + New, then select Bills.
  2. Choose the Supplier from the dropdown menu.
  3. Add the necessary details.
  4. Go to the Category details section and add the essential information. Ensure the liability account's amount is in negative value.
  5. Click Save and close.

 

Moreover, since withholding tax is the money you take out of payments to suppliers, you must keep track of it as a liability until you pay it. Hence, you'll have to record it as an expense in QBO to keep your financial records accurate.

 

To do so, here's how:

 

  1. Go to + New, then Expense.
  2. Select the supplier from the Payee field.
  3. Add the necessary details.
  4. Head to Category details, then add the positive amount to your liability account.
  5. Click Save and close.

 

For reference, please check out this article: Enter and manage expenses in QuickBooks Online.

 

Moreover, it's still best to consult your accountant so they can help you with proper recording of the taxes involved.

 

Additionally, you can check out this article to help you organize your expenses effectively: Create and record cheques in QuickBooks Online.

 

You can always reply to this post if you have other concerns regarding recording withholding taxes in QBO. I'll be here if you need more help.

PatrickSG
Level 1

How do I configure withholding taxes which we need to deduct while making payment for services availed?

Thank you , This is clear.

My next concerns is about how to treat tax withheld on your behalf by customers. The credit note method does seem to work but my Auditor would like the tax withheld by our customer to be treated as an asset until we claim it. The credit note makes it an expense immediately.

 

RCV
QuickBooks Team
QuickBooks Team

How do I configure withholding taxes which we need to deduct while making payment for services availed?

Thanks for coming back, PatrickSG. 

 

In QuickBooks Online (QBO), we account for a withholding tax deduction on a customer invoice by using a credit note to charge off the withholding tax as an expense. Since you want to set it up as an asset, we recommend consulting your accountant to properly guide you with this one. To learn more about withholding tax deductions on a client's invoice, check out this article: How do I record tax withheld by my customer?.

 

Once done, we can go to the Chart of Accounts page and pull up the withholding tax account. This report helps you track the total amount deducted from the supplier's bill. Here's how:

 

  1. On the left panel, click Transactions and select Chart of Accounts.
  2. Find the withholding account using the search field.
  3. Click the Run report link under the Action column.
  4. Choose the Report period and hit the Run report button. 

 

Moreover, check out these articles on how to record multiple payments and manage bank charges:

 

 

The Comments section below is the best place if you have additional concerns about managing your taxes or any QuickBooks-related. The Community is always available to make sure all your QuickBooks needs are taken care of.