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How payroll items work

When you create any kind of payroll transaction in QuickBooks—whether it's a paycheck, a payroll tax payment, or an adjustment,—QuickBooks expresses the transaction in terms of payroll items.

QuickBooks features that use payroll items

QuickBooks identifies payroll transactions by their use of payroll items:

  • Payroll reports include only those transactions that use payroll items.

  • Payroll liability balances (on payroll reports and in the window you use to write payroll liability payment checks) are based on transactions that use payroll items.

  • Employee year-to-date amounts are based on transactions that use payroll items.

Payroll-related accounts

Payroll items are associated with accounts that track your company's payroll liabilities and expenses. When you first turn on the payroll feature, QuickBooks automatically creates the following accounts:

To keep your balance sheet and your profit and loss statements accurate, QuickBooks associates the appropriate account or accounts with each payroll item you create. You can modify this assignment, if you need to.

Customizing payroll accounts

You may change the names of the payroll liability account and payroll expense account that QuickBooks provides. If you use numbered accounts, you may change the account numbers QuickBooks provides.

You can also use subaccounts of Payroll Liabilities to see more detail on your balance sheet for payroll liabilities and subaccounts of Payroll Expenses to see more detail on your profit and loss statement of your payroll expenses. For example, corporations may need to report expenses for office salaries separately from those non-officer salaries.

Payroll items that are expenses

Some payroll items, such as employee wages, represent expenses to your company. When you create these payroll items, QuickBooks recommends that you associate them with the Payroll Expenses account.

Payroll items that are liabilities

Liabilities are amounts you owe but have not yet paid. When you write checks, QuickBooks deducts amounts for employee-paid taxes, for example, from the total that you pay your employee. QuickBooks then places those amounts in an account. When you set up your payroll items, QuickBooks recommends you associate these types of payroll items with Payroll Liabilities account.

The balance in the Payroll Liabilities account increases with each paycheck you write, until you go to the Pay Liabilities window and create a payment for your outstanding liabilities.

Payroll liabilities that are also expenses

Some payroll liabilities, such as company-paid payroll taxes or company-paid benefits, are a combination of liabilities and expenses. For example, federal unemployment tax (FUTA) both creates a tax liability and is a company expense at the same time. Payroll items for company-paid taxes and company contributions are usually assigned to both a liability account and an expense account.

Payroll liabilities that are not expenses

Some payroll liabilities are not company expenses. For example, when you write a paycheck, you withhold the amounts of federal and state withholding taxes that the employee owes. Those do not go to the employee but instead your company temporarily holds on to them until you turn them over to the government. These represent a liability to your company—an amount you owe but have not paid—but they are not an expense to your company, because it is the employee that owes them, not your company. Other examples of payroll liabilities that are not expenses include child support garnishments or employee contributions to a 401k plan.

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