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How do you account for payroll Expense (Wages) and payroll Taxes in QuickBooks?

Vanessa Kruze Kruze Consulting

Vanessa Kruze

CEO and Founder of Kruze Consulting

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This is one of my favorite dead giveaways that a company has been working with a subpar bookkeeper, and it’s so easy to spot.

On the P&L, Payroll is shown as “Payroll/Wage Expense” and “Payroll Taxes.” If the ratio of these two number is 9:1, it’s been booked correctly. If the ratio is 6:4, it been booked incorrectly. The reason that this happens is because payroll processors debit the bank account for two amounts, wages and taxes, and they do so in the 6:4 ratio. However, the taxes amount is for both the employer and employees, and the company should report the Gross Wages of the employee and the Company Taxes, as opposed to the Net Wages and sum of Employer and Employee Taxes.

QuickBooks Online - Accounting for Payroll Taxes Example

This requires a “Journal Entry” as shown below.

Journal Entry

And hopefully you are using what we consider the best accounting software for startups, QuickBooks Online. You can read about why we think this is the right choice for early-stage companies.


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