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

Vanessa Kruze, CPA, is a leading expert in startup taxes and tax compliance. Her team at Kruze Consulting has filed thousands of tax returns for companies that have raised billions in VC funding, and her work has been diligenced by leading VCs, attorneys, and M&A teams at the largest technology companies.
Vanessa Kruze, a seasoned CPA, leverages her extensive experience from Deloitte Tax and as a controller of a $20 million startup to lead Kruze Consulting in offering specialized bookkeeping services for startups. Her firm, noted for its inclusion on the Inc 5000 list, combines technology-driven solutions with precise financial expertise to deliver scalable and efficient bookkeeping tailored for startup needs across the United States.

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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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