How to Adjust Payroll Liabilities in QuickBooks Online?

Just like any other liabilities, payroll liabilities are certain amounts that are not being paid by you but you owe it to your particular employees. This also comprises the amount of payroll tax that is kept from the employees.

Let’s learn more about the importance of adjusting payroll in QuickBooks desktop and Online.

What is Payroll Liabilities?

Payroll liabilities are sums of money owed by a company but not paid to its employees for wages, salaries, and other forms of compensation such as bonuses, commissions, and vacation time. Payroll liabilities include taxes and other deductions that the company must deduct from an employee’s salary, such as social security contributions and benefits to which the person is entitled.

Why it is Important to Adjust Payroll Liabilities in QuickBooks Online?

Liability adjustments for payroll in QuickBooks Online are required for multiple reasons. Prior to going for payroll liability adjustment in QuickBooks Online, one must know why you need to adjust the liabilities.

Here are the primary reasons to adjust the payroll liabilities in QuickBooks Online:

• Liability adjustment can be utilized for additions, deductions, and YTD wages for those employees who will not get additional paychecks.
• To solve the Health Insurance Company setup with the right tax tracking type.
• To rectify the company contributions items amount, for instance, 401k company match or Health Savings Account.

How to Pay or Adjust Payroll Liabilities in QuickBooks Desktop?

By the 15th of the current month, most businesses must submit their previous month’s payroll deductions to the Canada Revenue Agency (CRA). You can consult with the CRA or your accountant to determine what is best for your business. Then try adding a reminder note to your to-do list.

When you are ready to pay your payroll liabilities, QuickBooks Desktop lets you choose all or a portion of them and creates checks to cover them. You can also include fines, charges, and reductions on the checks as appropriate. Before fulfilling your payroll responsibilities, you must have a payee name for each debt.

This article also discusses how to apply a liability adjustment to amend an employee’s year-to-date information in payroll items such as company contributions, employee additions, and deducting payroll items.

Pay Payroll Liabilities

• You have to select Employees, then click on Payroll Liabilities and then click Pay Payroll Liabilities.
• In the Date Range window, enter the start and end dates of the period during which you incurred the liabilities you wish to pay now. Then select OK.

Note: Check the dates carefully, as QuickBooks Desktop uses them to generate the PD7A and Payroll Liability Balances reports. By default, the date range displays your liabilities as of the final day of the preceding month.

• In the Pay Payroll Liabilities window, choose the To be printed checkbox if you want to print the liability checks with QuickBooks Desktop, or clear it if you want to write them manually.
• Choose a checking account to write the check from (not your Payroll Liabilities account).
• In the Payment Date field, you have to enter the date you want to appear on your liability payments.
• Choose how you want QuickBooks Desktop to organize your list of liabilities using the organize By drop-down list. Set alphabetically by payee name, payroll item, or amount (largest first).
• Select whether to inspect the liability payment checks before QuickBooks Desktop generates them.
• Check the date range specified in the Show liabilities from / through fields. (These values were taken from the previous window in Step 2.)
• Choose the liabilities you want to pay.
  • There are some liabilities can only be selected and paid as a group. For example, CPP Employee, CPP Employer, EI Employee, EI Employer, Federal Income Tax Withholding, and other federal withholding items can only be chosen in combination.
• If you want to pay less than the full amount of a liability you selected, then you can do is to enter the amount in the Amt (Optional). To Pay area. Then you have to click on Create.
• QuickBooks Desktop generates a single cheque for all liabilities paid to the same supplier.

When you create a cheque, the Payroll Liability Balances report shows a reduction in the amount owed to reflect the payment. However, the PD7A Summary report shows the amount you owe for the period, independent of any payments you have made.

Make Instalment Payments for Payroll Liabilities

Step 1: Create an asset account to track the instalment

• Begin by going to the Lists menu and choose Chart of Accounts.
• Click the Account button then pick New.
• Select Other Account Types and then Other Asset as the type.
• Name the account Instalments-Payroll.
• If needed you have to enter an account description.
• Then you have to select Save and Close.

Step 2: Pay the instalment

• Go to the Banking menu and choose Write Cheques.
• Choose the desired bank account.
• Then you have to select the date of the cheque.
• Enter the tax agency’s name (Receiver General) in the Pay to Order filed.
• A warning notice may occur. Select Cancel.
• In the Memo field, you have to provide your payroll company number and any other necessary information.
• In the Expenses tab, under Account, select the Instalments-Payroll account.
• You have to leave the tax column blank.
• Fill out the payment in the Amount column.
• If you need to print the cheque, click the Print button.
• To record the cheque, select Save & Close. The account Instalments-Payroll will be increased by the amount of the created cheque.

Step 3: Remit the Payroll Liabilities for the Period

• You have to select Employees, Payroll Liabilities, and then Pay Payroll Liabilities.
• Enter the date range for the remittance. It is recommended that the date be set between January 1st of the current year and the last day of the remittance period. This guarantees that all changes and transactions are reflected in the remittance.
• Select “OK.“
• Choose the desired bank account from the Chequing Account drop-down list.
• Choose the payment date for the responsibility cheque.
• Select Review liability cheque to insert expenses/penalties.
• Select the Report button.
• Use the report to complete your remittance form.
• Close the Payroll Liability Balances report.
• Checkmark the salary liabilities to be remitted.
• Select Create.
• The Liability Cheque appears. Choose the Expenses tab.
• Select Instalments-Payroll from the Account column.
• In the Amount column, insert a negative amount for the cheque.
• Select Recalculate. The check amount should be zero.
• Select “Save & Close.“

If an amount is remaining in the Instalments-Payroll account at the end of the year, check with your tax agency to see if it can be carried forward to the following year. If the Instalments-Payroll account has an outstanding balance (a negative sum), you may be required to pay the balance to the tax agency.

Adjust Payroll Liabilities

Common Scenarios that can be Corrected by a Liability Adjustment

• You set up Health Insurance Company Contribution with the incorrect tax tracking type and must correct the liability amount after creating a new payroll company contribution item with the proper tax tracking type.
• You need to change year-to-date earnings, deductions, or addition payroll items for an employee who will no longer receive any future paycheques (e.g., a terminated employee).
• You need to increase or decrease the amount of company donation items.

You can change multiple liabilities at once during a single liability adjustment process by choosing the payroll items from the given column. You can only use one effective date for a liability adjustment. If you need to make changes for multiple periods, you must utilize a separate adjustment transaction for each. When finished, double-check your edits by selecting the appropriate reports.

Adjust Payroll Liabilities for the Company

Company Adjustments are used when a balance merely needs to be deleted from the Payroll Liability Balances Report, or when a balance appears in the Chart of Accounts.

If the adjustment may affect or change the data on your quarterly return, you should consider making a quarter-to-date adjustment rather than a year-to-date one.

To locate the right amount to be remitted, you have to create the PD7A report for the period in question:

• From the Reports menu, choose Employees & Payroll, then PD7A Report.
• Select the appropriate date range in the Dates column.

For Example, if you’re making a first-quarter adjustment, your report’s From Date should be 01/01 through 03/31.

• Select Employees, Payroll Liabilities, and then Adjust Payroll Liabilities.
• In the Date field, enter the date for which you are making the change.

Note: QuickBooks Desktop prefills today’s date, but you should enter the date you want the adjustment to take effect.

•  In the Effective Date field, specify when you want this change to take effect on your obligation balance. The effective date will be determined by whether the adjustment should be recorded in the current remittance period or the following one. QuickBooks Desktop uses this date to determine numbers on your PD7A, TPZ-1015, and payroll liabilities balances report.
• In the Adjustment is for section, you have to choose Company.
• In the Taxes and Liabilities section, locate the Item Name column and choose the appropriate payroll item.
• Enter the amount of the modification in the appropriate field. To reduce the liability you can enter a negative amount, and a positive amount to increase the liability.
• (Optional) Use the Memo column to note the purpose of the adjustment for future reference.
• Select Accounts Affected and then choose Do not impact the accounts, or Affect the liability and expense accounts.
  • Select Do not affect accounts to keep the balances of the liability and expense accounts that track the payroll items you’re adjusting the same. The adjustment will still affect the year-to-date totals on your payroll reports.
  • To enter an adjusting transaction in the liability and expenditure accounts that track the payroll items being adjusted, select Affect liability and expense accounts.
• Click OK to close the Affect Accounts window.
• To save the changes, select OK again.

Adjust Payroll Liabilities for the Employee

Employee adjustments are used to update an employee’s year-to-date data.

Note: This applies even if the item being adjusted is company-paid. It refreshes the year-to-date information on the employee’s T4 form.

• Create a Payroll Summary report to determine the amount of the payroll item that has to be adjusted.
  • Adjust the date range on your Payroll Summary report to match the effective date of your liability adjustment.

For Example, if you’re making a first-quarter adjustment, your report’s From Date should be 01/01 through 03/31.

• Select Employees, Payroll Liabilities, and then Adjust Payroll Liabilities.
• In the Date field, enter the date for which you are making the change.

Note: QuickBooks Desktop prefills today’s date, but you should enter the date you want the adjustment to take effect. Otherwise, this item will not appear in the corresponding Payroll Summary Report.

• In the Effective Date field, you have to enter the date that want this change to change your liability balance. QuickBooks Desktop uses this date to determine numbers on your PD7A, TPZ-1015, and payroll liabilities balances report.
• Select Employee from the Adjustment is For column.
• Select Employee from the drop-down menu. The modification may have an effect on the employee’s T4.
• In the Taxes and Liabilities area, go to the Item Name column and choose the appropriate payroll items.
• Enter the amount of the adjustment in the appropriate field. Enter a negative amount to reduce the liability, and a positive amount to increase the liability.
• (Optional) Use the Memo column to note the purpose of the adjustment for future reference.
• Click Accounts Affected, then select either Do not affects accounts or Affect liability and expense accounts.
  • Select Do not affect accounts to keep the balances of the liability and expense accounts that track the payroll items you’re adjusting the same. The adjustment will still affect the year-to-date totals on your payroll reports.
  • To enter an adjusting transaction in the liability and expenditure accounts that track the payroll items being adjusted, select Affect liability and expense accounts.
• To close the Affect Accounts window, click OK.
• To save the changes, select OK again.
• You may be required to submit an adjustment. Contact the CRA for additional information.

Fix the Payroll Liability Balance Report and the Liability Cheque

• You have to go to your payroll Bank Register and find the liability cheque you created for the last payroll item.
• Right-click it and choose Edit Liability Cheque.
• Under the Payroll Liabilities tab, replace the previous payroll item with the new one.
• Select Save & Close, then Yes to the notice about recording changes.

Note: Company-side adjustments (which are not the same as company-paid items) lower liabilities on the Payroll Liabilities Balances report but have no impact on the Payroll Summary Report.

How to Adjust Payroll Liabilities in QuickBooks Desktop Payroll?

If your payroll liabilities are inaccurate, you can make a liability adjustment to correct them.

Here are some common reasons to make liability adjustments:

• Fix a payroll item with the incorrect tax tracking type.
• Correct YTD wages, taxes, and deduction items
• Change the amount for company contributions, such as HSA or 401(k) company match.

Step 1: Find Payroll Discrepancies

• You have to run a payroll check-up (QuickBooks Desktop Basic, Standard, and Enhanced Payroll only). If you need to run a payroll checkup from a previous year, set your computer’s system date to the end of that year.
• Run a payroll summary report for the month or quarter you want to change. Take note of the number of Payroll Items that require adjustments.

Step 2: Adjust Your Payroll Liabilities

• You can go to Employees, then you can go to Payroll Taxes and Liabilities.
• Select Adjust Payroll Liabilities.
• You have to choose the last paycheck date of the affected month or quarter in the Date and Effective Date fields.
• To correct your employee’s YTD information, go to the Adjustment is for section and select Employee Adjustment. Then, choose the employee’s name. Do this even if the item being changed is paid for by the company.
• Select the payroll item to be adjusted from the Item Name column.
• You have to enter the amount of the adjustment.
  • If the item is under-withheld, enter a positive value to increase.
  • If the item is over-withheld, enter a negative number to reduce the amount.
• If you need to adjust your pay basis, enter the amount in the Income Subject to Tax field.
• Under the Memo, make a note about the adjustment for future reference.
• Select Accounts Affected and then OK.
  • Select Do not change the balances in the obligation and expense accounts. The modification will only affect the year-to-date totals on your payroll reports.
  • Select Affect liability and expenditure accounts if you want the transaction to be reflected in the liability and expense accounts.
• Click OK to close the Affect Accounts window.
• If you have more employees to enter adjustments for, select Next Adjustment. Otherwise, to save the changes you have to select OK.

Step 3: Check if the Liabilities are Updated

• To make sure that everything is right you can run the payroll summary report again.
• Run the payroll liabilities balances report to ensure that the amounts to be paid are accurate.

How to Adjust Payroll Liabilities in QuickBooks Online?

Businesses may require to edit the payroll liabilities for several reasons. If you are utilizing QuickBooks Online and need to adjust the payroll liabilities, the steps given below can be used. In simple words, you need to run the Payroll Summary and edit the date or amount in the payroll liabilities.

1. Run the Payroll Summary Report

First, you need to make the Payroll Summary Report so that you can locate the items that have been paid out. Then, you can make edits to the amount along with the date and correct the liability amount. Following are the steps to run the Payroll Summary Report in the accounting software QuickBooks Online:

Step 1: Choose the Report menu.

Step 2: Now look for the Payroll section.

Step 3: Now press on the Payroll Summary.

Step 4: Now, after this, you can edit the date range. You can do it with the help of the drop-down menu.

Step 5: Now, you can select the employee.

Step 6: Press on Run Report.

2. Edit the Payroll Liabilities

Step 1: Press on the option that says, Employee.

Step 2: Now, choose the Payroll Liabilities menu.

Step 3: Press on the option Adjust Payroll Liabilities.

Step 4: Navigate to the Date field and add the date for whom you are doing the adjustment.

Step 5: Now, press on the section of Effective Date. After that add the date you want.

Step 6: Select Employee for the field that says Adjustment is for.

Step 7: Now pressing on the drop-down, you can choose the employee name.

Step 8: Now, navigate to the Item name area.

Step 9: Choose the related payroll item for the option Taxes and Liabilities.

Step 10: Now press on the section Taxes and Liabilities. Here, you will see the Item Name column.

Step 11: Here, you can choose the related Payroll items.

Step 12: Now, enter the amount for the adjustment.

Step 13: Now you can select the Accounts Affected and press the button for OK.

Step 14: You need to make sure of certain things like:

• Select the option Do not Affect Accounts. This will not alter the liability and expense accounts balance. The adjustment, however, will edit the YTD amounts that are on the payroll reports.
• Also, press on the Affect Liability and Expense accounts. This will help to include the adjusting the transaction in the liability and expense accounts.

Step 15: For other employees, if needed, you can perform the same steps.

Step 16: When completed, press the button that says OK.

How to Manually Edit QuickBooks Online (QBO) Payroll Liabilities

You should manually amend Payroll Liabilities in QuickBooks Online for various reasons, such as Payroll Credits, Penalty & Interest, Late Filings, and many more. Other times, processing Payroll Liabilities manually is simply required. An encounter I just had with one of my clients first made me think of this topic and essay.

Case-N-Point: Liability Credit

One of the clients was issued a credit for State withholding. Below are the steps that are used to enter the credit in QuickBooks Online Payroll Essentials.

• First, you have to go to the Navigation Bar, then you have to go to Taxes, then go to Payroll Taxes, then you have to Enter Prior Tax History.

• Then you have to select the Current Year and then select Liability Period.
• Now you have to add payment.

• Now you have to select the Tax Type and then you have to enter Liability Period.
• Then you have to enter the payment date and then you have to enter the Check number and Notes.
• You have to create a Credit by entering a Negative Amount.

• After that, when you have entered all necessary information you have to click the green OK button.

You have to verify the next liability amount by confirming your adjustment was added to the payroll.

Other Reasons for Adjustment: Late Payment or Penalty/Interest

You can use this process also:

• Start by following steps 1 through 7 above
• You have to enter a positive amount which creates an additional payment that is made outside of QuickBooks Online payroll, instead of creating a credit by posting a negative amount (as in Step 8 above).

• You have to click the green OK button when you have entered all the necessary information.

When all the steps given above are completed, you can make the liability adjustment in QuickBooks Online without any trouble.

Steps to Adjust Overpaid Payroll Liabilities in the Company File

Only Enhanced, Basic, and Standard payroll service users can complete the following tasks. You need to get help from support if you are using QuickBooks Online Payroll or Assisted Payroll because you can’t adjust payroll responsibilities on your own.

Adjustment for the Company

• Payroll Taxes and Liabilities can be found under the Employees tab on the QuickBooks Desktop application’s dashboard.

• Choose Adjust Payroll Liabilities, then choose the date you wish the adjustment to take effect.
• Select the adjustment’s Effective Date at this point.
• Then you have to select Company that is under the Adjustment for segment.
• Now you have to select the adjustment item from the Item Name drop-down menu at this point.
• Now you have to enter the amount that you paid less than to make the adjustment.
• In the Memo section, you have to type your explanation for the transaction.
• Then you have to click the Accounts Affected button.
• If you want your accounts to be affected, click Affect Liability and Expense Accounts; otherwise, click Do Not Affect Accounts.
• On the Affect Accounts screen, you have to click OK.
• To save the adjustment you have to click OK again.

Adjustment for the Employee

• From the Adjust your Company method as given above, you have to follow steps first to third.
• Under the Adjustment is for segment, you have to choose Employee.
• Select the employee whose information you wish to change from the drop-down list by clicking their name.
• Select the payroll item to be adjusted from the Taxes and Liabilities column, then enter the negative amount.
• To save the changes, you have to follow steps 7 through 11 as mentioned in the Adjustment for the Company procedure.

Steps to Get Overpaid Liability as a Payroll Tax Liability Credit

• You have to generate a liability check by following the steps mentioned in the art
• In QuickBooks, choose the account you want to be credited under the Expenses tab.
• Enter the negative amount that has to be credited in the Amount area.
• In the Memo section, you have to type the explanation for the adjustment.
• To reconcile the check and credit amounts, click Recalculate.
• If there is still a credit balance, proceed in the same manner.

Following the steps given above will help you fix your problem for good. Just make sure you follow them in the given sequence.

Adjusting payroll liabilities is important for business. When companies wish to make changes in year-to-date or quarter-to-date of the employee, then the right payroll adjustment is important.

Still, if you are confused about payroll adjustment and how to edit them in QuickBooks Online, then you can connect with industry experts like us.

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