Perhaps, it is obvious that being the boss requires careful management of the taxes, wages, and benefits for your employees. Learn how to reconcile payroll liabilities in QuickBooks.
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Payroll reconciliation is as important as paying an employee. It can seem a very complex process, however, it is crucial for you to track down the payroll liabilities and submit the payments to your employees on time.
With the help of QuickBooks, you can easily reconcile your payroll liabilities in addition to other important reconciliations.
This article provides you with a step-by-step guide to the reconciliation of payroll liabilities in QuickBooks.
What are Payroll Liabilities?
Before jumping into the process by which payroll liabilities are reconciled, let us first understand what payroll liabilities are.
In accounting, liability refers to the sum of money that a person or any business entity owes you.
Payroll liabilities are mainly created when you have an obligation to pay an employee, that is, you have accumulated unpaid wages or have withheld amounts from payroll. To get an accurate monetary report for your enterprise which is liability-free, it is absolutely necessary for you to reconcile payroll liabilities.
The two main types of payroll liabilities are:
- The gross wages that are owed to the independent contractors and the employees. This can be classified as employee compensation.
- The amounts that are not yet sent, that is the withheld amounts from workers’ pay for income taxes.
It is important for you to provide reports while submitting payments. Such reports should define the purpose of the payment (the employee name, the withheld amounts, etc.). The account containing the payroll liabilities chart may then include several balance-sheet account numbers.
Why Should you Reconcile Payroll Liabilities?
No entrepreneur would want to make significant financial decisions that might be based on inaccurate records in books.
To be able to keep accurate accounting records, reconciliation of payroll liabilities is important. It is also an effective tool to maintain good financial health.
All payroll accounting transactions should be recorded precisely in your books. This includes payroll expenses and liabilities. It is required to debit and credit them correctly so as to ensure the right calculations.
The money that is withheld from an employee’s paycheck is then booked to a corresponding Liability account. Once the money is paid to the proper agency, this money is zeroed out.
Thus, it is obvious that since these are not expenses to the business, they shouldn’t reflect in the Profit and Loss of the business. If this occurs, then there’s a great possibility that will fail to understand their profits. As a result, the upcoming budget and other forecasts will also be inaccurate, making the business fall into a vicious cycle of poor financial conditions.
Understanding Payroll Liabilities in QuickBooks
Let us look into the liabilities depending upon the bookkeeping system of your business. You have to list down the details of Payroll Tax Deductions and Payroll Garnishments.
1. Payroll Tax Deductions
Payroll Liabilities include both employer expenses and employee liabilities. The costs will be categorized in accordance with your state’s taxes, as they vary from state to state. Federal income tax, state income tax, social security withholding, and Medicare withholding are the different categories of responsibilities in Utah. These are things that go on your liability accounts, which your bookkeeper set up when the books were started, not on your expense report.
These liabilities balances ought to be almost zero. The money is withheld from the employee’s check and money is paid to the IRS or the appropriate tax authority in clear language. A part of the employee’s paycheck should be recorded as a liability because it is an expense. The tax check works the same way. You will see that even though the payroll liabilities accounts have transactions in them after entering both checks, they net out to zero.
2. Payroll Garnishments
Since the garnishments are taken from the employee’s paycheck, which is paid to the appropriate agencies, they shouldn’t appear on your expenditure reports. The funds must be correctly recorded and booked to a related liability account. The business owners must garnish the wages, and while discussing the category, they fall into the following:
- Medical care, Spousal support, and Child support
- Federal and State Tax Levies
- Federal Debts such as Student Loans and AWG (administrative wage garnishments)
Once the money has been distributed to the agencies, you zero off payroll liabilities in QuickBooks. The fact that this money is not an expense and therefore cannot be included in the business profit and loss must be kept in mind.
How to Reconcile Payroll Liabilities in QuickBooks Payroll
Many QuickBooks Payroll users are concerned about matching up their payroll data to their bank statements when reconciling payroll. However, there are important connected responsibilities, such as discovering how to tally payroll liabilities in QuickBooks. This consists of investigating unpaid payroll debts that haven’t been shown in your general ledger accounts in a timely manner, such as payroll taxes or benefit premiums. Although you could do this once a year, it would take less time to do it every month.
By adding QuickBooks Payroll to your current QuickBooks Online subscription, your company will have immediate access to features for processing payroll and HR tools. Processing payroll and resolving your payroll liabilities is simple with QuickBooks. For the first three months, payroll is discounted by 50% for new users.
Step 1: You have to Create a List of Liability Accounts
Make a list of all of your payroll obligation accounts as your first step. Use our tutorial on creating a chart of accounts in QuickBooks if you still need to set them up. The payroll liabilities accounts that you need to reconcile are listed below. Remember that you can make more accounts as necessary, depending on how particular your accounts must be.
- Federal Income Tax withholdings Payable: You withheld federal income tax from employee paychecks but failed to remit it to the IRS.
- State Income Tax withholdings Payable: Local income taxes may fall under this category, or you can create a similar account to house only those if you have yet to pay them to the relevant state tax agencies despite having deducted them from employee paychecks.
- FICA Tax Payable: This includes any unpaid Social Security and Medicare taxes owed by the employee as well as the employer; half of these taxes are taken out of the employee’s paycheck and the other half is a business expenditure.
- 401(k) or Retirement Benefit Premiums Payable: Employee contributions to their 401(k) accounts are put into this account, and you can also put any contributions your company is matching into this account.
- Health Insurance Payable: Any health insurance premiums and employee insurance premiums that have been deducted as business expenses but have not yet been paid should be kept in this account.
Keep in mind that the money should stay in the account until it is paid out because you are reconciling liability accounts. Any money that isn’t regularly sent out of your payroll accounts, such as monthly payments for retirement benefit premiums, is a sign that something might be wrong. For example, a transaction may be booked to the wrong account or a bill payment may be late (s).
Step 2: Create Transaction Labels to Separate Employee and Employer Payroll Liability Transactions
You should consider distinguishing employee and employer funds because QuickBooks lets you assign transaction labels (EE can be short for employees, and ER can represent employer contributions). When you need to investigate payroll liabilities, this will enable you to organize data much more quickly.
Step 3: Set up Payroll Liability Reconciliation Sheets
Downloading spreadsheets for payroll reconciliation will make it easier for you to keep track of account activities. Depending on how frequently you plan to complete the reconciliations-remember, monthly is ideal-make copies for each payroll liability account and make a fresh copy at the end of each period. At the top of the spreadsheet, enter the name of the liability account and the beginning and ending balances for each account that correspond to the general ledger balance records. Give yourself room to reconcile the items.
Step 4: Print Reports from Your QuickBooks Payroll Software and General Ledger
Using QuickBooks is fantastic since it makes it simple to reconcile your payroll liabilities accounts. Using the software’s payroll feature, you may generate payroll reports and make general ledger modifications simultaneously. You’ll need reports from both the general ledger and the payroll program to get started.
For each payroll liability account that needs to be reconciled monthly in QuickBooks, a monthly transaction report is required. It ought to display the period’s starting and ending balances.
For each payroll liability account that needs to be reconciled, repeat this process.
Payroll tax reports, payroll deduction reports, payroll register reports, and other reports from your payroll software may be needed. If more research is necessary, you might also need to print payroll cash records or itemized invoices from your benefit vendors.
Step 5: Examine Every Payroll Liability Transaction and Reconcile Outstanding Items
It’s good practice to download the transactions from QuickBooks into an Excel spreadsheet after printing your reports. In order to distinguish between amounts that cleared and those that did not, it makes it simpler to organize the transactions.
Step 6: Fix Payroll Liability by Reconciling Items
You should assess if the transaction amounts are appropriate after identifying the transactions that contribute to each payroll liability account’s ultimate balance. If you withheld a tax deposit from an employee’s paycheck in Quarter 1 and it is now Quarter 3, you undoubtedly have a problem that has to be fixed. To find out why and/or if this payment was accidentally missed, you should now download your Quarter 1 tax payment reports, ideally itemized. In order to determine who and how much you were charged while dealing with benefit premiums, you may need to get the relevant invoice. Additionally, you must thoroughly examine the payroll deductions you had during the time period. Check to see if they line up with the fees and payments made.
You could need to reverse a transaction and provide a refund to an employee, consult with your benefits provider to determine whether an invoice needs to be adjusted, or hold onto the money to put it toward your next month’s bill, depending on the conclusions your research uncovers.
The following are the most common reconciliation items you might see:
- A voided check that was never cleared from the general ledger (this can be avoided as QuickBooks for accounting and payroll are seamlessly integrated)
- An error on the statement your benefits provider sent you
- Even if employees were fired, you continued to charge their employer match for retirement and other benefits.
- You charged business expenses that employees were liable for.
Take your time and go deep when learning how to reconcile your payroll liabilities in QuickBooks. You might have to go over several months’ worth of documents, receive itemized invoices from providers, ask for updated invoices, and even engage with your bank and tax agencies. The time you spend reconciling payroll liabilities in QuickBooks should be reduced if you have a sound payroll accounting system in place and perform your payroll reconciliations on a monthly basis.
Check out our 2021 guide to the best small business accounting software, where QuickBooks Online comes in as number one if you aren’t already using it to manage your small business accounts. Check out our instructions on setting up QuickBooks Payroll if you haven’t begun using it yet and need help.
How to Reconcile Payroll Liabilities in QuickBooks Online?
Reconciliation of payroll liabilities comes among the most time-consuming accounting tasks.
Before reconciling the payroll liabilities, your first move should be the matching up of data from the following sources:
- The employee data and records such as the pay rate, working hours, wage and tax amounts, etc.
- Income taxes, FICA taxes, and other payroll tax filings.
- The amount withheld from pay.
- The banking activities including payment to workers and other parties.
- The accounting data such as transactions posted.
The following steps must be performed to reconcile the payroll liability manually in QuickBooks Online:
Step 1: Select Taxes in the navigation bar of QuickBooks Online.
Step 2: Click on Payroll Taxes and choose the Pay Taxes option under it.
Step 3: Press the Enter Prior Tax History option and choose Current Year and Liability Period.
Step 4: Click on Add Payment and then select Tax Type to reconcile payroll tax returns.
Step 5: Put the entries of Liability Period and Period Date along with Check Number and Notes.
Step 6: Enter a Negative Amount to Create Credit.
Step 7: After entering all the necessary information, press ok.
The Payroll software is an appropriate tool for you to work efficiently. You can use it to automate the reconciliation of payroll liability data and ensure accurate processing.
Poor financial decisions are a result of erroneous or imprecise records and no owner would want that. This detailed guide contains all the information required to assist you in the procedure of reconciliation of payroll liabilities in QuickBooks.
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+1-800-596-0806 or chat with experts.
Frequently Asked Questions (Faqs)
Why does it Show Errors while Reconciling Payroll Liabilities?
While reconciling payroll liabilities in the QuickBooks application, you might face some technical issues due to the following reasons:
Your bank account may seem accurate, But in reality, It is not.
The amount paid to the employees maybe more than the actual payment amount.
An error can also be caused when you use the outdated version of the QuickBooks application. You are then required to update the QuickBooks application.
You can correct the errors by adjusting the payroll liabilities in QuickBooks.
How do I Clean Payroll Liabilities in QuickBooks?
For cleaning up payroll liabilities in QuickBooks you need to remove or delete a scheduled payroll liability. Follow the steps given below:
Step 1: Select Employees in the QuickBooks Desktop.
Step 2: Select Payroll Center and then click on the Payroll Liabilities tab.
Step 3: From the drop-down list of Other Activities, select Change Payment Method.
Step 4: Select Benefit and Other Payments from the QuickBooks Payroll Setup window.
Step 5: Select Schedule Payments and then double-click the Payroll Item to Delete or Edit.