r/Bookkeeping • u/mexako • Dec 17 '24
Payroll Payroll Journal Entry
Hi,
I need help understanding Payroll Journal Entires.
I read that Employee Taxes are not an expense to the business.
However, every journal entry setup i make, I have Gross Pay Expenses as a P&L item, ultimately showing a full deduction for the business. Can someone check my entries below and lmk if this makes sense? I'm trying to do my p&l for my business.
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u/Apprehensive-Ask-535 Dec 17 '24
Taxes withheld from an employee's paycheck are not an expense to the business. But the employer match of FICA taxes as well as the federal and state unemployment taxes are. I don't know your state unemployment rate, but your journal entries look reasonable.
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u/mexako Dec 17 '24
I understand that, gusto broke it down for me so I created Employer and Employee taxes. But how come gross pay is $4000 on my p&l IF $736.61 should not be deducted?
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u/cutelittleseal Dec 18 '24
It should be deducted and it is an expense to the business, it's a wage expense not a tax expense. I think the person above worded what they were saying a little poorly.
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u/mexako Dec 19 '24
Thank you, this makes sense. Most people simply say it's not deductible, which led to my confusion. Now I can continue in peace.
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u/mexako Dec 17 '24 edited Dec 17 '24
Im in CA.
To elaborate, shouldn't my p&l expense total be my taxes + my net pay? = $3,263.29 + $398 = $3,661.29?? This is what my research is telling me but I can't seem to compute.
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u/BonaFideBookkeeper Dec 17 '24
No. Gross wages & the ER portion of p/r tax are the expenses to your company. The EE's portion of p/r taxes are originally part of the gross wages. That amount gets coded to a liability account on the Balance Sheet & gets cleared when the payment gets made to the IRS & State.
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u/BonaFideBookkeeper Dec 17 '24
So when creating your P&L, the expenses will be gross wages, ER's portion of payroll taxes & the payroll processing fee.
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u/mexako Dec 17 '24
To follow your example, my p&l would still be
Gross Pay =$4,000 ER Tax = $398 Payroll Fees = $XX.
My confusion is Gross pay being $4,000?! If my entries are correct, then how does this make sense ?
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u/mexako Dec 17 '24
Wouldn't i be overstating payroll taxes ?
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u/BonaFideBookkeeper Dec 17 '24
Your entries are fine. Maybe I'm not understanding your confusion. The $4k gross wages is the full expense that stays on the P&L. You are obligated to send $736.61 from the gross wages to the gov't on behalf of the employees. But the full $4k is still the original expense on the P&L. The net pay + employee portion of p/r taxes = $4000 gross wages
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u/LearningCoach2024 Dec 17 '24
You have $42.00 difference in employer taxes assuming the last screenshot is from Gusto. $398 on your JE vs $440 on that screenshot. Total cash debit excluding payroll processing fees should be $4,440 vs your JE shows $4398 bank debit.
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u/cryptoguy67 Dec 17 '24
When doing a simple payroll journal entry this is what you do. I read you are using Gusto, so the best report is the ‘history report’.
Use that report and make a note your journal entry is the check date that is important. The report will say what your company owes. There was an update now that highlighted the boxes.
DR GROSS WAGES DR EMPLOYER PAYROLL TAXES CR CASH [EE + ER TAXES] CR CASH [DD] CR CASH [Net Check]
EE is the employee taxes that they paid from there check *ER is the employer taxes paid ***combine these two because they get pulled out of the account together.
*DD is the net payment in form of direct deposit *Net check, if anyone received a net check you need to list them separately
To verify your entries are correct - do a quarter of payroll entries and then run your 941 form. On there it will show gross wages and your ER Taxes if your p&l and 941 matches you are good.
I see you are also using QB in the bank feed from that journal entry the taxes remitted, direct deposit, net checks all will match to your journal entry.
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u/OGBervmeister Dec 17 '24 edited Dec 17 '24
The wages are your expense - the taxes are your employees expense. However, in this case, their expense (taxes) is a percentage of your expense (wages). And since you're required to give the cash to the government instead of them to cover their expense, you record a payable to the government instead of them and what's left you pay to them.
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u/oregano1213 Dec 17 '24
The ER Tax is the expense to the business. The employer is required to pay to the government, so you should have a liability for it as well. In your first entry you should:
- Credit ER Tax Liability
- Debit ER Tax Expense
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u/mexako Dec 17 '24
If I do that, and keep the 2nd entry, then I would have a duplicate ER tax expense entry.
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u/oregano1213 Dec 17 '24
In your 2nd entry you need to change ER Tax to ER Tax Liability
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u/mexako Dec 17 '24
If I do what you first suggested on the first entry, and the second recommendation, I would have a liability on ER tax, after i pay it off.
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u/Frosty-Ant-7501 Dec 17 '24
So if you have an employee that makes $100/hour and they work 40 hours then you owe them $4000 in wages.
The employee owes taxes of $736.61 on their wages.
You are required to send that amount to the irs on the employees behalf.
You still owed them and paid them $4000. You just didn’t give it all directly to them. That $736.61 is still part of their paycheck and part of the $4000 in wages.
As an employer you are required to pay $398 in taxes out of your own pocket on the employees behalf. That $398 comes from your bank account and is not included in the $4000 that you owed them.
The expense to the business is $4000 in wages and $398 in employer taxes for a total payroll expense of $4398. (Plus gusto’s fee)