Even though QuickBooks offers several integrated payroll services, many businesses choose to continue using an outside payroll service like ADP or Paychex. But this often leads to confusion about how to enter payroll into QuickBooks. Some choose to re-enter the entire payroll in the Employee Center. Others want to save time by entering it as a journal entry, but don’t know how to enter it correctly.
The problem is that the amount deducted from your checking account for payroll never matches up to your total salaries paid.
- If you handle your own payroll taxes, the amount you pay your payroll provider is lower than your salary expense because of employee deductions.
- If your payroll service handles your payroll taxes, the amount you pay is higher because employer-paid payroll taxes are tacked on.
The key to entering your payroll correctly is to understand the difference between gross and net payroll. Gross payroll is the total amount you pay your employees before deductions. This is your payroll expense. Net payroll is what your employees are paid after deductions. This is a mixture of payroll expense and payroll liabilities that need to be paid sometime in the future–things like state and federal payroll taxes, medical insurance, 401(k) contributions, etc. These things are not payroll expenses because your employee is paying them rather than you.
Journal Entry if you Handle Payroll Taxes
Memorize the following journal entry and enter it each time you get a payroll report from your payroll service. You will probably need to add a few accounts. Salaries & Wages is an expense account, the accounts for the employee deductions are current liabilities:
| Account | Debit | Credit |
| Salaries & Wages | Gross Payroll | |
| Federal Income Tax | Federal Taxes Withheld | |
| FICA | FICA Withheld | |
| Medicare | Medicare Withheld | |
| State Income Tax | State Taxes Withheld | |
| Medical | Employee Medical Deduction | |
| 401(k) | Employee 401(k) Deduction | |
| Other Deductions | Any other Deductions made | |
| Checking Account | Net Payroll paid |
When you pay your payroll liabilities, you book the employee-paid portion to the associated payroll liability account and the portion you pay as a payroll expense. For instance, when you pay your FICA taxes, you’d book half of the amount to the FICA payroll liability account and the other half as payroll tax expense.
Journal Entry if your Payroll Service Handles Payroll Taxes
Memorize the following journal entry and enter it each time you get a payroll report from your payroll service. You will probably need to add a few accounts. Salaries & Wages, FICA and Medicare are expense accounts, the accounts for employee deductions others are current liabilities:
| Account | Debit | Credit |
| Salaries & Wages | Gross Payroll | |
| FICA expense | Employer-aidFICA | |
| Medicare expense | Employer-paid Medicare | |
| Medical | Employee Medical Deduction | |
| 401(k) | Employee 401(k) Deduction | |
| Other Deductions | Any other Deductions made | |
| Checking Account | Net Payroll paid |
When you pay your payroll liabilities, you book the employee-paid portion to the associated payroll liability account and the portion you pay as a payroll expense. For instance, when you pay your FICA taxes, you’d book half of the amount to the FICA payroll liability account and the other half as payroll tax expense.
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Ruth Perryman is the president of The QB Specialists. She is a Certified
Advanced Quickbooks ProAdvisor and an Intuit Solutions Provider, with over 19 years of industry experience including 5
years as a Chief Financial Officer. She has been working with Quickbooks since 1996, and specializes in QuickBooks
Enterprise and POS installations and troubleshooting. She also provides virtual controller and CFO services.
