Saturday, April 30, 2011

QuickBooks: Properly Pay Liabilities

First time users / payroll users are often confused how to pay the liabilities. I recently responded to the following questions: "Can you tell me how to pay my payroll liabilities? I think I use "write checks" and then hit the appropriate accounts, but I am not sure."

The answer is no…. do not use write checks! In order to properly clear the liability, you need to pay payroll liabilities with a liability check instead of a regular check.

Employees > Payroll Taxes and Liabilities > Pay Scheduled Liabilities

As a side note, sales tax liabilities also need to be paid with a liability check

Vendors > Sales Tax > Pay Sales Tax.

9 comments:

jbostic said...

In early April, I prepaid payrolll taxes on line and then updated QB by paying liabilities as should be done. On May 2, I forgot that I had prepaid the PR taxes and went online to pay again. After completing the transaction, I went into QB to :pay liabilities" only to fnd that I didn't have any liabilities to pay. Now my bank balance reflects money that really isn't there. How do I correct this situation and get the liabilites paid account to accurately reflect the amount paid?

Cynthia Huber, CQP said...

Here is a simple way to take care of this situation:

** Create a journal entry that debits the payroll liability account(s) and credits the bank using the May duplicate payment date.

What this does: balance is removed from the bank account and the payroll liability account(s) is/are adjusted by the amount of the duplicate payment.

You will get a message that General Journal Entries do not affect Payroll Liablities and suggests that you choose Adjust Liabilities from the Employee menu. You can say OK here.

Part 2: When you are next ready to make a payment use Pay Liabilities and create the check for the amount required.....then enter a negative amount to the liability account(s)to match the general journal entry.

What this does: The amount of the check will be correct as due to be paid, and the payroll liabilities account is now up to date.

Cynthia Huber, CQP said...

I imagine that the situation described by jbostic is not uncommon. There are many QuickBooks users that are not using the e-pay / e-file options through the software.

To avoid the chance of having duplicates when making payment directly (not through QuickBooks), I suggest that the starting point should always be QuickBooks, meaning, create the check in QuickBooks first, then go on-line.

Margaret said...

HELP! I calculated 3 things incorrectly regarding my payroll taxes! UGH. It's been done all year up to May 27th.
1.) The federal payroll taxes are wrong (had old tax tables)
2.) I also calculated employees part of SS wrong (did give them that new reduction).
3.) SUTA (got new rates that are retro active to 1st Qtr)
SO...what I have done is do all the payroll again long hand on ledger. Therefore I have the correct figures, however all my payroll information in Quickbooks is wrong and since the paychecks were cashes and reconciled I don't know how to get the correct figures on my computer! PLEASE PLEASE PLEASE HELP!

Cynthia Huber, CQP said...

Here is a general suggestion. Margaret, if you need more specific information, please feel free to reach out. You can post a comment here which will be sent to my email address.
- - - - - -

If you're an Assisted Payroll subscriber, you cannot adjust the liability balance for liabilities paid by Assisted Payroll (federal and state tax liabilities).

However, you can adjust the liability balance for local or other taxes not supported by Assisted Payroll.


If you're not an Assisted Payroll subscriber (or are in the process of signing up for it), you can enter an adjustment for any payroll item. For example, after you prepare a payroll tax form, you may discover that your balance for a liability payroll item needs to be adjusted. Or, while going through the wage and tax verification process during Assisted Payroll signup, you may need to enter adjustments.

Liability balance adjustments change the amounts that QuickBooks shows in your payroll reports.

To adjust the liability balance
1. Go to the Employees menu, choose Payroll Taxes and Liabilities, and then click Adjust Payroll Liabilities.

2. In the Date field, enter the date for which you are making the adjustment.

Note: QuickBooks prefills today's date, but you should enter the date that you want the adjustment to be effective. Otherwise, this item will not show up in the appropriate Payroll Summary Report.

3. In the Effective Date field, enter the date that you want this adjustment to affect your liability balance.

QuickBooks uses this date to calculate amounts on your Forms 940 and 941 and on the payroll liability balances report.

4. Choose whether to associate this liability adjustment with the company or a specific employee.

For example, if you overaccrued federal unemployment tax (FUTA) for an employee, click the Employee option and choose that employee's name from the drop-down list.

5. In the Item Name field, choose the payroll item.

6. In the Amount field, enter the amount of the adjustment.
o To increase the amount owed, enter a positive number in the Amount field. If you chose to associate this adjustment with an employee, QuickBooks displays a message that you should create a paycheck instead.
o To decrease the amount owed, enter a negative number in the Amount field.

7. (Optional) In the Memo field, enter a note to yourself about the adjustment.
The note will appear on any detail payroll reports that include this transaction.

8. Click Accounts Affected to check or modify the setting, and click OK.
See below for the answer to “Should you affect your accounts?”

9. If you need to adjust an employee's wage base, click the Show Wage Bases button.

QuickBooks adds a Wage Base column to the window. You rarely need to change an employee's wage base. Even if you overrode a tax amount on a paycheck, the employee's wage base is probably correct.

10. When you've finished adjusting the liability, click OK.
- - -

DO NOT affect your account balances if you have done either of the following:
• Previously used a general journal entry to adjust your liability for one or more payroll items
• Paid your payroll liabilities with the Write Checks window

In the Affect Accounts window, click "Do not affect accounts," and click OK.

DO Affect your account balances if you are doing either of the following:
• Adjusting your liability because of rounding differences
• Entering a credit or expense for your payroll liabilities

In the Affect Accounts window, click "Affect liability and expense accounts" and click OK.

If you adjusted an amount withheld from paychecks, enter the name of the expense account (such as Payroll Expenses) to offset the change in the liability account and click OK.

When you have completed the adjustments, run a payroll liabilities report to confirm accuracy.

Anonymous said...

As of October 1, we now use a payroll service, however, I had to pay the Liabilities for October since our check run was on October 5 for pay period 9/16-31/11. In moving over to the Payroll service I went o balance the check registry and noticed they had taken out the liabilities too. I called to inform them that I paid so they are going to reimburse the next payroll, 11/18/11. How do I post this in quickbook to be able to reconcile October bank statement and then make the adjustment once they reimburse us for November.

Cynthia Huber, CQP said...

Hi Anonymous,

To respond to your question regarding the duplication of payroll liabilities, I am going to assume that this is a 3rd party vendor that is not actually touching your QuickBooks file.

If so, I suggest that your enter the payroll company withdrawal from your bank account to the payroll liabilities account, and include a memo that this is a duplicate deduction. You may want to include your check #'s in the memo. This deduction should be done using "write check" and selecting the payroll liabilities account on the expense tab. Note that you will get a pop up message that warns you to use Pay Liabilities, but if you hit cancel, you can continue writing the check.

Then when the payroll company puts the refund back into your account, enter it by a deposit to the appropriate bank using the payroll liabilities account, and include the memo that this is the refund of the duplicate deduction.

Now you have a clear trail of the same money out and in on your check register and you will be able to reconcile.

It is unfortunate that this happened, and that it crossed months, but that is often the case. I've seen this situation before, and while not a great place to be, it is better than not having the liabilities deducted/paid at all.

Jones said...

I have recently assumed control of finances for an organization whose previous financial authority did exactly what your post said not to do. Liabilities for the past year have been paid with "write checks" and applied to a tax expense account, which really throws off the budget!

So what's the best course of action to correct this mistake?

Cynthia Huber, CQP said...

I'm sorry to hear of your situation, but glad that you reached out for help.

You said that this was only done wrong for a year, so I am going to assume that the liabilities are still showing as due to be paid on the Pay Liabilties screen and in the chart of accounts.

There are several methods, but I think it important to maintain an audit trail and keep the "incorrect" checks that have cleared in QuickBooks. Therefore here is what I suggest....

Before you start making any corrections, make a backup of the data file.

1) Print or document the checks that were originally written so you have them to review when making the corrections.

2) From the "Pay Liabiliaties" screen, "Pay" each of the taxes again by check. Use the same check number and date of the originals. QuickBooks will warn you about a duplicate check number, but say OK.

4) When you are finished, the liabilities screen and chart of accounts should be current.

4) Go back to the original checks and void each. You may want to add a note that indicates corrected via liabilities payment.

5) Now you will have to complete your bank reconciliation as you will have altered each of the months touched by this correction.

Since I will assume that you have already reconciled April, you can do one "adjusting" reconciliation and date it 5/1. Use the same ending figure as you did for April, and then check off all the checks that have been rewritten and voided. You should then print the reconciliation report and keep it as documentation of the adjustments.

You should be good to go after this. If you have any questions, please let me know. Good luck in your new position!