AccuraBooks Payroll Taxes to Wages Payroll Adjustment
This article addresses one of the more common payroll adjustments needed in your bookkeeping; the purpose is for the proper recognition of your gross wages.
Typical outsourced payroll providers withdrawal your bank account mainly for the following three reasons:
- Total wage payouts to your employees
- Total tax payouts to tax agencies
- Fees charged by the payroll providers
What we typically need to manually address here is the one for the total tax payouts to the tax agencies.
The withdrawal for the tax payouts is for the total of all taxes collected, thus paid by both the employee and employer.
The payroll taxes paid by the employee are going to be deducted from their gross wages; thus these types of tax payouts are really just gross wages payouts by the employer. So, the employer’s bookkeeping needs to recognize that a portion of (per item number 2 above) the total tax payouts to tax agencies are gross wages (and not payroll tax) deductions in their books.
To ascertain this information for purposes of posting this payroll adjustment in your (the employer’s) books, you need to obtain a payroll journal report that clearly shows you what the total employee tax deductions were (example: Federal Withholding and the employee’s portion of social security and Medicare).
The payroll adjustment that you post should put back a portion of (per item number 2 above) the total tax payouts to gross wages (assuming you had previously booked this particular bank withdrawal completely to “Payroll Taxes Expense” or something like this). To do this, the adjusting journal entry should be:
- Credit to the Payroll Taxes expense account (this will reduce this account)
- Debit to Gross Wages (this will increase this account)
Note: AccuraBooks is a bookkeeping firm only, so please consult with your C.P.A. for verification and clarification about the contents of this article.