General Entry for Payroll Tax Deductions
Part of recording payroll distributions is recognizing the tax withholding and employer tax liability. Tax payments must be made on a monthly or quarterly basis, depending on the tax and the revenue agency. Understanding how to record the journal entries to reflect the payments can help with tracking outstanding liabilities and payments.
Create a journal entry to record the total payroll, including tax withholding. Debit the salary expense account for the total amount of the payroll. For example, if the total payroll for the period equals $43,000, debit "Salary Expense" for $43,000.
Credit the federal income tax and state income tax payable accounts for the total amount withheld from employee paychecks. If the federal tax withheld equals $6,200 and the state income tax withholding is $2,800, credit the "Federal Income Tax Payable" account for $6,200 and credit "State Income Tax Payable" for $2,800.
Credit the FICA Payable account for the total of the Medicare and Social Security withholding. If the Medicare and Social Security withholding equals $3,400, credit "FICA Payable" for $3,400.
Record any other withholding amounts in the appropriate accounts. For example, record employee contributions to a 401K account, insurance premiums and other withholding amounts as a credit the appropriate account for the amount withheld.
Credit the cash account for the amount issued to the employees as net pay. This amount should equal the difference between the total salary amount debited to the salary account and the deductions credited to the taxes payable accounts.
Create a journal entry to recognize the employer payroll tax liability. Calculate the total of the employer contribution for Social Security and Medicare, state unemployment taxes and federal unemployment taxes. Debit "Employer Payroll Tax Expense" for the total amount.
Credit the "FICA Payable" account for the employer contribution amount toward Social Security and Medicare.
Credit "State Unemployment Taxes Payable" and "Federal Unemployment Taxes Payable" for the appropriate tax liability for each.
Adjust the payable accounts accordingly to reflect tax payments issued. Some payments are due on a monthly basis, while others must be paid quarterly. Debit each payable account for the amount paid.
Credit the "Cash" account for the total amount paid across all tax payable accounts. The credit posted to the cash account adjusts the balance to account for the cash reduction from the payment.
Verify that the total in the credit column equals the total in the debit column before posting the entry.