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Why do before-tax deductions in paycheck wizard use income categories?

sbaird32

When adding before-tax deductions in the paycheck wizard, Quicken defaults to using income categories (such as "Employer Benefit:Medical"). The resulting transaction has a negative amount for this category. Why not just use an expense category with a positive amount instead?

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Accepted answers

Sherlock

The categories used for before tax-deductions need to be associated with the appropriate income tax line item to reduce the reported income appropriately. The deduction will be a negative amount whether we use an Income or an Expense category.

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Sherlock

sbaird32

TIL, a given category can be applied to either income or expense transactions. That's fine I guess, except now I'm questioning the real distinction between income and expense categories. I'll get there.

Chris_QPW

Maybe an example will help.

Say I buy a coat, and put it in the category Clothing (which is an expense category), which is a withdraw.
Then I decide to return it. I want it back in the same category so that if I was budgeting for $200 for Clothing I will get that amount back, and can spend it on something else. So this is a deposit (basically a negative expense, which is "income").

The primary use of the category is Clothing/expense, but the money can move in the opposite direction.

The same is true of the tax line information. You are getting $XXX in income, but you are also getting deductions that reduce that by $YY.

sbaird32

True enough. I wonder why not also handle income taxes that way?

Andy Nestor

Income categories are always considered credits (money coming in to you) and expense categories are always considered debits (money going out to others). Credits are usually associated with deposits and expenses are associated with debit so the convention is to use positive numbers when entering deposits and also use positive numbers when entering withdrawals. Obviously, deposits are ADDED to the balance and withdrawals are SUBTRACTED. Transfers are a withdrawal from one account with a corresponding deposit in another account.

If you're tracking your paychecks in detail (gross income less deductions) then you have a split transaction with both income (salary, bonuses, etc.) categories, expense (taxes, insurance, etc.) categories and even transfers (401(k), 403(b), etc. contributions). Since a paycheck is a deposit transaction - you want to end up with a positive number (hopefully) so that the net pay is ADDED to your account balance.