Employee-paid payroll taxes are also being included in P&L as part of employer-paid wage expense

Question

How the heck to I set up employer-and employee-paid portions of payroll taxes?

I am using Quicken Business and Personal with a small, two-person corporation. It's just me and my spouse. I use a third-party online payroll service to calculate and remit my payroll taxes.

I need to be able to correctly record the separate employee paycheck deductions and the matching employer contributions to FICA, Medicare, FUTA, and a state disability tax. That is, employees are paid, and deductions are taken. Then the employer contribution needs to be added so the entire amount is withdrawn by the payroll service for the tax remittance to the Treasury Department.

At present, these aren't categorized correctly, and as a consequence, my Profit and loss reporting double-counts the employee share of payroll taxes. These are included in the employer's wage expense and then again as an employee-paid expense.

When I record monthly pay checks, in the business account I start by paying wages. From these I split out deductions for taxes and 401K salary reduction. The taxes are categorized using the W-2 tax categories. There will be lines for income tax withholding, FICA, Medicare, 401K, and a state disability tax. I need to be able to get to a transaction total that matches the net paycheck. But how do I do this if the wages should be recorded as a debit to the company while the employee tax deductions are to be recorded as a credit to the company?

When the payroll service makes its deduction from the company's checking account, that transaction is split as Fed 941 (a single line combining income tax and both the employee and employer contributions to FICA and Medicare), Fed 940 (FUTA), and the state disability tax. I have to get to a transaction total that matches the amount being deducted for all the tax remittances.

Clearly, bookkeeping is not my forte, but I'm surprised I've not been able to find clear instructions, either here in the Community of Quicken users or in Quicken's "help" file.

Quicken Kristina · Answer

Thank you for the follow up,

I'm glad to hear correcting the categories fixed the issue with double counting.

Feel free to reach out if you need further assistance!

mark320 · Answer

Thanks for focusing my attention on the categories that are being used. I need to have employee tax categories that handle the deduction of taxes from employee pay. And different categories that handle the employer contribution to taxes. And categories to handle when both employee and employer taxes are withdrawn from a third party payroll service to be remitted to Federal and State taxing authorities.

I think I've got all those categories corrected and my Profit & Loss Statement is no longer double-counting the employee 941 amounts (income tax and the employee portion of FICA and Medicare).

I was looking for a solution that would avoid the creation of liability accounts and such and I think I've got it now.

Quicken Kristina · Answer

Hello @mark320,

Based on what you're describing, I assume you are using categories assigned to a Schedule C Tax Line Item to document the employee contributions.  Schedule C is what would tag it as a business income/expense instead of a personal income/expense.  That may be the reason you're seeing it double documented; the business already paid the $ to the employee, but then withholds it from the employees wages as the employee's contribution to taxes/benefits.

What tax forms are used to document these employee contributions?  If Quicken has a tax line item for those forms, then you may want to try assigning those tax line items to the categories you use to document employee contributions.

I hope this helps!