Payroll Expense Journal Entry-How to record payroll expense and withholdings

Payroll expense and wihholdings is one of the most complex journal entries that a company will see regularly. Part of the reason for the complexity in payroll journal entries is the legal requirement for the employer to withhold taxes and provide optional benefits. When thinking about payroll tax journal entry it is useful to start at the basic journal entry level. On a basic level the payroll journal entry would be similar to paying any expense with a debit to payroll expense and a credit to cash. The problem is the we will not be paying the employees the same amount they earned because we must withhold part of their earnings. Therefore, the payroll expense amount stays the same, the debit stays the same, because it represents what was the earned. The credit will be broken out into multiple components. We will credit liability accounts for payroll taxes payable. We will credit a liability accounting for social security payable, Medicare payable, and federal income tax FIT payable. We will credit payable accounts, liability accounts, because this is money earned by the employee that we owe to a third party, the government, and will pay on the employees behalf. We may also withhold things like union dues, health care, and retirement plans. The difference between the earning we debit to salaries expense and the credits to the payable accounts will be a credit to cash and equal the amount we actually pay to employees. For more accounting information see website.…


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