By default, QuickBooks posts all payroll liabilities to a single account named, Payroll Liabilities. The postings are amounts that are deducted from paychecks, or amounts that are generated by some obligation the employer incurs by virtue of payroll.
So, taxes of course create these transactions. But also health insurance, retirement plans, any amount triggered by a paycheck.
At some point, often year-end, the account balances in QuickBooks must be reconciled in preparation for financial statements, income tax return, or various other reasons. It may be that the amount in the Payroll Liabilities account is incorrect. Where to look for the error?
This can be a very tough assignment for an accountant or bookkeeper. There are likely thousands of transactions posted to the Payroll Liabilities account.
There is an easier way. Tell QuickBooks to post those deductions and employer-paid amounts to separate accounts. Depending on how this is done, there are likely to be one tenth or less the number of transactions in each liability account.
This is a simple process. First, navigate to the Payroll Item List (Lists->Payroll Item List).
The tax items fall in the bottom portion of the list. The QuickBooks Payroll Setup program creates these when you purchase a payroll subscription from Intuit and complete the setup process in the software.
A double-click of the left mouse key on one of tax items brings up the edit window. Click on Next and QuickBooks will proceed to the second window of the edit process.
The screenshot is the payroll item for Federal Withholding. It appears here as the QuickBooks Payroll Setup program will create it. The liability account is Payroll Liabilities.
Click the down arrow at the right edge of the account field and the entire list of accounts from the chart of accounts appears. It may be that there is no account that would be a better fit than Payroll Liabilities. For this situation, click on Add New at the top of the list.
Adding a new account ‘on the fly’ while editing payroll items is a very simple process.
Creating these new accounts as subaccounts of Payroll Liabilities will keep them all together on the Account List.
With this new account selected as the liability account for the payroll item, proceed through the remaining windows. When saving at the end, QuickBooks requires one more setting that it displays in a popup window.
QuickBooks presents three options for updating payroll transactions already in the file. While updating all the payroll transactions in the QuickBooks file is usually not a problem, the more cautious approach is to choose a specific date for updating.
Typically, the best date for updating the existing transactions would be the beginning of a calendar year.
As you proceed through your list of payroll items, you can break them out into two or three accounts, or a separate account for each one. That decision is completely up to the QuickBooks user, but six to eight subaccounts for the tax items alone will give you a much easier trail to follow if someone finds a discrepancy at year-end.