How to categorize employee taxes for myself

jayjay16

Hello,

I am a single-member LLC operating as an S Corporation. I use Wave for accounting and separate software to run payroll - I am the only person on the payroll.

When pay day rolls around there are two transactions posted to my business account - one is for my net salary/wages and the other is for both the employer and employee taxes. Employer taxes are a business expense but the employee taxes are my own income tax, so shouldn't be reflected as a business expense in my chart of accounts (how I understand it anyway!). I know I can split how the transaction is categorized, but not sure how to categorize the employee taxes portion.

Any advice welcomed - thanks!

Jess

Barsin

Hey there @jayjay16

I've moved your post to the accounting thread where a lot more accountant's typically participate in answering people questions! Hopefully this gets your question answered.

Mikeg

@jayjay16,
The way I do this for my clients who use a my service for payroll is to classify all net checks as salaries and wages and all tax payments both employee and employer to payroll tax expense. At the end of the year you will need to create a journal entry to move the taxes from payroll tax expense to salary and wages. The reason this needs to happen is because the employer (your S-Corp) gets a deduction for gross wages. What is missing from the salaries and wages expense is the employee withholding to get you to gross. The balance that stays in payroll tax expense is the employer expense. Since you use a payroll service you would not have a payable at the end of the year unless you are accrual basis for tax purposes. Not likely though. You can do this gross up more often if that is your preference. To demonstrate that it works, let run through 1 sample paycheck. Facts Gross: 2400 FICA 148.80 MED 34.80 FWT 250 SWT 150. Let's also say 14.40 in FUTA and 24.00 in SUTA. Transaction journal would look like
ACH Withdrawl 1816.40 (categorize to Salaries and Wages)
ACH TAXWITH Debit 805.50 (categorize to Payroll Tax Expense)
As you can see our salaries wages is 1816.40 but it should be 2400. The difference should be the taxes withheld from employee (2400-1816.40)
Debit Salaries and Wages 583.60
Credit Payroll tax Expense 583.60
Now it agrees to the 2400 (1816.40+583.60) and payroll tax expense (805.50-583.60) 222 is my employer expense.
To prove the employer expense 2400*.0765=183.60+14.40+24=222
To prove employee taxes 148.80+34.80+250+150=583.60

jayjay16

Thanks Mike, appreciate this suggestion!