Payroll entry by journal - US

Here's how to post salary due to your staff, and the tax due on their wages using journal entries.

Payroll Journals

For example, Jack is paid monthly. His wages before tax for April 2011 were $1,500.

The tax deducted from that before Jack receives it is $300, which means that Jack will actually receive $1,200.

His employer must pay that $300 to the tax authority, but there's also a charge of $100 to pay to the tax authority which doesn't come off Jack's wages, so the total amount due to the tax authority is $400.

So the journal entries into FreeAgent, dated the same day as Jack's payslip, would be:

  • Debit code 401 Salaries, or 407 Directors' Salaries if Jack is a director, $1,500 (Jack's wages before tax)
  • Debit code 406 Payroll Taxes Expense $100 (the charge due to the tax authority which doesn't come off Jack's wages)
  • Credit code 902 Salary and Bonuses $1,200 (the wages that Jack will actually receive). Remember that a credit journal entry is a minus.
  • Credit code 816 Other Taxes $400 (the amount that will be paid to the tax authority)

Money paid to Jack

When you pay Jack his salary, explain that as Money Paid to User > Net Salary and Bonuses. This will set the payment of $1,200 against account 902, which shows the amount Jack will actually receive.

Paying the tax authority

When you pay the tax authority, explain that payment as Payment > Other Taxes. This will show the payment of $400 against account 816.

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