Proper Allocation of QuickBooks Payroll and Tax Services

QuickBooks has been assisting accountants and business owners alike in various kinds of tasks that are related to financial accounting, such as payroll and tax services. While using this software, however, there are certain steps to take to make your work even easier.

For instance, there is an expense account in QuickBooks to which newly-created payroll items are routed. This account has been aptly named the Payroll Expenses account and is the default for any payroll expenses that you have just added into the software.

Actually, it is not necessary that they always go to that very account. You can change that particular detail so that your payroll items get mapped to an account of your choice instead. The only rule here is that you can only do so for one payroll item per expense account.

Mapping Payroll and Tax Services - Steps

It may seem like an issue to people who have to allocate more than one such cost in the different categories for the same account.

This problem can be countered easily if you are able to create two payroll items for every individual payroll expense in place of one. The first expense can be allocated to an account that displays all the costs of goods sold, whereas the second payroll item will be mapped to a payroll expense account, except that it will also have payroll taxes.

As a general rule in QuickBooks payroll and tax services, you are required to apply one payroll item per federal and state tax which compels you to select only one expense to be added to an expense account at a time. This results in the understating of all the accounts - Cost of Goods Sold and Payroll Expenses.

A lot of QuickBooks ProAdvisors suggest that you should make a monthly journal entry that allows you to shift your payroll-related taxes to the right field and category. However, we can help you go one step further and make sure that this specific task gets completed automatically each month.

You can do so by following these steps that have been explained in a simple manner -

Steps: The first thing to do here is to make one payroll tax account each, under both the other accounts - your Cost of Goods Sold as well as the one named Payroll Expenses. Here’s how you can do this -

1.    Open the Lists option in the Chart of Accounts menu.

2.    In it, you have to click the Accounts button so that you can select the New option.

3.    Here, you will have to specify the type of account, so look for the various alternatives to select from. Among these, you can find a button that has been named as Other Account Types, from which you have to choose the Cost of Goods Sold type mentioned in the list.

4.    In case you have a requirement for more such accounts, simply create more sub-accounts for whichever payroll tax that you have to pay.

a.    For more such taxes though, you must create a main or parent account that is named Payroll Taxes.

b.    While creating this account, tick the box that lies next to the Subaccount option, and then mention the Payroll tax account.

Note: If you choose a sub-account type in these payroll and tax services, make sure it matches the parent account selected.

5.    Select the Payroll Item List button from Lists and make changes to all the payroll tax items that shall be mapped to the Cost of Goods Sold accounts that you have created in the above steps.

6.    Choose New once you select Payroll Item. Here, you will have to add “Allocated Admin Payroll Taxes” which is an addition payroll item.

7.    After doing this, click on EZ Setup followed by Other Additions before mapping the addition payroll item to your regular payroll tax expense account.

8.    The default settings should not be changed, apart from Gross vs. Net, where you have to change the setting to Gross pay.

9.    Type in the expected percentage for payroll taxes but don’t forget to add the % sign after the digits. In case you want precise job costing, just create individual payroll items per tax. This allows you to set the upper limit and % for each tax and enables accurate values to be calculated, provided that you make adjustments to the upper limits annually.

For allocating admin labor into regular expenses in payroll and tax services -

10.  Define a Deduction payroll item and name it as “Admin Payroll Allocated to Admin”. Now, follow steps 7 through 10 but choose Other Deductions as your account type before mapping it to your cost of goods sold payroll tax account.

11.  All the deduction and addition items must be added in every admin employee’s Payroll and Compensation Info section.

Note: The deduction payroll item must always be placed above the addition payroll item as otherwise the net amount of pay changes.

Later on, if you have to create paychecks for the same employees, simply know two things. One, that addition payroll items raise payroll expenses, and two, that deduction payroll items reduce the cost of goods sold by the exact value. Editing of prior paychecks can also be done if you unlock them while paying mind that the deduction item is always listed before the additional item.