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Payroll Questions

Here are some fast answers to questions recently asked through the Fathom site.

Use our contact form to submit a question for Fast Answers.

Show/Hide AnswerWhere do I report Payroll Taxes on the Balance Sheet?

Your payroll tax liability is created automatically when you create paychecks. The liability accounts are in the liability section of your balance sheet and should show the amount of tax due on the date of the balance sheet. The expense portion of the payroll taxes will show on your Profit and Loss, most likely in an account named Payroll Expenses or Payroll Tax Expense.

Show/Hide AnswerShould a sole proprietor be listed as an employee?

No, the sole proprietor should be listed as an other name. An easy way to remember: vendors are folks you buy from, customers are those you sell to, employees are those who work for you (subcontractors are vendors), and other names are those who do not fall into any of those categories. More information on names -->

Show/Hide AnswerHow do I enter auto allowance payments in payroll?

First contact your CPA and determine if auto allowance payments should be treated as a taxable payroll item in your situation.

Information on the IRS standard mileage rates is available.

Assuming your auto allowance is not considered taxable, you can use the EZ setup to establish the Payroll Item. In the Payroll Item List window, select Payroll Item, New, EZ Setup and click Next. Choose Other Additions, click Next and choose Mileage Reimbursement, then click Finish. You can then double click the new Payroll Item, Mileage Reimbursement to edit to the track expense by job, to change the Account it is recorded in from Payroll Expenses to Mileage Reimbursement (or other appropriate name in your chart of accounts) and to add a default rate. Do not change any of the tax related settings. This payroll item should be calculated on Net Pay.

Show/Hide AnswerHow do I do waitress payrolls?

The major difference with waitress payroll is the requirement that tips be recorded and are subject to all payroll taxes exactly the same as hourly wages. Any employee who receives tips needs to keep track of tips and report them to the company so that the tips can be taxed appropriately. To set up for tips, you will need to create two new Payroll Items. You can use the EZ setup method and then review items to be sure they are set up correctly for your situation. In the Payroll Item List window, select Payroll Item, New, EZ Setup and click Next. Choose Compensation and click Next. Choose Other Compensation, Tips and click Next. Choose Reported cash tips if your employees receive their tips daily in the form of cash. Choose Reported paycheck tips if your employees receive their tips on their paychecks. Choose Reported cash tips if your situation requires a mixture of tip payment methods. Click Next and Finish. QuickBooks will create one or two new Payroll Items: Reported Cash Tips and Reported Cash Tips (Offset). I suggest changing the name of the offset item to Tips Offset to avoid having two items with names starting with the same characters. Edit both of the tip related items and change both occurrences of Payroll Expenses to a liability account, Tips Recon, a sub-account of Payroll Liabilities. Be careful to change any of the other settings.

You can find helpful information on tip reporting requirements on the IRS site.
If your employees receive cash tips directly, when you do payroll, just enter the amount of tips your employee reports on the Reported Cash Tips and Tips Offset line. If you include payment of tips on the paycheck, then leave the Tips Offset item blank. If you pay a portion on the tip on the paycheck, then fill in the total Reported Cash Tips with the full amount of tips the employee receives and the Tips Offset with the portion of the tips they have already received; the balance due the employee will then be included in the paycheck.

Once payroll is completed, check your chart of accounts, Tips Recon balance should be zero if your employee receive their tips prior to receiving their paychecks. You do not want to include the tips on the paychecks if your employees have already received them.

What QuickBooks does is include the Reported Cash Tips amount in the gross pay, and then deduct the Tips Offset from the net pay.

Show/Hide AnswerHow do I enter a beginning balance for Futa?

You would generally only need to enter a beginning balance for Futa when you are starting a new company in QuickBooks or starting to do payroll in QuickBooks and have a balance for a prior year. You would enter the beginning balance for Futa exactly as you entered all other beginning balances. Review some tips for setting up payroll in QuickBooks before you start and set up separate accounts for 941 taxes, state and local taxes and Futa taxes.

Show/Hide AnswerHow soon can I prepare my 941 quarterly payroll reports?

You can complete all of your payroll reports as soon in the quarter after you have completed your final payroll for the quarter.

Show/Hide AnswerDoes a 940 need to be filed quarterly?

No, 940 Futa Tax Report is filed annually usually by the end of January. Futa taxes are due quarterly if the total for the year to date is $500 or more or if the total for the year will be over $500.00. If there is a chance that your Futa tax will reach $500 during the year, make quarterly payments to be safe from penalties.

Show/Hide AnswerIs Child Support a Sub-Account of Payroll Tax?

Child Support would normally be a current liability account and should be a sub-account of Payroll Liabilities. When set up correctly, your deductions from employee's payroll checks will post to the Child Support Liability account. When you make your child support payments, this account should then zero out. You should reconcile this account quarterly or annually, depending on activity, just like you reconcile your bank accounts.

It is a good idea to set up separate child support liability accounts for each state or jurisdiction where you will be required to make payments.

Show/Hide AnswerCan I manually update QuickBooks Payroll Tables?

No. You must download the payroll updates from QuickBooks.

Show/Hide AnswerCan I use QuickBooks payroll if my subscription expires?

Yes. Follow the manual payroll instructions here.

Show/Hide AnswerDoes QuickBooks calculate Social Security if you do manual payroll?

No, QuickBooks will not calculate any of the payroll deductions. It will calculate the gross pay when you enter the hours and rate.

Show/Hide AnswerAre payroll taxes included in payroll expenses?

The employer's portion of payroll taxes are included in expenses. Your payroll expenses are your gross wages and the employer's share of payroll taxes. Your payroll liability accounts include both the employer's and employee's share of payroll taxes. When you create a paycheck, QuickBooks posts all the necessary entries. You should review your Payroll Item List.

Show/Hide AnswerWhat if I give my employee a cash advance?

Cash advances should be posted to an asset account named Employee Advances. When you create the next paycheck for the employee, you can hold back the amount of the advance. If it is a large advance and you have an agreement for the employee to pay it back over a period of time, then you can hold out a portion of the advance over a number of paychecks. Be certain that when you record the employee advance you use the employee's name from the Employee List and not a version of the name from the Vendor or Other Name List.

Show/Hide AnswerHow do I set up employee advance accounts?

Go to Lists, Chart of Accounts and create a new asset account. You should also set up a Payroll Item. Go to Lists, Payroll Item List and hit Control N. This will bring up the new item window. You can select the Custom Setup button. Click Next and choose Deduction. Click Next, and type in the name Employee Advance. Click Next and change the Liability Account to your new asset account: Employee Advances. Click Next and set Tax tracking type to None. Click Next, Next to Gross vs. net window and choose net pay. Click Next and Finish.

Show/Hide AnswerHow do I know if an employee has fully paid back an advance?

To see a report of all employee advances and paybacks, go to Reports, Custom Transaction Detail Report. In the Modify Report window, change the Dates to All and change Total By to Employee. Change the account filter to the Employee Advance Account. You can also change the columns displayed if you like.


Advice and tips provided on the Fathom Graphics website are not a substitute for advice from your CPA, tax preparer or attorney. We are not CPAs or attorneys and do not provide legal or tax advice.