When it comes to reconciling payroll, many QuickBooks Payroll users are concerned with aligning their payroll records to their bank statements. There are, however, other related tasks that are important, like learning how to reconcile payroll liabilities in QuickBooks. This consists of you researching outstanding payroll debts, like payroll taxes or benefit premiums, that haven’t cleared your general ledger accounts in a reasonable time frame. You may do this on an annual basis, but doing it monthly saves more time in the long run.
1. Make a List of Your Liability Accounts
The first thing you need to do is make a list of all your payroll liability accounts.
Here’s a list of the payroll liability accounts you may need to reconcile. Keep in mind that you can create additional accounts as needed, depending on how specific your accounts need to be.
- Federal Income Tax Withholdings Payable: Federal income tax you deducted from employee paychecks but haven’t paid to the IRS.
- State Income Tax Withholdings Payable: State tax you deducted from employee paychecks but haven’t paid to applicable state tax agencies; local income taxes may fall under this category or you can create a similar account to house only that.
- FICA Tax Payable: This includes both employee and employer Social Security and Medicare taxes that are outstanding; half is deducted from employee pay, and the other half is a business expense.
- 401(k) or Retirement Benefit Premiums Payable: This account consists of deposits employees make to their 401(k) accounts; you can also deposit any contribution your business is matching into this account; the money should stay in the account until you pay it out.
- Health Insurance Payable: This account should hold any employee insurance premiums plus health insurance premiums that have been recorded as an expense to the business but is still waiting to be paid.
Remember, since you’re reconciling liability accounts, the funds should remain in the account until you pay them out. Any funds that aren’t routinely clearing from your payroll accounts, like retirement benefit premiums that are paid out monthly, indicate there may be a problem. For instance, a bill payment may be late, or a transaction could be booked to the wrong account(s).
2. Create Transaction Labels to Separate Employee and Employer Payroll Liability Transactions
QuickBooks allows you to assign transaction labels, so you should consider identifying employee and employer funds (EE can be short for employee, and ER can represent employer contributions). This will help you organize data much faster when you need to research payroll liabilities.
- Turn on Tagging: Go to Settings and then QuickBooks Labs
Tagging transactions is available in QuickBooks Labs. To turn it on:
- Find the Tags feature and turn it on: Click Done when you get confirmation that the plug-in has been added.
- Create a new tag group:
Go to Settings and choose Tags.
Select New, then Tag Group.
Name the new tag group “Payroll Liabilities.” Then click Save.
Click in the box under Tag Name, and enter a tag label, i.e., EE (to represent employee transactions as discussed above). Click “Add,” and repeat to add any additional tags you need (like ER for employer transactions). As you enter transactions that affect your payroll liability accounts into QuickBooks, you’ll just enter the appropriate tag name in the Tag field and select it.
3. Set up Payroll Liability Reconciliation Sheets
We recommend downloading our payroll reconciliation spreadsheet to help document the activity in your accounts. Make copies for each payroll liability account, and create a new copy at the end of each period, depending on how often you intend to perform the reconciliations—remember, monthly is ideal. Enter the liability account name at the top of the spreadsheet along with the beginning and ending balance for each that ties to the general ledger balance records. Leave space for reconciling items.
Definition:
Reconciling items are transactions that may not be showing in the general ledger correctly or at all. You’ll recognize reconciling items because they won’t clear out of the account smoothly or in a timely manner.
This is an example of a payroll reconciliation report.
4. Print Reports From Your QuickBooks Payroll Software & General Ledger
The great thing about using QuickBooks is that it makes it easy to reconcile your payroll liability accounts. You can print payroll reports using its payroll feature and make any adjustments to the general ledger within the same software. To get started, you’ll need reports from both the general ledger and the payroll software.
Print Transaction Reports in QuickBooks
If you’re reconciling payroll liabilities in QuickBooks on a monthly basis, you’ll need a monthly transaction report for each payroll liability account. It should show both the beginning and ending balances for the time period.
Select Accounting and then Chart of Accounts.
Click the liability account you need to reconcile, and select the drop-down arrow beside the View register. Then, click Run Report.
You’ll see a list of transactions in the account, but if it includes too much data, or not enough, you can adjust the dates the report covers by selecting the box on the left of the report date. Here, you can choose to have the report cover data from the last 30 days, 90 days, and even the entire year. You should also enter data for the report in the box on the right—the current date should suffice. When the report is ready, you can click the printer icon on the far right of the page.
Repeat this process for each payroll liability account you need to reconcile.
Print Reports From Your Payroll Software
Reports you may need to gather from your payroll software are a payroll register, payroll tax report, payroll deduction report, etc. You might also need to print payroll cash reports or itemized invoices from your benefit vendors if the issue requires more in-depth research.
For more guidance, check out our guide on how to print QuickBooks Payroll reports.
5. Review Each Payroll Liability Transaction & Reconcile Outstanding Items
After printing your reports, it’s a good idea to download the transactions from QuickBooks into an Excel spreadsheet. It makes it easier to organize the transactions so that it’s clear which amounts cleared and which did not.
Select the Export icon in the upper right corner and then click Export to Excel.
When I was an accountant, I always copied and pasted the transaction list from the Excel spreadsheet to a tab in the reconciliation sheet. This helps to ensure all supporting data you are using to put together your reconciliation report is all in one place.
Now, it’s time to check the ending balance in the account.
You’ll see the ending balance in two places:
- The last cell under the amount column after all transaction amounts—it should show as a bold number.
- In the far-right cell, under the Balance column, on the last transaction row.
If there is a balance at month-end, meaning it’s not $0, you’ll need to evaluate each transaction amount to find the one(s) that did not clear out completely. In our example below, the ending balance in the payroll liabilities account for the period is $50.
You may find it helpful to delete the transactions that net to $0, for instance, health insurance premiums you collected from an employee—when they are withheld from the employee’s paycheck and when they’re paid to the insurance vendor. In our example below, the positive $150 which consists of two transactions for Vicki King net to $0 when combined with the $150 paid out to the health plan administrator.
Pro Tip: Since you’ll be deleting transactions to find what you’re looking for, I recommend maintaining a separate tab that shows all of the transactions, whether they cleared or not. This ensures you always have all of the original data in your reconciliation report.
6. Fix Payroll Liability Reconciling Items
Once you determine the transactions that make up the final balance of each payroll liability account, you should assess whether or not the transaction amounts should be there. If it’s a Quarter 1 tax deposit you withheld from an employee’s paycheck and it’s now Quarter 3, there’s probably an issue you need to resolve. At this point, you would pull your Quarter 1 tax payment reports, preferably itemized, so you can figure out why and/or if this payment was inadvertently left out.
When dealing with benefit premiums, you might need to pull the related invoice to see who you were charged for and how much. You’ll also need to take a deep dive into the payroll deductions you received for the period. Assess whether they align with what you were charged and what was paid out.
Depending on the answers your research uncovers, you may need to reverse a transaction and give an employee a refund, work with your benefits provider to determine if an invoice needs to be corrected, or keep the money to pay on your next month’s bill.
The most common reconciliation items you may encounter are:
- A voided check that was never cleared from the general ledger (using QuickBooks for both accounting and payroll help prevent this since they’re seamlessly integrated).
- There was an error on the invoice your benefits provider billed you.
- Employees were terminated, but you’re still expensing employer match funds for retirement and other benefits for them.
- You expensed amounts to the business that employees were responsible for.
When learning how to reconcile your payroll liabilities in QuickBooks, take your time and dive deep. You may need to review several months of records, call providers to get itemized invoices, request revised invoices, and even work with your bank and tax agencies. If you have a good payroll accounting system in place and do your payroll reconciliations monthly, the time you spend reconciling payroll liabilities in QuickBooks should be minimized.
If you haven’t started using QuickBooks Payroll yet and need help setting it up, check our guide on how to set up QuickBooks Payroll.
Bottom Line
QuickBooks makes it easy to reconcile your payroll liabilities. Its payroll service and accounting features are integrated, which helps to ensure that your payroll data is accurate in both systems. In addition, you get access to labeling and easy export/print reporting features that help you identify reconciling items much faster, so you can get back to the important things.
Submit Your Comment
You must be logged in to comment. Click a "Log in" button below to connect instantly and comment.
LOG IN