Payroll tax liabilities -vs- expense

[Turning Point]

Although we use a payroll service I really want to understand how powerchurch uses the funds regarding payroll taxes. I don't know if our system is set up correctly but maybe someone can help me.

As near as I can figure out, when our checks arrive and I enter the information into power church, Federal and state income taxes, Employee SSI and Medicare, Employer SSI and Medicare and Local taxes are all put into the appropriate liability fund (employee/employer SSI and Medicare are not separated by Employee/Employer but by SSI or medicare).

In addition the Employer SSI, Medicare and local taxes are also entered into the Payroll tax expense fund. Is this correct?

So should I move the funds from the liability accts to the expense account before I enter the taxes paid or just debit the liability acct and credit the expense acct.

I'm not stupid but for some reason I cannot get my head around this.

[NeilZ]

Although we use a payroll service I really want to understand how powerchurch uses the funds regarding payroll taxes. I don't know if our system is set up correctly but maybe someone can help me.

As near as I can figure out, when our checks arrive and I enter the information into power church, Federal and state income taxes, Employee SSI and Medicare, Employer SSI and Medicare and Local taxes are all put into the appropriate liability fund (employee/employer SSI and Medicare are not separated by Employee/Employer but by SSI or medicare).

In addition the Employer SSI, Medicare and local taxes are also entered into the Payroll tax expense fund. Is this correct?

I'm guessing by 'local taxes' you mean state required employer taxes? They would be DEBITS to the Payroll Taxes account.

So should I move the funds from the liability accts to the expense account before I enter the taxes paid or just debit the liability acct and credit the expense acct.

I'm not stupid but for some reason I cannot get my head around this.

If you were using Powerchurch to do payroll, what would happen is that the system would figure out the income taxes and put them in the proper liability account. There would not be any expense account for this, as income taxes come out of an employee's salary.

For Social Security and Medicare. You would have a 50/50 contribution. The employee's part of these taxes would again come out of the salary, and put in the proper liability account. The employer part of the taxes would come out of a Payroll Tax expense accouunt (Powerchurch usually sets one up during initial COA creation).

You DO NOT move anything FROM liability to expense, it flows the other way around.

Take a look at this transaction for payroll:


Not knowing how you enter your information I'm going to assume that you're entering via a Manual Check.

The first line is the actual amount of the NET salary after all taxes and other deductions. That CREDIT is directly against the CHECKING account as you see there.

The next line is the SALARY EXPENSE, this is the budgeted line item for the position, note it is DEBITED against the expense.

The next FOUR lines are self explanatory. They're all taxes, and a liability to the church. ALL those are CREDITED into the proper liability account.

The next TWO lines are the employer's share of the Social Security & Medicare taxes. Note the DEBIT to the Payroll Tax EXPENSE, a budgeted line item. The same amount is theno CREDITED to the liability account.

The following TWO lines are the employer's Medicare share, again a DEBIT to Payroll Taxes, and a CREDIT to the proper liability account.

Finally, this employee pays toward their health insurance, which is taken against salary, thus a CREDIT to the Health Insurance Withheld liability.

If you total the 1st, 3rd, 4th, 5th, 6th & 10th lines' CREDIT amounts, they equal the DEBIT amount on line 2. They are all deductions from the employee's salary.

Does this help ??

[Turning Point]

Very Much! I will take some time to study this against what is in our PC. Thanks!