For every business owner, handling payroll liability is very simple, important, and overwhelming. You can start the payroll process to record and refund the amount with an easy-to-use interface. If you make payments in payroll liabilities by crossing its limit, then the balance will become negative. To fix this problem, you may need to create and record a payroll liability refund check for which the balances of liability increase in order and nullify the reports’ balance. In this blog, we’ll guide you on how to record a Payroll Liability refund check with a guide to run your business.
What do you mean by Payroll Liability?
Payroll liability is one type of owed amount by a business, but sometimes it has been paid for expenses related to employees. Until it was paid as a short-term debt, in this case, the wages, payroll taxes, health insurance, and retirement contributions are also included in it. While reviewing the payroll liabilities and balance sheet report, all the unpaid amounts appear under the current liability. Employers must track these carefully to avoid penalties and ensure that the records are accurate. While you record a payroll liability, take proper management to keep the finances organized and maintain trust with employees and stakeholders.
Why Accurate Payroll Liability Refunding Matters?
Accurate payroll liability refunding makes you sure that you can get the returned amount correctly, including any deductions or overpaid taxes. This feature helps to maintain the accuracy of your finances, prevent issues with compliance with tax authorities, and keep the records of employees correctly. While ensuring smooth payroll management, this protects your business’s finances and reputation.
How to Refund Payroll Liability ?
Here are some simple steps briefly explained on the refund process, in the following ways.
If You’re Using QuickBooks Desktop
Step 1: Check the Liability Balance
- Go to the Employees section, then click on the payroll center, and open the pay liabilities tab.
- Always remember to check the liability balance in which it has any extra amounts or errors.
Step 2: Record the Refund Check (if you got one)
- Go to the Banking option, then press on the Make Deposits bar.
- Choose the bank account and select it, where the refund went.
- Enter the agency or vendor’s name (like IRS) in the “Received Form” column.
- Choose the liability account in the Form Account field (like Payroll Tax Payable).
- Enter the refund amount and save it permanently.
Through these records, your overpayment can be refunded by the agency.
Step 3: (if needed) Adjust Payroll Liabilities
- Even if QuickBooks Desktop still shows you as owing the money after a refund, you may need an adjustment for it.
- First, go to Employees, then click on the Payroll Taxes and Liabilities option, then open the Adjust Payroll Liabilities.
- Enter the refund date in the “Effective Date”.
- Choose the Company for which the adjustment is for.
- Choose to select the correct Liability Item, like Medicare Employer, FUTA, etc.
- If you got the money returned, just enter the negative amount.
- Add a memo, like “Tax has been refunded from the IRS.”
- Click OK to save them.
Step 4: Review Your Payroll Reports
- Go to Reports and click on the Employees & Payroll option, then open the Payroll Liability Balances.
- Review to confirm that from now on, the liability account shows the correct balance.
If You’re Using QuickBooks Online
Step 1: Record the Refund
- Go to + New option or a tab, then open the Bank Deposit section.
- Identify the bank account which one you want to choose for the refund.
- Pick the vendor or agency from the Received Form that was under it.
- Choose the Payroll Liability account in the Account column.
- Before clicking the save option, enter the amount.
Step 2: Adjust Payroll Liability (if still showing due)
- For Tax setup, go to Payroll, then click on the Employees tab, and after that open the Payroll Settings for Payroll Liabilities.
- Find the option where you can adjust liabilities.
- Enter the negative amount for a refund by choosing the tax or deduction item.
- At last, click on the Save button for the adjustment.
Important Notes
Instead of using an adjustment, never delete or remove old payroll payments to fix any errors.
First, consult your accountant before adjusting; if the refund is only for employee tax withholdings, it can affect the W-2s or filings of employees.
Always try to keep a record of refunds in the same liability account, whether it came from payroll tax payable or federal.
How to Record a Payroll Liability Refund Check?
A payroll liability is one type of money that your business owes to others due to operating a payroll without clearing the pay.
It includes
- The earned wages of the employee have not yet been paid.
- Like income tax, PF, ESI, etc., employees withheld the taxes.
- Own payroll taxes of every employer.
- Insurance premiums or loan repayments are like the other deductions.
- Until you pay the things that you owe, the amounts are still liabilities.
Example Scenario
Let’s see the payroll that you have owed to run.
- $50,000 Gross wages
- $5,000 Employee income tax withheld
- $2,000 Employee PF contribution
- $2,000 Employer PF contribution
- $43,000 Net pay to employees
Step 1: Record the Payroll Expense
Record the wages and withholdings when you allow the payroll to process, like this:
| Account | Debit | Credit |
| Salaries & Wages Expense | $50,000 | |
| Employee Income Tax Payable | $5,000 | |
| Employee PF Payable | $2,000 | |
| Employer PF Expense | $2,000 | |
| Employer PF Payable | $2,000 | |
| Cash (or Wages Payable) | $43,000 |
Explanation
- They increase the cost of your business with debit expenses.
- You credit the amounts of liabilities that you have owed but still haven’t paid yet.
- If not paid, the net pay $43,000 goes to the employees to stay as “Wages Payable”.
Step 2: When the Employees are paid by you
When the salaries are transferred to employees in real-time, the bank accounts should be like:
| Account | Debit | Credit |
| Wages Payable | $43,000 | |
| Cash/Bank | $43,000 |
Now, the net pay is cleared for liability.
Step 3: When the payments are made to the Government and Others by you
While the taxes and contributions are remitted through you later.
| Account | Debit | Credit |
| Employee Income | Tax Payable | $5,000 |
| Employee PF | Payable | $2,000 |
| Employer PF | Payable | $2,000 |
| Cash/Bank | $9,000 |
Now, all payroll liabilities are fixed and settled down.
Summary
| Step | What Happens | Type of Entry |
| Process Payroll | Liabilities and expenses are recorded. | Credit the Liability for debit the expense. |
| Pay Employees | Clear net pay liability | Debit Liability, Credit Cash |
| Pay Deductions | Clear liabilities properly | Debit Liability, Credit Cash |
Important Tip
- Only record the date when employees earn the payroll, not when they are paid.
- To make sure you reconcile your liability accounts monthly, because nothing is unpaid or overstated.
- For accuracy and audit purposes, keep the documents supporting, like pay slips, tax challans and PF/ESI returns.
Conclusion
In conclusion, we hope this blog helps you record a payroll liability. Through this process, you’ll learn the process of managing the record of payroll liability refund checks, which will take you in the right direction to keep records properly and carefully. In order this’ll help you to keep your reports of the balance sheet as well as the payroll liability. For expert advice, you can contact the QuickBooks support team for any help.