Are payroll withholding taxes an expense or a liability?
Payroll taxes withheld from employees’ wages and salaries are liabilities of the employer. The payroll taxes withheld from employees include the employees’ portion of the FICA or Social Security and Medicare taxes, federal income taxes, and state income taxes. The amounts withheld are really the employees’ money that the employer is required by law to withhold and remit to the government. In other words, the employer is acting as an agent by withholding and remitting the employees’ money. These taxes are not expenses of the company withholding them. They are a liability until the money is remitted to the government.
Payroll taxes which are not withheld from employees are expenses of the employer. Two examples of payroll taxes that are not withheld from employees but which must be remitted to the government by the employer are the employer’s portion of the FICA or Social Security and Medicare taxes and the state and federal unemployment taxes. Since these are to be paid by the employer, these are expenses. They are also liabilities until the employer remits the required amounts to the government.
Learn more about Payroll Accounting.
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13 Responses to “Are payroll withholding taxes an expense or a liability?”
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I reply for having details in accounting and
financial matters.
I’m no expert, but it is my understanding that payroll withholding taxes are a lliability when accrued and an expense when paid.
Eunique
I am no expert either, but I do agree that payroll taxes are both expense and liability. The employer’s portion is an expense to the organization, and the employees portion forms the liability along with the employers portion untill they ate both remitted.
Now, I am curious as to how the liability(employees portion withheld) is recorded on the books. I imagine that the employers portion is recorded with a debit to the expense and an offsetting credit to the liability. Upon remittance, the liability is debited and the bank credited.
I am not sure how the with holding would be handled? Any Ideas?
Sure liabilities
employee withhold tax is both liablity and expense. Because the gross amount is expense and th tax amount which is deducted from the employee is a liablity for the comany.
eg. x company paid a gross salary of 10000 and the tax amount calculated outof this amount is 2000. The entry for this transaction is
salary expense—–10000
tax payable—————–2000
cash—————————8000
The 2000 tax is with held from the employees and is going to paid to the government.so this 2000 is clearly seen in the 10000 expense and as a liablity. I think this coul be the answer
MEKONNEN TADESSE
FROM ETHIOPIA
EMAIL mekotad@yahoo.com
For sure employee withholding taxes are liabilities to the employer and not an expense because these are monies of employees withheld only by the employer to be remitted to the government agencies and remains to be a liability until remitted to the government agencies.
Payroll taxes that are shares of the employers , are always an expense to the employer.
When remitted to the agencies the entries are:
DR: Payroll taxes
DR: Withholding Taxes
CR: Cash
Payroll withholding tax is an liability
The whole amount that constitutes a payroll (salaries and wages) for employees is an expense to the employer. The liabilities arise from the statutes that require an employer to remit the deductions from employees to the government agencies.Therefore, liability exists as long as the funds have not been remitted i.e accrued.
The starting point is that since they form part of the salaries and wages, they are an expense.
My contribution to the question is that
1. Payroll is an expenses that must appear in
the P & L or Income Statement.
2. Payroll also becomes a liability on the side of the employer when not paid to employee as at when due.
3. Portion of tax deducted from employees’ salary also become a liability on the employer when not paid to eployee as at when due.
This is to thank you for the accounts information you send.
I have greatly improved my accounting skills.
Guess i can now do an interview and pass it with no doubting questions.
Thanking you
Ococi Annette Uganda.
dear sir
how are you I have deploma in accounting but I want to have degree so how do I continue my degree program.
thanks
haileyesus
Its that easy,just search universities which ofer degree prograamme and apply for admission.
Thanks for all the q & a’s which are generally arise.