How To Record Tax Refunds In QuickBooks Desktop?

  • December 31, 2023

QuickBooks allows you to record the Tax refund and register tax transactions. You should always maintain tax transactions in the Tax Payable Account so that they can be picked up by reports and make sure the entries are to be made through the official entry forms. For recording the IRS refund you should get in touch with our experts.

To Record, the Tax Refund In QuickBooks Desktop Follow The Steps Given Below

  1. Go To QuickBooks Software
    1. Open your QuickBooks software.
    2. Then from the top menu line go to the supplier's menu.
  2. Choose The Tax Activities Group
    1. Next choose the Tax Activities group and select the Manage Tax option.
    2. After that, you need to click on the Receive Tax Refund button.
  3. Fill in The Details & Save.
    1. Now fill in the details in the make deposit screen along with the amount that is to be refunded.
    2. Next, see the details and click on the save and close button.

Alternative Steps to Record Tax Refunds in QuickBooks Desktop

Tax refunds can also be added by depositing them in the QuickBooks software. It also helps you in completing the purpose of the Deposit option. When you are using QuickBooks online, you should use the bank deposit feature to manage the refund received from tax. The details need to be saved for properly recording your tax refund in both software.

Listed below are the comprehensive methods for registering your tax refund in QuickBooks Online:

Step 1: Registering a Tax Refund in QuickBooks

Tax refunds can be added or registered in QuickBooks with the help of suppliers. The menu is located in the main menu of the accounting software.

  • Use the QuickBooks menu and go to Suppliers
  • Click on "Tax Activities Group.
  • Select the option "Manage Tax.
  • Tap on "Get Tax Refund.
  • Make Deposit", you will see some fields. Input the required information in them.
  • Specify the refund amount.
  • Verify the details to make sure they are correct.
  • Finally, tap on "Save & Close

Step 2: Adding Tax Refunds in Your QuickBooks Online

To record tax refunds in QuickBooks Online, follow these steps:

  • Run “QuickBooks Online”.
  • Check out and use the "+New" option.
  • Go to "Others".
  • Click on "Bank Deposit".
  • Provide your account-related information.
  • Mention the details related to the deposit.
  • When you see the "Save & Close" button, press it.

Read This: How To Unvoid A Check In QuickBooks

How To Record A Payroll Liability Refund Check

Note: Make sure before performing the steps given below you create a Payroll Liabilities Balance Report and examine for the credits that are associated with the amount of refund and the tax item.

To enter a Payroll Liability refund check, follow the steps given below:

  • First of all, go to the Employee's menu and choose the Payroll Taxes and Liabilities group then tap on the Deposit Refund Liabilities option.
  • Next, you need to choose the vendor’s name by whom the refund check was submitted.
  • Further, enter the date of deposit for the refund date field.
  • Now go to the For Period Beginning field and type in the day for the pay period, when it started, and from when the refund will effect.
  • Now select the way you wish QuickBooks to manage the deposit.
    • Categorize it under Undeposited funds: This is used to add the amount to a savings account and allows you to enter the deposit along with several other items. This category demands the use of the Make or Record Deposit option for completing the process.
    • Deposit To: It is used to track the amount for the account of your wish.
  • Then go to the section of Taxes and Liabilities and choose the payroll items that are affected because of the refund made.
  • Next, you need to get the positive amount entered in the associative Amount column.
  • After that click on the OK button.
  • If you are working with the Assisted Payroll (the US only):
    • Go to the Employees tab and click on the Send Payroll Data option.
    • Once you click on the Send Payroll Data option the Send or Receive Data window appears. Here you can view the Tax reconciliations and Funds that are to be removed for the total sum of Deposit Refund of Taxes and Liabilities that were entered by you recently.
    • After that get a secure connection with our servers, if the payroll liabilities are hyped up then the liability balance does not remain positive and shows in negative. When you deposit this refund, it shows the increase in the balance of liability and it again reaches zero.

Also Read: How to Delete Multiple Transactions in QuickBooks

Issues While Recording Tax Refunds

  • One of the issues says the Corporation Notice of Assessment was transpired and we have received a refund. Should I credit the other liabilities and debit the bank on the Journal entry?
  • Why can't we track the sales tax refund through the sales tax agency? Why am I not allowed to delete the old payments, as they are already verified and reconciled? Please help me with this issue.

How to Record a Sales Tax Refund in Your QuickBooks Account?

You have the option to generate a credit memo in QuickBooks to maintain a record of a sales tax refund. However, if you receive a refund from a specific tax agency, you should create a sales receipt to document it. If you're using QuickBooks Online, you will need to prepare the sales receipt specifically to save the tax refund.

Following is a detailed explanation of how to record a sales tax refund in QuickBooks Online:

Method 1: Make Sure Your QuickBooks Account Includes your Sales Tax Refund

After you have received the refund for the sales tax you submitted, you can add it to QuickBooks using the Customers menu. Below are the step-by-step instructions on how to record a sales tax refund in QuickBooks:

  • Open QuickBooks and go to the Customers menu.
  • Select "Create Refunds/Credit Memos" from the available options.
  • Enter the necessary information for the sales tax refund. Make sure that the items on the credit memo match the amount and quantity of the sales tax.
  • Provide the appropriate date for the refund.
  • Finally, click on "Save and Close" to save the recorded refund.

Method 2: Recording Sales Tax Refund in QuickBooks Online through a Tax Agency

Recording a sales tax refund directly in QuickBooks Online may not be supported by a direct option or approach. However, you can still accomplish this by creating a sales receipt in the latest version of the software. Within the sales receipt, you can include the details of the refund obtained from the sales tax. This method allows you to accurately document the sales tax refund in QuickBooks Online.

  • Go to the "Customer" option in QuickBooks Online.
  • Select "Deposit to Bank Account."
  • Choose the items or services related to the sales.
  • Enter the refund amount for the specific taxable items.
  • Double-check that the refund amount has been accurately entered.
  • Once the refund amount is added to the taxable amounts, ensure that you save the information.
  • By creating a sales receipt, you can effectively record sales tax refunds in QuickBooks Online.

How to Record Employee Retention Credit in QuickBooks

By the Internal Revenue Service (IRS), the Employee Retention Credit (ERC) is a refundable tax credit against certain employment taxes. Businesses and organizations can benefit from a potential cash refund of $26,000 per employee, across all six quarters. ERC can be applied for by virtually every company in the country

There is still a lot of confusion about the ERC, including how to record the tax credit correctly. Sunrise Business Solutions | ERC Guaranteed is committed to helping our clients receive the maximum ERC—guaranteed. In this blog post, our ERC specialists provide a brief guide to recording the Employee Retention Credit in QuickBooks.

What is the Employee Retention Credit, and why is it important for business owners?

Employee Retention Credit (ERC) is a refundable tax credit that encourages employers to retain employees and minimize unemployment. It is computed differently in 2020 and 2021:

  • The tax credit for 2020 is equal to 50% of the qualified wages that eligible employers pay their employees in a calendar quarter, up to $5,000 per employee.
  • During 2021, the tax credit is equal to 70% of qualified wages that eligible employers pay their employees, and qualified employers can earn a maximum of $7,000 per quarter (or $28,000 per year) for each employee.

As opposed to Paycheck Protection Program (PPP) loans and other small business relief options, the ERC is available to businesses of all sizes. And since the ERC is not a loan, recipients do not have to repay or seek forgiveness.

Using our Tax Credit Estimator to calculate your potential ERC amount can be a little tricky. Don't worry, we'll walk you through the process.

How to Calculate the Employee Retention Credit

For 2020, the Employee Retention Credit is equal to 50% of qualified employee wages paid in a calendar quarter. This credit applies to wages paid after March 12, 2020, and before January 1, 2021. The maximum credit for eligible wages paid to any employee during 2020 is $5,000 since the maximum eligible wages per employee are $10,000.

In 2021, the Employee Retention Credit is equal to 70% of qualified employee wages paid in a calendar quarter. Employee wages for each calendar quarter in 2021 are limited to $10,000, so the maximum credit for each employee is $28,000.

Calculating tax credits can be tricky. Our Tax Credit Estimator above takes care of the calculation for you. Here's how it works:

  • In 2020 or 2021, confirm whether you had employees: You are not eligible for the ERC if you didn't hire any workers in 2020 or 2021. However, you may still qualify for paid leave credits.
  • Determine whether you experienced a qualifying closure: During a calendar quarter of 2020 or 2021, if your company was suspended due to orders from governmental authorities limiting commerce, travel, or group meetings as a result of COVID-19, you may qualify for an ERC. You may still qualify if your gross receipts have declined. Keep going!
  • ERC claims should be compared with business revenue in 2019: When comparing your business revenue in 2020 or 2021 to the same calendar quarter in 2019, the tool will help you determine if you qualify for the ERC. For quarters in 2020, your revenue must have dropped by more than 50%. For quarters in 2021, your revenue must have decreased by more than 20%. You can estimate this with the tool if you are uncertain.
    • The ERC may still be available if your business operation has been partially or fully suspended due to government orders limiting travel, commerce, or group meetings because of COVID-19 if your revenue hasn't dropped by more than 20%.
  • During the Period you Qualify, Enter Qualified Wages and Health Plan Expenses: For the quarter in which you experienced a qualifying decline in gross receipts or a period of suspension of operations, enter qualified wages paid to all your employees. COVID-19-related economic hardship between March 13 and June 30, 2020. You will receive qualified wages, including wages and health plan expenses, during this period. Generally, qualified wages for larger employers will include wages and health plan expenses during the period in which an employee is not working due to economic hardship (and may not include wage increases after the beginning of the economic hardship in 2020).

Three Steps for Recording the ERC in QuickBooks

Among the most popular accounting software packages in the United States is QuickBooks. 29 million small businesses nationwide use QuickBooks as their primary accounting system, according to data provided by the International Center for Settlement of Investment Disputes (ICSID). In most cases, these businesses qualify for the ERC. Recording the ERC in QuickBooks is easy. Follow these three steps to do so:

  • Set Up Employees With Payroll Types: Using the “Payroll” menu and the “Employee” option, you can set up each employee with different payroll types. 
  • Create and Use the CARES Act: Within employee payroll types, you can create and use a section for the “CARES Act” to record employee information about the ERC. 
  • Enter Pay for Corresponding Fields: You can enter employee pay for corresponding fields, including the Employee Retention Credit (ERC). 

Record Your Tac Payment In The General Ledger

Recording your original quarterly tax payment to the government in your general ledger is the first step to recording the employee retention credit in your accounting software. You will simply debit your Income Tax Expense account and credit your Cash account to record this payment.

As long as you claimed the credit when you filed your quarterly income tax return, you can stop here. If, however, you retroactively claimed the credit for an ERC refund, you'll need to continue.

Entry An ERC Refund For An Anticipated Refund

The expectation of your ERC refund will be recorded in this step if it has not yet been received. If it has been received, you will move on to step three.

  • The process of recording an anticipated ERC refund involves two steps. The first step involves debiting the Income Tax Receivable account and crediting the Income Tax Payable account. This step should be completed when your refund is still on the way.
  • Upon receiving your refund, you will need to return to your accounting software debit your Cash account, and credit your Income Tax Receivable account.
  • Step three is not required once you've completed these steps.

Create An Accounting Entry For Your ERC Refund

After receiving your ERC refund, you can skip step two and move right on to step three. Simply debit your Cash account and credit your Income Tax Expense account when you receive your refund and need to record it in your accounting software.

As a result, you will be able to connect the ERC tax refund you receive with a specific employee if you enter negative payroll information for an employee. Calculating the ERC is notoriously complex. Sunrise Business Solutions | ERC Guaranteed can handle it for you to maximize your ERC benefit.

File for the Employee Retention Credit before it is too late.

Even if you have already filed your returns and “finalized” that information in QuickBooks, you can still amend your return and file for the ERC. The ERC is available for six quarters in total: The final three quarters of 2020 and the first three quarters of 2021. However, businesses and organizations should not worry if they have still not filed for the ERC. There is a federal law provision allowing employers to file an amended return for up to three years after a tax period. In other words, you can still file for the ERC for 2020 and 2021 in 2022.

How to Record Tax Payments in QuickBooks

Tax penalties and interest paid to the tax agencies should not be recorded together with the tax due, as it will result in an overpayment. These payments should be recorded as expenses in QuickBooks Online.

We'll show you how to record prior tax payments in QuickBooks Online Payroll.

Check your automatic tax payments and form filing status first to determine whether we are paying and filing your federal and state payroll taxes for you.

To Record Your Tax Payment in QuickBooks

  • Go to Taxes, then Payroll Tax.
  • Select the Payments tab.
  • Review the payments listed and locate the tax you want to record a payment for.
  • If the payment is listed, choose the option Mark as paid then select Yes, mark paid. Note: This will be a non-posting transaction. It will not affect the bank register, but it will clear the taxes from showing due and record the deposits.

If the payment is not listed, continue with the steps below

  1. Go to Taxes, then Payroll Tax.
  2. Select Resources.
  3. Select Record tax payments, then Add Payment.
    Note: This will be a non-posting transaction. It will not affect the bank register, but it will clear the taxes from showing due and record the deposits.
  4. Select a Tax Type, then enter the following:
    • Period Start Date and Period End Date - the period that the taxes were accrued
    • Payment Date
    • Check Number (optional)
    • Notes (optional)
    • Tax Item Amounts
  5. Select OK.

If you need to edit a prior payment

  1. Go to Taxes, then Payroll Tax
  2. Select Payment History.
  3. Change the Date Range to find the tax payment you want to edit.
  4. Select Edit to modify the tax payment, then select OK.

How to Record a Corporate Tax Refund in QuickBooks Online?

In QuickBooks Online, you can record a refund for your corporate tax as soon as you receive it. Follow these steps to record a corporate tax refund in QuickBooks Online:

  • Click on the "+ New" button.
  • Find and select the "Other" option.
  • Choose "Bank Deposit".
  • Enter the details for your account.
  • Provide the necessary information for the corporate tax refund.
  • Click "Save and Close" to save the details.

Manage Sales Tax Payments in QuickBooks Online

Your QuickBooks tax center has everything you need to handle tax. You can run reports on your sales tax liabilities, record or edit sales tax payments, and track your payments over time.

In the tax center, you can manage tax payments and other tasks.

Note: If you do not see the features below, you may be using the Automated Tax feature. Learn more about how to use Automated Tax.

Review Sales Tax Reports

Get a sales Tax Liability Report

  1. Go to Taxes, then select Sales Tax.
  2. Under the Related Tasks list, select View sales tax liability report.

Each sales tax agency is listed, as well as the taxable amount of sales and payments.

See all of Your Tax Payments

  1. Go to Taxes, then select Sales tax (Take me there).
  2. The list of recorded payments is displayed in the Recent Sales Tax Payments section.

Manage Sales Tax Payments

Record a Sales Tax Payment

  1. Go to Taxes, then select Sales tax (Take me there).
  2. Select the tax agency you're recording the payment for from the Sales Tax Owed list.
  3. You can select the bank account you're making the payment from from the dropdown menu.
  4. Select the Payment Date.
  5. Enter the tax payment amount in the Tax Payment field.
  6. The next step is to select Record Tax Payment. If you need to print a check, check the Print a Check checkbox, then select Record Payment and Print Check.

Adjust a Sales Tax Payment

Select Make Adjustment when recording sales tax payments when you need to decrease or increase the amount of sales tax payment for things like credits, discounts, fines, interest, penalties, and rounding errors.

A positive or negative amount can be entered as the adjustment amount and reason for the adjustment.

Then select an account to track the adjustment. Don't select the sales tax Payable account. Instead, use the following:

  • Credit or applying a discount: Select an income account, such as Other Income.
  • Fine, penalty, or interest due: Select an expense account.
  • Rounding error: Select an income account for negative errors, or an expense account for positive ones.

Note: Sales tax can get complicated. If you have questions, reach out to your accountant or tax agency.

Delete a sales tax payment

  1. Go to Taxes, then select Sales tax (Take me there).
  2. From the Recent Sales Tax Payments list, select the payment you want to delete, then select Delete Payment.
  3. Select Yes to confirm.

Note: After you delete a payment, the page doesn't refresh automatically.
Leave and come back to the Taxes menu. The payment shouldn't appear anymore.

To solve these kinds of issues you can contact our SMB Tech support team.

Frequently Asked Questions

How do I record a tax payment in QuickBooks Online?

You can follow the below-mentioned steps to record your tax payment in QBO:

  1.  Initially, go to Taxes and select the “Payroll tax.”
  2. Next, select and click on the “Pay Taxes.”
  3. Now, click on the Record payment on the page of Pay Taxes that you wish to pay.
  4.  Select Other and enter the actual date for the payment that was made.
  5.  Also, enter the appropriate check number.
  6.  Finally, click on the “Record” option.

Why do you adjust the liability of the sales that you owe?

You can adjust your sales tax liability due to various reasons such as:

  1. A fine paid for late or non-payment by your tax authority in the preceding tax year.
  2. A credit issued by your sales tax agency for past overpayment or early payment discount.
  3. Rounding the differences between QuickBooks and your sales tax forms.
  4. Sales corrections in a preceding time.
  5. Tax holiday on sales declared by your department.

How do I know that I have a tax overpayment?

There are several ways to know that you have a tax overpayment. Here are a few of them:

  1. A negative entry appears in your payroll account in the Pay Taxes tab.
  2. When you receive a credit receipt from the IRS or the State Department.
  3. You may receive a warning about overpayment when attempting to file a document.

How to Categorize Tax Refunds in Quickbooks

To tag the transactions, you can simply follow these steps:

  1. Go to the Transactions menu.
  2. Click Add transaction.
  3. Enter the transaction in the box and the amount.
  4. Select Business for tax refund and Personal for vehicle insurance refund.
  5. Verify the details and click Save.

How do I record overpayments on QuickBooks desktop?

Adjust overpayment on vendor bill

  1. Go to Vendors.
  2. Select Enter Bills.
  3. Click Credit.
  4. Choose the Vendor name.
  5. Enter the amount of the said overpayments.
  6. Press Save & Close.

How to Record Federal Taxes Paid in QuickBooks

How do you categorize an estimated tax payment on QB?  I know it's not an expense, what is it?

  1. Go to Accounting, then select Chart of Accounts.
  2. Tap the New button. Choose Equity as your Account Type, and pick Estimated
  3. Taxes in the Detail Type drop-down.
  4. Enter the account details.
  5. Click Save and Close.

How to Record State Tax Refunds in QuickBooks?

Tax payments, both for Federal and State are usually tagged as Business as they are company expenses. However, when recording refunds, you can tag them as Personal and then exclude the refunded payment in your QuickBooks Self-Employed account.

How do you record a tax refund in accounting?

Make the following entries to show you received an income tax refund: Debit your Cash account. Credit your Income Tax Expense account.

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