Adjust Payroll Liabilities In QuickBooks

The need for QuickBooks payroll liabilities adjustment usually arises when your payroll liability report gives an incorrect amount. To overcome such mistakes, you need to adjust your payroll liabilities and this guide shows you how it can be done with ease.

Payroll Liabilities Adjustment in QuickBooks

A payroll item can be adjusted if it is found that a payroll liability balance is incorrect and needs to be adjusted. Liability balance adjustments change the amounts that QuickBooks shows in the payroll reports. It is recommended that for Payroll liability adjustments not identified below, consult with your QuickBooks Trainer or QuickBooks Administrator. Be cautious if you are operating the EnterpirseSuite edition.

Nearly 30% of small business owners overpay their state and federal taxes each year. This often happens due to incorrect tax calculations or fear of IRS penalties. If you're an employer who has overpaid payroll tax liabilities using QuickBooks, you may want to apply the overpaid amount as a credit to your payroll tax liabilities and adjust it in your QuickBooks company file. This article outlines each step needed to adjust payroll liabilities in QuickBooks and credit the overpayment to your payroll tax liabilities.

Why do you need to Use Payroll Liability Adjustment?

Here are the scenarios where you might need to adjust your payroll liabilities in QuickBooks:

• If you accidentally set up the wrong tax tracking type for the company's health insurance contribution.
• When an employee stops receiving paychecks, you need to adjust their deductions, additions, or year-to-date wages.
• If you need to modify the company's 401(k) match or Health Savings Account (HSA) contributions.

Now, let's move on to making changes to the payroll tax liabilities in QuickBooks. Before proceeding, ensure you have the latest payroll tax table updates installed.

Steps to Adjust Overpaid Payroll Liabilities in the Company File

These steps only apply to users of Advanced, Basic, and Standard Payroll services. If you are using QuickBooks Online Payroll or Assisted Payroll, you cannot make changes to payroll liabilities yourself and will need to contact support for assistance. Adjusting payroll liabilities is a complex process, so proceed with caution if you're not already familiar with liability adjustments in QuickBooks.

Making Adjustments

• Select Payroll Taxes & Liabilities from the Employees option
• Choose Adjust Payroll Liabilities
• Choose the correct and Effective Date
  • Assisted Payroll - (If you select this option, use the last day of the affected quarter for a PREVIOUS QUARTER. Else, opt for the same date as the last paycheck if you wish to have the CURRENT QUARTER details.)
  • Basic, Standard, or Enhanced Payroll - The date should be the same as the last paycheck of the affected quarter or the present-day date (today) for the adjustment that affects the current quarter only.
• Go for either of two steps:
  • For adjustments affecting an employee’s YTD information, you can:
    • Choose Employees Adjustment
    • Select the employee in question
• To delete the Payroll Liability Balances Report, choose Company Adjustment.
• Go to the Taxes and Liabilities section.
• There, click the Payroll Item column.
• Select the correct payroll item.
• Insert the adjustment amount in the fields needed.
• Use the Memo column and note the adjustment details for future reference.
• Click on Accounts Affected.
• There, you choose either Do not affect accounts (for keeping the liability and expense account balances unchanged) or Affect liability and expense accounts (to make changes to the respective balance amount).
• Choose Next Adjustment to repeat the same steps for other affected employees.
• Click OK to save all adjustments made.

Steps to Get Overpaid Liability as a Payroll Tax Liability Credit

Note: Ensure you select the correct account to avoid any errors in your tax forms.

• Generate a liability check by following the steps outlined in the article "Set up and pay scheduled or custom liabilities."
• Under the Expenses tab in QuickBooks, choose the account you wish to credit.
• Enter the negative amount that requires crediting in the Amount section.
• Explain the adjustment in the Memo section.
• Click Recalculate to adjust the check amount with the credit amount.
• Repeat the same steps if there is any remaining credit balance.

Also Read: Remove Payroll Liabilities From QuickBooks

How To Enter Payroll Liabilities Adjustment In QuickBooks

Liability Adjustments On some occasions, an employer payroll item expense can be changed under the Company Summary section of the Paycheck transaction even if the employee’s paycheck was printed and given to the employee. For example: overstated or understated payroll expense amount, unnecessary FUTA tax charged, etc. Determine if the payroll liability check needs to be voided.

Scenario for Payroll Liability Adjustment

Scenario One: Adjust the Employer’s Payroll Expense

A small portion of employers’ Medicare share is exaggerated. The liability has not been paid. Open the appropriate employee’s paycheck transaction and follow the steps below:

• Choose the Paycheck Detail button.
• Go to Unlock Net Pay.
• Under Company Summary, adjust the employer’s Medicare tax amount.
• Select Ok.
• Save & Close.

Scenario Two: Adjust Employee’s Deduction

The paycheck is already cashed. Suppose for instance medical insurance was carelessly withheld from the employee’s paycheck. The employee’s paycheck was distributed and cashed. $100.00 is owed to the employee. If the paycheck has been printed and distributed to the employee, do not clear the paycheck. Alternatively, create an appropriate liability adjustment and a refund check.

Scenario Three: Employer’s Payroll Liability Adjusted Carefully in the Liability Check Transaction

In this circumstance employer’s retirement liability originally was $50. Later on, it was discovered by the bookkeeper that the liability check amount was $110.00. Instead of changing the employer’s amount in the paycheck transaction, the amount was changed in the liability check. A liability Check was mailed.

Scenario Four: Employee’s Social Security Tax was underpaid.

• If the employee’s social security tax needs to be increased in the next paycheck and if the paycheck occurs in the following payroll quarter then it will be adjusted in the next quarter. Once the paycheck is cashed, the employee’s social security tax cannot be adjusted.
• To report both the unpaid employee’s and employer’s social security tax as the employer’s social security tax. The employee will reimburse the employer on the next paycheck.
• Better payroll management will mean happy employees. And happy employees will mean improved productivity.
• With QuickBooks, maintaining payroll records and making additions have become easier. All the products of the company offer adjusting payroll liabilities features to users to make sure you don’t miss out on anything while calculating the payable amount.
• Gone are the days of manual calculations with which concentrating on minute details has become inevitable. You cannot afford to miss out on any deduction while deciding on payrolls.

Other Scenarios

You must be thinking about why the adjustment of payroll liabilities in QuickBooks is such an important feature. To make you understand the need for it in detail, it is important to list down the scenarios that may lead you to make an instant liability adjustment.

The list is as follows:

• A wrong tax tracking type is included in a health insurance company contribution. This is a common scenario where organizational owners or HRs have to think of adjusting the payroll liabilities in QuickBooks 2015 or later versions.
• There are instances where a company has to stop future paychecks for some employees. In that case, the payroll liabilities need to be adjusted accordingly. You may need to adjust year-to-date (YTD) wages or additions or deductions to be made based on the situation.
• Making adjustments is yet again an important step to be taken by employers when it comes to increasing or decreasing the payroll amount for company contribution items, including HSA and others.
• In case of a quarterly change to be made in the payment of employees, you can consider making a quarter-to-date (QTD) adjustment instead of the year-to-date.

Get Help to Adjust Payroll Liabilities In QuickBooks

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Frequently Asked Questions

What are the Reasons to Adjust the liability of payroll?

• In the case of company contribution items, the amount is changed. These items are 401K or HSA.
• You fixed the wrong tracking type of tax for the Health Insurance company contribution setup.
• If you have made the corrections in the additions, deductions, or YTD wages. This is for the employee who is not going to receive more paychecks.

How Do I Offset Payroll Liabilities in QuickBooks?

• Go to Employees, then Payroll Taxes and Liabilities.
• Select Adjust Payroll Liabilities.
• In the Date and Effective Date fields, select the last paycheck date of the affected month or quarter.
• In the Date and Effective Date fields, select the last paycheck date of the affected month or quarter.

If my payroll is not correct then can I use this adjusted payroll liability process?

Yes, you can go with the process and make the changes and then adjust the liability in your account and then proceed with the financial management.

What are the apparent reasons behind the variance in the Balance report of Payroll Liability?

There are different situations where you need to make the change in QuickBooks to your payroll liabilities to rectify errors like:

• Incorrect payments the date of payment of liabilities.
• There might be damage issues to data in the company file.
• You may not have downloaded the new edition of QuickBooks.
• If you track another account, the other current liability account must be monitored.
• You can see a liability in the payroll liability balance sheet when a paycheck is removed or annulled.
• If it is used to use an inactive liability account.

What are various ways to do QuickBooks Payroll Liabilities Adjustment?

You can adjust as per the requirement or as per your error requirement:

• Recreate a deleted or voided paycheck. 
• Update QuickBooks to the latest released version.
• Rectify incorrect paid-through dates.
• Make sure QuickBooks verifies and rebuilds data utility.

How to Reconcile Payroll Liabilities in QuickBooks?

• Compile a List of Your Liability Accounts.
• Compile a List of Your Liability Accounts.
• Create Payroll Liability Reconciliation Sheets.
• Generate Reports From Your QuickBooks Payroll Software and General Ledger.