Payroll is one of the most difficult data entry tasks for non-accountants, and this is largely due to how the taxes work. When entering payroll or reading payroll reports, remember that some of the taxes are paid by the employees, so they are not an expense to the company. You’ll need to look for the employer taxes and enter these as an expense only. The common abbreviation in payroll reports for employee taxes is EE; the abbreviation ER is used for employer taxes.

Taxes generally have a wage limit, meaning that the taxes are paid on only the first portion of wages (to this threshold) for the calendar year, per employee. This is why the ER payroll tax expense changes over the course of the year.

Notice also that these taxes are reported quarterly and annually to both the IRS and the state. The Form 941, the federal quarterly payroll tax return, is the standard for payroll reconciliation in audits. This means that your employer tax must agree between the 941 and your books.

Here is a useful guide from the California EDD on the state and federal taxes involved with payroll.

How Federal and State payroll taxes work in CA

Alex Nitta

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