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When the QuickBooks Payroll Liability Doesn’t Match the Vendor Bill

This can be a real challenge in your payroll process. You may want to consider taking a QuickBooks class.

Managing payroll deductions and accruals like health insurance or retirement plans can be a vexing process. Payroll liabilities — other than payroll taxes — can present their own set of trials.

If you’ve had formal QuickBooks training, you may have seen solutions to problems with payroll liabilities. There is more than one.

Often, a QuickBooks user will have Payroll Items that require both a paycheck deduction component and a company-paid component.  A typical example would be a health insurance plan.

The following graphic displays a typical Payroll Item setup.  This window specifies which liability account QuickBooks should use for payroll deductions.

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By default, QuickBooks suggests Payroll Liabilities for the account to be used with a paycheck deduction.

While this setup is common, it often gives the client difficulty when it comes time to pay the premium.

In the graphic below, you can see the payroll liability check created from the Payroll Center in QuickBooks.  The problem is, this check only represents the liability amounts deducted from paychecks.  What about the company-paid portion?

QuickBooks has the capability to track the company-paid portion as a liability as well.  However, in many instances, this doesn’t provide the solution many QuickBooks users need.

A typical reason would be that the pay schedules are different from the premium due dates. This can make it impossible to create a payroll liability check from QuickBooks that matches the amount due on the bill from the insurance provider.

Often, the QuickBooks user will simply change the amount on this check and pay it. This will typically result in a negative balance in the liability account and transfers the mismatch in the amount to the next month.

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QuickBooks liability check for a health insurance payment

There are two ways this issue can be resolved.

Option one is to create the liability check as above, then add the company-paid amount to the expense tab of the liability check.

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 Adding an additional expense to a liability check

Notice that both tabs have been used on the stub portion of this check. When creating a payroll liability check, QuickBooks uses the Payroll Liabilities tab and fills in the amount based upon payroll setup and amounts collected on paychecks.

After the liability check is created, you click on the Expenses tab, fill in the appropriate expense account for the insurance expense, and enter that amount in the correct column.

Once these entries are complete, you click the Recalculate button (indicated by the arrow), and the total check amount will add the two entries together. If you entered the correct amount as an expense, the check should now be the amount required as payment by the insurer.

QuickBooks classes often teach more than one way to deal with a problem. So the second option to dealing with this issue is to edit the Payroll Item. Rather than using a liability account for posting the deduction, use the expense account normally used for paying the insurance premium.

In this case, QuickBooks no longer tracks the amount for payment.  The deductions merely credit the expense account, and when the invoice from the insurance company is received, it may be entered as a bill in QuickBooks, with the entire amount being posted to the appropriate expense account.

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