Gusto in your books

Gusto runs payroll, and one payroll run touches several accounts at once. Wages and the employer's own taxes are expenses. Taxes withheld from employees, along with the employer's share, are liabilities until they're paid to the government. Cash goes down when Gusto pulls the money from your bank.

In the example, gross wages are $50,000. Employees have $6,000 of federal income tax and $3,825 of Social Security and Medicare withheld, so they take home $40,175. The employer owes a matching $3,825, so the full cost of this payroll is $53,825.

Gusto typically debits your bank for net pay and taxes before payday. Here that's $40,175 for net pay and $13,650 for taxes: the $6,000 of income tax plus $7,650 of FICA. Together that's $53,825, the same as the total cost. The tax withdrawal clears the payables, so it adds no expense. A real run also has state taxes and benefit deductions, and each gets its own line.

The employer's taxes go beyond FICA. Federal unemployment tax (FUTA) is 6% of each employee's first $7,000 of wages, cut to 0.6% in most states by the credit for state unemployment tax, which the employer pays on top at a rate the state assigns. Social Security stops once an employee passes the year's wage base, $184,500 in 2026, while Medicare has no cap. Benefits work like withholding: the employee's share of premiums or 401(k) deferrals comes out of gross pay into a payable, and the employer's share is its own expense.

Compare wages and payroll tax expense to Gusto's reports for the pay dates in the month. Then check the payroll liabilities. Once the taxes have been pulled, the withholding and FICA payables should be at or near zero, and anything left should match taxes that haven't been paid yet.

If a pay period crosses month end, accrue the wages for the days already worked so each month carries its own payroll.

Accrued expenses covers wages earned but not yet paid. Square card tips are paid to staff through payroll, which is how that liability gets cleared.