Is withheld tax an expense?

No. Income tax and the employee's half of Social Security and Medicare are the employee's money, withheld and owed to the government. They are liabilities from payday until remitted. Only the employer's share is the company's expense.

What are the employer payroll taxes?

Social Security 6.2% and Medicare 1.45%, matching the employee; FUTA 6% of each employee's first $7,000 of wages, usually 0.6% after the state credit; and state unemployment at a rate the state assigns.

Journal entry for payroll

On payday, debit Wages and salaries for gross pay, credit Cash for net pay and credit liabilities for everything withheld. Book the employer's own taxes separately — debit Payroll tax expense, credit Payroll taxes payable — and clear both payables when they are remitted.

Gross pay: $40,000
Net pay: $30,540
Employer taxes: $4,100
Entity: Illustrative company
Basis: Accrual
Currency: USD
Period: January 2026

The worked example

Eight employees are paid $40,000 gross on the first run of the year. $6,400 of income tax is withheld, plus $2,480 of Social Security and $580 of Medicare, leaving $30,540 of net pay. The employer owes matching FICA, $240 of FUTA and $800 of state unemployment at a 2% assigned rate.

Transaction · January 15, 2026

JE-115 Jan 2026Manualposted

Run payroll.

Journal entry JE-1, 4 lines
Account	Debit	Credit
6000 Wages and salaries	40,000 US Dollar
1000 Cash		30,540 US Dollar
2310 Income tax withholding payable		6,400 US Dollar
2300 Payroll taxes payable		3,060 US Dollar

Totals	40,000 US Dollar	40,000 US Dollar

Balanced.

Transaction · January 15, 2026

JE-215 Jan 2026Manualposted

Record the employer's payroll taxes.

Journal entry JE-2, 2 lines
Account	Debit	Credit
6010 Payroll tax expense	4,100 US Dollar
2300 Payroll taxes payable		4,100 US Dollar

Totals	4,100 US Dollar	4,100 US Dollar

Balanced.

Transaction · January 16, 2026

JE-316 Jan 2026Manualposted

The provider remits the taxes.

Journal entry JE-3, 3 lines
Account	Debit	Credit
2310 Income tax withholding payable	6,400 US Dollar
2300 Payroll taxes payable	7,160 US Dollar
1000 Cash		13,560 US Dollar

Totals	13,560 US Dollar	13,560 US Dollar

Balanced.

The payroll register, summarized

Computed by the same tested function the toolbelt runs. The last period absorbs any rounding, so the schedule sums to the cent.

The payroll register, summarized
Line	Employee	Employer
Gross wages	40,000.00	—
Income tax withheld	6,400.00	—
Social Security (6.2%)	2,480.00	2,480.00
Medicare (1.45%)	580.00	580.00
FUTA	—	240.00
State unemployment	—	800.00
Net pay	30,540.00	—

What the entries do to the accounts

Every entry above posted to the ledger, starting from zero balances: the net debit or credit each account is left with. Debits equal credits, so the books still balance.

Net movement by account
Account	Debit	Credit
1000 Cash		44,100 US Dollar
6000 Wages and salaries	40,000 US Dollar
6010 Payroll tax expense	4,100 US Dollar

Totals	44,100 US Dollar	44,100 US Dollar

2 accounts net to zero across the entries and are not shown.

Why it is booked this way

A payroll run is two entries. The first records gross wages as expense and splits them between what reaches the employees and what is withheld on their behalf. The second records what the employer owes on top.

The payables then clear when the payroll provider remits the taxes. If the provider debits the bank once for everything, that single debit clears net pay and every payable together.

Common mistakes

Booking the net pay as wage expense, so withheld taxes never appear and gross wages are understated.
Recording the provider's single debit from the bank as one expense line.
Forgetting the employer's taxes because they are not on the payslip.

Questions

Is withheld tax an expense?: No. Income tax and the employee's half of Social Security and Medicare are the employee's money, withheld and owed to the government. They are liabilities from payday until remitted. Only the employer's share is the company's expense.
What are the employer payroll taxes?: Social Security 6.2% and Medicare 1.45%, matching the employee; FUTA 6% of each employee's first $7,000 of wages, usually 0.6% after the state credit; and state unemployment at a rate the state assigns.

Terms on this page

Work with this entry

The tool that computes the schedule, the concept behind it, the entries that come next and the components that render them.

An illustrative company, not anyone’s real books. Every figure on this page is computed from the inputs in the example and posted by the same functions as the journal entry balancer. General information for US companies under US GAAP, not accounting or tax advice.

The worked example

The payroll register, summarized

What the entries do to the accounts

Why it is booked this way

Common mistakes

Questions

Terms on this page

Work with this entry

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