Why are deductions liabilities

Employees contribute part or all of the payment for benefits through payroll deductions. After you subtract all deductions from your employee's gross pay, the remaining balance is net pay. You pay net pay to your employees from cash. The payroll expense account amount represents your company's total salary expenditure for a pay period. This expense account is offset by the liability accounts.

The liability accounts breaks up the expense account amount and tells you what each part of the expense is for. Increase the payroll expense account with a debit, and increase the payables account with a credit.

Debits and credits are always equal. If your company records the payroll entry before paying the payroll, use the account "salaries payable" instead of the cash account. Move the amount from salaries payable to cash after you pay your employees. Special journals are used for certain transactions. However, all companies use a general journal. When the employees are paid, an entry is made to reduce debit the wages payable account balance and decrease credit cash.

The employer is responsible for three payroll-related taxes:. The entry for the employer's payroll taxes expense for the Feb. The amount of the increase debit to payroll tax expense is determined by adding the amounts of the three liabilities. Previous Accounts Payable. Next Understanding Notes Payable. Removing book from your Reading List will also remove any bookmarked pages associated with this title. Are you sure you want to remove bookConfirmation and any corresponding bookmarks?

Earned wages and salaries generate tax liabilities. Some taxpayers incur double taxation. Sole proprietorships, partnerships, and LLCs are not double-taxed. Sales tax is another form of tax liability. When a business sells a product, most state and local governments charge sales tax as a percentage of the total sale.

This amount is included in the total charged to customers. Businesses remit sales taxes to authorities on a monthly or quarterly basis.

Company payrolls incur tax liabilities. Individuals and businesses can reduce their total tax liabilities by claiming deductions , exemptions and tax credits. Many individuals claim standard deductions, although with enough personal and business expenses they can itemize deductions.

Check our our handy tax calculators and get a handle on what you owe Uncle Sam.