COVID-19 Related Payroll Tax Credits – QuickBooks Desktop Wages and Payroll Taxes

INFORMATION FOR USERS OF QUICKBOOKS DESKTOP PAYROLL

As we continue to monitor changes due to COVID-19, we are providing instructions for accounting in response to recent changes that will impact employers and employees.  QuickBooks has indicated they will be releasing updates in QuickBooks Online Payroll and QuickBooks Desktop Payroll for entering Coronavirus paid leave.  We have the following TEMPORARY recommendations for QuickBooks Desktop and is subject to change:

  1. Download the latest payroll update in QuickBooks Desktop
    1. Go to the Employees menu, select Get Payroll Updates
    2. Select the Download Entire Update
    3. Select Download Latest Update. A window appears when the download is complete.
    4. Close out of the software and re-open the data file.
  2. Set-up expense accounts and other accounts for tracking:
    1. Go to Lists, then select Chart of Accounts.
    2. Click Account in the lower-left hand corner, then select New.  (You’ll set-up a total of nine new accounts: six expense accounts, one other current asset account, one other current liability, and one other income account):
  1. For the expense accounts, select Expense(for the new wage, insurance, and payroll tax expense codes), then click Continue.
  2. For the tax credit receivable code, select Other Account Types at the bottom of the listing, then select Other Current Asset, then click Continue.
  • For the COVID-19 Liability account, select Other Account Types at the bottom of the listing, then select Other Current Liabilityand select Continue.
  1. For the payroll tax credit code, select Other Account Types, then select Other Income, then click Continue.
    1. Enter the Account Name for each new account:
  1. Expense Accounts: CARES Act – Wages, EPSLA – Wages, EFMLEA – Wages, FFCRA – Insurance, FFCRA – Payroll Taxes and SBA PPP – Wages.
  2. Other Current Asset Account: Tax Credit Receivable
  • Other Current Liability Account: COVID-19 Liabilities
  1. Other Income account: Payroll Tax Credit
    1. Optional, make the new expense account(s) a subaccount to your current payroll expense account.  Under the account name, check the box to the left of Subaccount.  Choose the account you’d like the new expense to be a subaccount of.
    2. Optional, complete any of the other relevant information: description, note, Tax-Line Mapping, etc.
    3. Click Save & Close.
  1. Set-up payroll items for: CARES Act – Wages and SBA PPP – Wages, if needed
    1. Go to Lists, then select Payroll Item List.
    2. Click Payroll Item in the lower-left hand corner, then select New.
    3. Select Custom Setup, then select Next.
    4. Select Wage, then select Next.
    5. Select Hourly Wages, then select Next.
    6. Select the Regular Pay type.  Caution: setting up a standard sick pay item will impact any standard sick pay hours for the employee.
    7. Select Next.
    8. Enter a name for the pay item (e.g. CARES Act – Wages and SBA PPP – Wages), then select Next.
    9. Choose the corresponding Expense account where you want to track the wages (created in number 2 above).
    10. Select Finish.
  1. Set-up payroll items for the QuickBooks defined Benefit Types under FFCRA.  QuickBooks has provided the following information in connection with their software, a link to their instructions is provided below:

https://quickbooks.intuit.com/learn-support/en-us/help-articles/how-to-track-paid-leave-and-sick-time-for-the-coronavirus/00/524743

QuickBooks indicates: Under the FFCRA, there are three different types of paid leave. Employers may also receive a credit for any health insurance premiums they pay for impacted employees while they are on leave.  QuickBooks recommends setting up payroll items to track each type of paid leave found under the FFCRA that you identified:

  • National Paid Leave Employee: Your employee is sick and under quarantine with COVID-19.
  • National Paid Leave Family: Your employee is taking care of a family member who is sick or impacted with COVID-19.
  • National Paid Leave FMLA: Your employee is taking leave under the Family Medical Leave Act (FMLA) to care for children under 18 whose school or child care is closed because of COVID-19.
  • National Paid Leave – Health Credits: If you are contributing to an employee’s health insurance during the time they are being paid under the FFCRA provisions, you can track this amount and a credit will be applied to your federal tax liability.

For the National Paid Leave Employee and National Paid Leave Family

    1. Go to Lists, then select Payroll Item List.
    2. Click Payroll Item in the lower-left hand corner, then select New.
    3. Select Custom Setup, then select Next.
    4. Select Addition (Employee Loan, Mileage Reimbursement), then select Next.
    5. Give your pay type a name, such as National Paid Leave EE or National Paid Leave Family, then select Next.
    6. In the Expense account window, select EPSLA – Wages for National Paid Leave EE and EFMLEA – Wages for National Paid Leave Family, then select Next.
    7. In the Tax tracking type window, select the paid leave type, such as National Paid Leave EE or National Paid Leave Family based on what you are setting up as the tax tracking type.
    8. In the Taxes window, select Next.
    9. In the Calculate Based on Quantity window, select Calculate this item based on Quantity, and then select Next.
    10. In the Default Rate and Limit window, rate and limit will remain at 0. Ensure the Limit Type is Annual, restart each year then finish.

For the National Paid Leave FMLA

    1. Still in Payroll Item List, click Payroll Item in the lower-left hand corner, then select New.
    2. Select Custom Setup, then select Next.
    3. Select Addition, then select Next.
    4. Give your pay type a name, such as National Paid Leave FMLA, in the text field and select Next.
    5. Select EFMLEA – Wages as the expense account, and then Next. 
    6. In the Tax Tracking type window, select National Paid Leave FMLA, then Next.
    7. In the Taxes window, select Next.
    8. In the Calculate Based on Quantity window, select Neither, and then select Next.
    9. In the Default Rate and Limit window, make sure the rate is at 0 and the limit is at $10,000, select One Time Limit from the Limit Type dropdown, and select Finish.

For the National Paid Leave – Health Credits

  1. Still in Payroll Item List, click Payroll Item in the lower-left hand corner, then select New.
  2. Select Custom Setup, then select Next.
  3. Select Company Contribution, then select Next.
  4. Give your company contribution a name, such as National Paid Leave – Health, select Next.
  5. On the Agency for company-paid liabilityscreen, select Payroll Liabilities from the Liability account dropdown, and select FFCRA – Health Insurance from the Expense account dropdown, and then select
  6. On the Tax tracking typewindow, choose National Paid Leave-Health, then select Next.
  7. On the Taxes window, select
  8. In the Calculate Based on Quantity window, select Neither, and then select
  9. On the Default rate and limit window, make sure the rate is at 0.00 and then the limit is 10,000, and select One-time Limitfrom the Limit Type dropdown, select Finish
  10. Set-up a new tax item for: FFCRA National Paid Leave Credit.
    1. Still in Payroll Item List, click Payroll Item in the lower-left hand corner, then select New.
    2. Select Custom Setup, then select Next.
    3. On the Payroll item type window, select Other Tax, then select Next.
    4. On the Other tax window, select National Paid Leave Credit, and then Next.
    5. The Name used in paychecks and payroll report window, enter National Paid Leave Credit in the text field, then select Next.
    6. In the Agency for company-paid liability window, select United States Treasury in the “Name of agency” dropdown, select Payroll Liabilities in the Liability account dropdown, and select FFCRA – Payroll Taxes in the Expense account dropdown, and then select Next.
    7. From the Taxable Compensation Window, select Finish.  If Finish is greyed out, select Next, then select Finish
  11. Add the FFCRA National Paid Leave Credit (created above) for each FFCRA eligible employee:
    1. Go to the Employees menu, click Employee Center. Double-click the employee’s name.
    2. Click the Payroll Info tab.
    3. Click Taxes, and then click the Other tab.
    4. Click the Item Name column (press Tab to go to the next available line), and select the National Paid Leave Credit.
    5. Repeat for other employees also subject to this tax credit. Caution: once the tax credit has been utilized on the eligible employee, you may want to remove the Tax Item from their respective Other tab. That way it is not calculated on future payrolls.
  1. Run payroll using the newly created payroll item(s), taking note of the amount of Form 941 taxes calculated by QuickBooks (employer and employee) for the COVID-19 wages.  Make sure you add the appropriate payroll items for the paid leave, track the hours that have limits, and payout your salaried employees by the hour.
  2. If using QuickBooks to track payroll Liabilities, below are the recommended steps to record a refundable 941 payroll tax credit, when recording your periodic Federal tax deposits:
    1. After calculating payroll with wages attributable to one of the COVID-19 related Acts – Go to the Employees menu, then click Payroll Taxes and Liabilities, click Create Custom Liability Payments
  1. Alternatively, if the liability is showing in the Pay Liabilities tab of the Payroll Center, you can check the liability line, then click View/Pay and skip to letter (g) below.
    1. In the Select Date Range for Liabilities window, select a date range, then OK. Caution: Liabilities are accrued on the date the paycheck is issued, not on the pay period of the check.
    2. Select To be printed if you want to print the liability check. If you paid using a handwritten check, leave this clear.
    3. Select the bank account and the date you want to appear on the liability check.
    4. Choose Review your liability check to enter expenses/penalties.
    5. Select the payroll item(s) you want to pay (Federal Withholding, Medicare Company, Medicare Employee, Social Security Company, Social Security Employee), then select Create. Note, if you select multiple payroll items, the items paid to the same agency are combined into one liability check while items paid to separate agencies produce multiple liability checks. Make sure the check amount and item list under Payroll Liabilities are accurate.
    6. A liability payment appears. Make sure the date and amounts are correct, check the Print Later or To Be Printed box if you want to print the check. If you used a handwritten check, enter the check number or other reference in the NO. field (you may need to toggle the Print Later box). If you pay liabilities by Electronic Funds Transfer (EFT), clear the To Be Printed checkbox and type EFT (or EFTPS) in the NO. field of the liability check.
    7. Go to the Expenses tab.  In the Account field drop-down select Payroll Tax Credit (created in number 1), enter as a negative dollar amount “-XXX.XX” the calculated credit amount for the COVID-19 wages.
  1. Optional, in the memo filed include a description e.g. Expected payroll tax credit for EPSLA – Wages.
    1. Click Recalculate. Make sure the amount on the liability payment includes the calculated credit.
    2. Click Save & Close (or E-Pay, if using E-Pay)

 

The following link is a QuickBooks informational page for employers impacted by COVID-19 with paid leave https://quickbooks.intuit.com/learn-support/en-us/help-articles/ffcra/00/517349

We are continuing to monitor changes as they occur and will be providing updates as we go along.  Please contact our office at 816-776-3584 if you have questions or concerns.

May we all stay safe in this volatile time and get through this together.

Westbrook CPA