journal entries to record tax credit for paid sick leave under FFCRA
What journal entries should I use to record tax credit for paid sick leave under FFCRA?
DR Liability and CR Payroll Tax exp.
Well noted for your reply as
Cr. Payroll tax expense
1. Do I need to set up a new GL account?
2. Refer our current payroll vendor's report, the total tax debited amount which is already deducted the tax credit. How do I record it?
According to your entry, my payroll tax account will wind up with a credit balance. Is that correct or should you credit wages and payroll taxes.
In your Chart of Accounts, you will need to add a FFCRA Tax Credit Receivable account in your Balance Sheet to account to the money you paid and that the company will receive back from IRS through tax credits on your 2020 income tax return. Also since those payments to the employees have to be reports in box 14 of the 2020 W-2, or report to each employee by separate statement you need someway in your chart of accounts that will allow you to generate such reports for your income tax preparer. And to correctly report payroll expense, you may need an new expense account in your chart of account for Sick Leave. (If you are using QuickBooks for payroll, you may want to end a new payroll ITEM that posts to the new account.)
The following is well worth reading: https://www.irs.gov/newsroom/covid-19-related-tax-credits-for-required-paid-leave-provided-by-small-and-midsize-businesses-faqs
After re-reading what I posted, I realized that your immediate question can be answered by adding two new accounts:
A payroll expense account called something like Sick Leave (which you will use as far as you can instead of your usual payroll accounts like Salary or Hourly.
A balance sheet receivable account called something FFCRA Tax Credit. You will make entries to that account each time you issue a paycheck for an employee meeting the qualifications.