Payroll and equity Updated November 2026

Payroll entry

The payroll entry debits Wages (or Salaries) Expense for gross pay, credits a liability for each amount withheld from employees (federal and state income tax, Social Security, Medicare, insurance, retirement), and credits Cash or Wages Payable for the net pay. Withholdings are the employees' money the company owes to third parties, not company expense.

Syntax

Dr Wages Expense (gross) / Cr FIT Payable, Cr FICA Social Security Payable, Cr FICA Medicare Payable, Cr other withholdings, Cr Cash or Wages Payable (net)

Part	What it is
`Wages Expense / Salaries Expense`	Gross earnings before any deductions.
`Employee Income Tax Payable`	Federal (and state) income tax withheld from employees.
`FICA Social Security Payable`	6.2% of wages up to the annual wage base, withheld from the employee.
`FICA Medicare Payable`	1.45% of all wages, withheld from the employee.

Examples

Dr Wages Expense 10,000 / Cr Employee Income Tax Payable 1,500, Cr FICA Social Security Payable 620, Cr FICA Medicare Payable 145, Cr Wages Payable 7,735

Result: Expense 10,000, liabilities 10,000; net pay 7,735

Gross 10,000; Social Security 6.2% = 620; Medicare 1.45% = 145; income tax withheld 1,500.

Dr Wages Payable 7,735 / Cr Cash 7,735

Result: Net pay paid to employees

Payday, if the payroll was first recorded as a payable.

Dr Employee Income Tax Payable 1,500, Dr FICA Social Security Payable 620, Dr FICA Medicare Payable 145 / Cr Cash 2,265

Result: Withholdings remitted to the government

Employer's share of FICA is remitted in the same deposit but comes from the employer tax entry.

Common mistakes

Debiting Wages Expense for net pay: the expense is gross pay; the withholdings are credited to liabilities.
Including the employer's payroll taxes in this entry: they are a separate expense recorded in the employer payroll tax entry.
Treating withheld income tax as a company tax expense: it is the employees' tax, held in trust until remitted.

Practice Payroll entry

These drills check your answer on live data, free, no account needed.

Recording payrollNorthgate Print Shop's gross wages for the period are $48,000. Withholdings are federal income tax of $6,240, Social Security tax at 6.2% and Medicare tax at 1.45%. No employee has reached any earnings limit. Record the payroll; wages will be paid later.
Accrued wagesGreenleaf Landscaping's crew earns a combined $1,250 per day and is paid every Friday for a Monday through Friday work week. The accounting period ends on a Wednesday, and the crew has worked Monday, Tuesday and Wednesday of that week without being paid. Record the adjusting entry.

Questions

What is the journal entry for payroll?

Debit Wages Expense for gross pay, credit each withholding liability, and credit Cash or Wages Payable for net pay.

Is employee FICA withholding an expense to the company?

No. The employee's 7.65% is withheld from their pay and is a liability. The employer's matching 7.65% is the company's expense.

What is the difference between gross pay and net pay?

Gross pay is total earnings; net pay is gross pay minus all withholdings, the amount on the paycheck.

Employer payroll taxesHow to record the employer's payroll taxes: Dr Payroll Tax Expense, Cr FICA Social Security, FICA Medicare, FUTA and SUTA Payable. Rates and wage bases.
Accrued wagesHow to record wages employees earned by period end but are paid later: Dr Wages Expense, Cr Wages Payable. With the payday entry and reversing entry.
Paying accounts payableHow to record paying a supplier: debit Accounts Payable, credit Cash. Covers partial payments, paying within a discount period and the expense mistake.
Closing entriesHow to close the books: close revenues and expenses to Income Summary, close Income Summary to Retained Earnings, then close Dividends. Worked example.