Employee payroll withholding is money earned by the employee but collected by the employer and remitted to the government or benefit provider. From a bookkeeping standpoint, withheld amounts create liabilities — not expenses.
Types of employee withholding
| Withholding Type | Rate / Amount | Remitted To |
|---|---|---|
| Federal Income Tax | Per W-4 election | IRS (with 941 deposits) |
| Employee Social Security | 6.2% (up to wage base) | IRS (with 941 deposits) |
| Employee Medicare | 1.45% (no cap) | IRS (with 941 deposits) |
| State Income Tax | Varies by state | State revenue department |
| Local Income Tax | Varies by locality | Local government |
| Health Insurance Premium | Employee's share | Insurance carrier |
| 401(k) Contribution | Employee's election % | Plan administrator |
| HSA / FSA Contribution | Employee's election | Plan administrator |
How withholding appears in the journal entry
Each withholding type appears as a credit to a liability account. The total of all credits (plus net wages payable) equals the gross wages debit:
- Federal WH Payable (credit)
- FICA Payable — employee portion (credit)
- State WH Payable (credit)
- Health Insurance Payable (credit)
- 401(k) Payable (credit)
- Net Wages Payable (credit) ← what employees actually receive
When withholding liabilities clear
Tax withholding liabilities clear when you make IRS deposits (per your 941 deposit schedule — semi-weekly or monthly based on your lookback period). Benefit withholding clears when you remit premiums and contributions to providers.
PostBooks correctly handles all withholding types in your payroll journal entries. Start your free trial.