401k $ Handling

tmsprojectconsultingtmsprojectconsulting Member Posts: 4

I have read all the other 401k posts available - BUT how does one move the payroll money to the correct account for Employee Contributions? I have added the Deduction to the Employee Record ($ every pay cycle), but not sure what's going to happen next and how to actually acquire the funds to move them.



  • MikegMikeg Member Posts: 805 ✭✭✭

    You didn't mention how payroll is being run, but employers deduct gross wages paid to employees on the income statement. Withholdings on behalf of employees become liabilities to the employer i.e. taxes, 401k etc. The employer also takes an expense for their share of payroll tax expense. If you had 5,000 in gross wages but only issued checks for 3,800. The difference of 1,200 represent withholdings that you remit on the employees behalf. Below is the typical journal entry for payroll.
    Debit - Salaries and Wage (Expense) Gross
    Debit - Employer Payroll Taxes (Expense)
    Credit - Payroll Taxes Payable (Liability) employee withholdings
    Credit - 401(k) Payable (Liability) employee contribution
    Credit - Cash (Net checks paid to employees)
    When you pay your taxes (to government) and 401(K) (Benefits provider) then you debit the liability and credit cash or if you are importing then you code to above accounts to the transactions from the bank.

    Hope that helps.
    Keep me in mind if you need a CPA
    Mike G, CPA

  • tmsprojectconsultingtmsprojectconsulting Member Posts: 4

    MikeG - thanks for the information (I will keep your services in mind). I understand what you are saying from a general transaction perspective, my question is really a WAVE Accounting/Payroll One. I am using WAVE payroll, hence the Debits and Initial Credit should be automatically managed by the software.

    Does the 401k Liability Employee get automatically generated by WAVE. Where does the Employee 401k money go? Is it not really taken out of my Payroll Account, I have to do that manually (via check or automated bank account transfer) to pay the Benefit Provider/401k Administrator, and manually come back into WAVE and create a manual journal entry when I do that? Does WAVE have a tutorial on this - that would be great!

    Any additional insight others who use this can share would be great - or if WAVE staff care to comment (guess I may have to leave that on the other board).

  • MikegMikeg Member Posts: 805 ✭✭✭

    I have one client that uses Wave for payroll, the rest use my service. I do see that if you go into employees and benefits and deductions, you can add a 401(k). I would think, it would accumulate the amounts withheld on a balance sheet account. Probably needs to be assigned after it is created under Settings/Payroll/Account Mapping. Didn't want to mess with my clients payroll set up, so I didn't go any further. You would still need to manually send a payment to the benefits provider for amounts withheld. When the check clears the bank and is on the transactions page, you would code to the payable. There should not be a need to do a journal entry.
    Mike G, CPA

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