Journal Entry for Payroll Deductions

Payroll deduction is a system whereby a certain amount of money is deducted from an employee’s wages and set aside for specific purposes.

The most common payroll deductions are for taxes, social security, and health insurance. Other deductions may include union dues, retirement savings plans, and charitable donations. Payroll deductions can be mandatory or voluntary. Employees may have some control over which deductions are taken out of their paycheck, but in many cases, the employer decides which deductions will be made. Payroll deduction is a convenient way for employees to fulfill their financial obligations without having to write a separate check or make a separate payment each month.

The company has the obligation to pay for the employee. This is a basic fundamental right that the employee has. The company should provide the employee with a paycheck that enables the employee to live a comfortable life. The company should also make sure that the employee is getting paid fairly based on their experience, education, and skills. If the company does not pay the employee, then the employee has the right to sue the company.

Payroll deduction is a system where a predetermined amount of money is withheld from an employee’s pay and forwarded to the appropriate party. This could be for taxes, medical insurance, or other expenses. The main advantage of this system is that it helps to ensure that the correct amount of money is withheld and forwarded to the right party. This can save both the employer and employee time and hassle in having to reconcile accounts later on. In addition, it can help to prevent any misunderstandings or discrepancies from arising. As a result, payroll deduction can be a helpful tool for managing finances.

The company needs to record the expense as normal, but it has modified the cash paid to the employees. The company only pays a portion of the payroll to employees while some other parts are deducted. The employees only receive the net amount.

Journal Entry for Payroll Deduction

The company record payroll expense when the employees have performed work for the company. At the end of the month, the company will make payments to the employees. The transaction will increase expenses on the income statement and reduce company cash for the same amount.

However, there are some other factors that impact this transaction. The company has obligation to withhold the employee’s salary and paid to third parties. It is called the payroll deduction which includes payroll tax, social security, and others.

Employees will receive the net amount left after deducting all of these items. At the same time, company has the obligation to make payments to third parties such as the government.

The journal entry is debit payroll expense and credit liability to relevant parties, credit cash paid.

Account Debit Credit
Payroll Expense $$$
Cash $$$
Salary Tax Payable $$$
Social Security Payable $$$


Company ABC has employed several employees to work for them. The total salary is $ 50,000 for the month. Company has to withhold some amount such as Salary tax $ 5,000 and Social Security $ 8,000. Please make a journal entry for the payroll deduction.

The company needs to pay a salary amount $ 50,000 but it has to deduct some amount for the relevant party.

The journal entry is debiting payroll expense $ 50,000 and credit salary tax payable $ 5,000, Social Security Payable $ 8,000, Cash $ 37,000.

Account Debit Credit
Payroll Expense 50,000
Cash 37,000
Salary Tax Payable 5,000
Social Security Payable 8,000

On the due date, company needs to settle these payable with the government and social security administration.

The journal entry is debiting Salary Tax Payable $ 5,000, Social Security Payable $ 8,000, and credit cash $ 13,000.

Account Debit Credit
Salary Tax Payable 5,000
Social Security Payable 8,000
Cash 13,000

In the end, company still makes a cash payment of $ 50,000 which is equal to the salary expense record on the income statement. But the employees only receive $ 37,000 while the remaining pay the government and social security administration.