Accrued Payroll Journal Entry

In short: Debit Wages Expense and Payroll Tax Expense; credit Accrued Wages Payable and Accrued Payroll Taxes Payable. The amounts are the gross wages earned by the period end and not yet paid, and the employer's taxes on them.

Jordan Miles of Northline Bookkeeping is closing December 2026 for Lopez Cleaning Co LLC, a Texas cleaning company with five hourly employees (both businesses are fictional). The payroll provider pays every other Thursday for the two weeks that ended the Sunday before. The last paycheck of 2026 went out on December 24. The next one, dated Thursday, January 7, 2027, pays Monday, December 21, through Sunday, January 3. Nine of those workdays fall in 2026, so their wages are 2026 expense that the 2026 books don't show yet.

“Accrued expenses are expenses incurred in a period but have yet to be recorded, and no money has been paid. Some examples include interest, tax, and salary expenses.”

On January 1, 2027, a reversing entry undoes the accrual, and the January 7 payroll is posted as usual. The reversing entry section shows all four entries for this paycheck, and the accrual sits with the other month-end adjustments (prepaids, depreciation, inventory) in our journal entry examples. The calculator above builds the payroll entries from a client's own hours, rates and dates.

In short: Every day worked on or before the period end that's paid after it. Days after the period end belong to the next period, even when the same paycheck pays them.

Payroll is usually paid in arrears, so the paycheck after a month end often covers days on both sides of it. At Lopez Cleaning, the January 7 paycheck pays 328 hours: 304 worked from December 21 through 31, and 24 worked on Saturday, January 2. Only the 304 December hours go into the accrual.

When two paychecks are open

A weekly payroll can leave two paychecks unpaid at the period end. A bookkeeper on the QuickBooks Community described this at a year-end financial review: the January 3 paycheck paid December 22 to 28, and the January 10 paycheck paid December 29 to January 4. Both paychecks hold December work, so the accrual takes all of the first and the December days of the second.

Hourly employees: timesheets first

Hours by date from the time records give the actual amount, including overtime already earned. Without them, the calculator's second mode prorates the paycheck's total gross by workdays. Lopez Cleaning's paycheck covers ten workdays, nine of them in December: 9 ÷ 10 × $6,440.00 = $5,796.00. That's $164.00 less than the timesheets show, because fewer people worked on January 2. The proration also has to assume every employee is still under the wage bases.

Bookkeeper tip: Ask the client or the payroll provider for hours by date for the open pay period before the close. The pay stub totals the whole period, and the accrual needs the split at the period end. If a workweek that crosses the period end includes overtime, enter the overtime hours earned through the period end in their own field. The calculator accrues the 1.5 premium with the hours it was earned in (our assumption), so ask how payroll will split the premium if it does it differently.

Salaried employees: workdays

A salaried employee earns the same pay every period, so the accrual counts workdays. The calculator divides the annual salary by 260 workdays (52 weeks of five days). The 260 is our assumption; no rule sets it. An office manager on $52,000 earns $52,000 ÷ 260 = $200.00 a day, so three unpaid workdays accrue $600.00. Some payroll systems use calendar days or the workdays in each pay period instead; use the one the client's payroll uses, the same way every month.

In short: Gross. The expense is the full wage; withholdings come out of it on payday and are owed to the government instead of the employee.

The regulations put the withholding on payday. Until January 7 nothing has been withheld: Lopez Cleaning owes $5,960.00 of wages. On payday the payroll entry splits the gross between net pay and the withholding liabilities, so the accrual and its reversal never touch them.

“The employer shall make the collection by deducting or causing to be deducted the amount of the employee tax from such wages as and when paid.”

In short: The employer's own share: Social Security 6.2%, Medicare 1.45%, FUTA, and state unemployment, plus any other employer-paid state payroll tax. The employee's withholdings, including the 0.9% Additional Medicare Tax, are already inside the gross wages.

In a FUTA credit reduction state the credit is smaller, so the rate is higher. The Department of Labor lists California at 1.2% and the U.S. Virgin Islands at 4.5% for 2025, which put California employers' FUTA at 0.6% + 1.2% = 1.8%. A reduction applies to wages paid in its year, and each year's figure is final only after November 10 of that year. For 2026, the Department lists California's potential reduction at 5.3% (1.5% plus an estimated 3.8% add-on).

So for a January paycheck, accrue at the latest final reduction and true it up on Form 940. The paycheck falls under the new year's reduction, which nobody knows at the close; the calculator's California preset uses 1.8%, the 2025 figure, and says so.

New York's 2026 wage base is $17,600, from the state's employer guide (Form NYS-50): starting with 2026 it's 18% of the state's average annual wage. Some payroll pages still show an older figure, so check the state's own page.

The state rate has a year too. Each employer gets a new rate for the year (Washington's employment department says it normally mails them in December), so for a January paycheck, use the new year's rate if the notice has arrived. California also charges employers a 0.1% employment training tax on the first $7,000 per employee (EDD), and other states have their own employer charges. The calculator covers the four common taxes; add any other employer tax as its own line in the entry.

In short: The payday's year. Wages earned in December and paid in January are next year's wages for payroll tax, so FUTA and state unemployment start over on them.

“The employer tax attaches at the time that the wages are paid by the employer.”

“…if the employee worked from December 13, 2026, through December 26, 2026, and the wages for that period were paid on January 1, 2027, include those wages on the 2027 Form W-2.”

FUTA follows the same calendar: the Form 940 instructions apply it to "the first $7,000 you pay to each employee during a calendar year." State wage bases run by calendar year as well. New York, for one, charges contributions "on remuneration paid to each employee in a calendar year up to the annual wage base amount" (Form NYS-50). Check the client's state; the calculator assumes it counts wages by the date they're paid, as FUTA does.

That's where the usual shortcut fails at year end. In the example, each of Lopez Cleaning's employees was paid more than $9,000 in 2026, so 2026 FUTA and Texas unemployment were used up by December. It's tempting to accrue only Social Security and Medicare. But the January 7 paycheck is the first paycheck of 2027, so FUTA and Texas unemployment apply to all of it.

The 15% comes from an answer on the QuickBooks Community that put the employer taxes at about 15% of gross. It's a fair warning that the taxes are large enough to record, but the real figure depends on the state rate and on where each employee stands against the wage bases: 10.95% here ($652.62 ÷ $5,960.00).

A month end in the same year

During the year, the opposite happens. Say Jordan closes June 30, 2026, and the paycheck for the open days (June 22 to July 5) is dated July 9, 2026, with each employee already paid $20,000 in 2026. FUTA's $7,000 and Texas's $9,000 are used up, so the same $5,960.00 of wages carries only Social Security and Medicare: $455.94. The entries look the same as at year end; only the wage-base question changes. That's why the calculator asks, for a payday in the same year, what each employee was already paid that year; for a payday in a new year it skips the question, because every base starts at $0.

Social Security's base matters only near the top. An employee already paid $184,400 in 2026 owes Social Security on just the next $100. The 2027 base wasn't announced when we checked in October 2026, so for 2027 paydays the calculator uses 2026's $184,500 and says so next to the result.

In short: On the first day of the next period, post the exact opposite of the accrual. The payday entry then goes in as usual, and the new period keeps only its own days.

“Reversing entries are optional accounting procedures which may sometimes prove useful in simplifying record keeping. A reversing entry is a journal entry to “undo” an adjusting entry.”

Payroll Tax Expense works the same way: $705.18 on payday less the $652.62 reversal leaves $52.56 in 2027, the employer taxes on January 2's $480.00 at 10.95%. At the January close, Accrued Wages Payable and Accrued Payroll Taxes Payable are both back to zero; a balance left in either one means an entry was missed or posted twice. Prove Accrued Payroll at month end with the balance sheet reconciliation template, the same way as any other liability account.

Without a reversing entry

Without the reversal, the payday entry clears the liability and books only the new days as expense. It ends in the same place, but someone has to split every paycheck by hand, and payroll that posts each paycheck to the books automatically won't split it.

In short: Record the accrual as a journal entry dated the period end, to separate accrued liability accounts. QuickBooks Online makes the reversal with a Reverse button; Xero's manual journal takes an auto-reversing date.

QuickBooks Online

1. Add two Other Current Liabilities accounts, such as Accrued Wages Payable and Accrued Payroll Taxes Payable, so the accrual stays out of Payroll Liabilities, where the payroll provider's withholdings and taxes land.
2. Create a journal entry dated December 31 with the four lines. The calculator's Copy journal entries button gives them as columns.
3. To reverse it, open one of the accounts' registers, select the journal entry, select Edit, then Reverse, and save.
4. Check the date. Intuit's help article says the new entry "is dated the first day of the month following the original journal entry date", so a December 31 accrual reverses on January 1.

Xero

Add the accrual as a manual journal dated December 31 and fill in its auto-reversing date with January 1. Set it when you create the journal: the date can't be added once a journal is posted, according to a post on Xero's own product forum (we couldn't open Xero Central), so a missed reversal needs a manual journal of its own.

When the payroll provider posts the January 7 payroll to the books, the reversal is what keeps the December days from counting twice.

In short: Usually, for an accrual-method business, if the wages are paid within 2½ months after year end. Related owners and cash-method businesses are the exceptions. The book entry is the same either way; this part is for the tax preparer.

• Paid within 2½ months (by March 15 for a calendar year): not deferred compensation, so wages earned in December can be deducted for that year. The regulation says pay received "on or before the end of the applicable 2 1/2 month period" isn't deferred (Treas. Reg. 1.404(b)-1T). The calculator flags a December 31 accrual with a payday after March 15.
• Paid later: presumed deferred and deducted in the year paid. The employer can rebut that only if paying on time was impracticable and that wasn't foreseeable at year end. Vacation pay treated as deferred is "deductible for the taxable year of the employer in which paid" (26 U.S.C. 404(a)(5)).
• Employer payroll taxes: generally deducted when paid. Under the recurring item exception, an accrual-method employer can deduct the taxes on year-end wages for the accrual year if they're paid by the earlier of the date the return is timely filed (with extensions) or the 15th day of the 9th month after year end, the liability recurs, and it's either immaterial or better matched to that year (Treas. Reg. 1.461-5; Rev. Rul. 96-51, as summarized in Rev. Rul. 2007-12).
• Related owners: an amount owed to a related person who reports it only when paid is deductible on the day that person includes it in income (26 U.S.C. 267). For an S corporation, that's any person who owns "directly or indirectly" any of its stock, so a shareholder-employee's December wages paid in January are deducted in the year paid, 2027.
• Cash-method businesses: wages are deducted when paid, so the December accrual changes the financial statements, not the return.

When a deduction lands in a different year from the expense, the preparer shows the difference on the return's book-to-tax reconciliation. Listing those items in the year-end notes saves them a question.

Explaining the timing to a client is bookkeeping; deciding the return's position is tax preparation. A bookkeeper who doesn't prepare the return can list the accrual and its payday in the year-end notes and leave the deduction to the preparer.

In short: Each is its own accrual in its own accounts, recorded when it's earned and can be estimated. Their employer taxes follow the same payday rule.

Vacation pay (PTO) is accrued under ASC 710 when four conditions are all met. As the Journal of Accountancy summarized them: the obligation comes from services already rendered, the rights vest or accumulate, payment is probable, and the amount can be reasonably estimated.

• Vacation: debit Vacation Expense, credit Accrued Vacation Payable. A common practice is to adjust the balance each period to the liability on the client's PTO report rather than reverse it.
• Bonus: debit Bonus Expense, credit Accrued Bonus Payable, once the bonus is earned and the amount can be estimated.
• Commissions: the same, for commissions earned on sales closed by the period end.
• Benefits that follow payroll: an employer 401(k) match or the employer's share of health premiums for the same pay period gets its own expense and liability line. Whether payroll taxes apply depends on the benefit, so follow the payroll provider's report.

Each needs its own employer tax line, figured at the wage bases of the year the bonus, commission or vacation pay is paid. A bonus paid after the 2½-month window falls under the deferred compensation rule in the tax section.

In short: Cash-basis books, owners who aren't employees, and wages already paid by the period end get no accrual. Small amounts on internal monthly statements are a judgment call.

• Cash-basis books. Wages are recorded when paid, and an accrual would mix methods. Some modified cash-basis statements do record payroll liabilities; follow the basis the client's statements are prepared on.
• Owners who aren't employees. A sole proprietor, and the owner of a single-member LLC taxed the default way, take draws, not wages. Partners aren't issued Forms W-2 (IRS, Paying yourself), so a partner's guaranteed payments are accrued on their own line, outside the payroll accrual and its employer tax lines. An LLC that elected S corporation treatment pays its owner wages, and those are accrued like anyone else's. Maria Lopez owns Lopez Cleaning, taxed the default way, and isn't on the payroll; see how owner draws are taxed.
• Paid by the period end. A paycheck dated December 31 for work through December 31 is already in the books.
• Small amounts on internal monthly statements. Some firms skip the accrual when it wouldn't change a decision. That's a judgment about the client's materiality; statements for a lender, a review, or year end are where it matters most.

In short: Errors usually start with the paycheck itself: its net amount, the days it covers, or its date.

In short: Tell the client the two figures on their statements, that their cash doesn't change, and why the taxes start over: $5,960.00 of wages and $652.62 of taxes for Lopez Cleaning.

Ledgental Team wrote this guide and built the calculator. Ledgental also makes a bookkeeping app that's free during its beta; this calculator doesn't connect to it. Everything you type, including employee names, stays in your browser.

What the numbers rest on

• Rates and wage bases come from IRS Publications 15 and 15-A (2026), the Form 940 instructions, the Department of Labor (FUTA credit reductions), and the state agencies for Texas, California, New York and Washington. The rule that the payday's year decides the wage bases comes from the regulations (26 CFR 31.3111-3 and 31.3121(a)-2) and the Form W-2 instructions. Each was read at the source in October 2026.
• The calculator keeps every rate as a named constant and is checked by known-answer tests worked out by hand: the running example, a same-year month end, the $7,000 FUTA and $184,500 Social Security limits, salaried day rates, overtime, the prorated paycheck (9 of 10 workdays, $5,796.00), and entries that balance.
• Our assumptions: 260 workdays for salaried pay; overtime at 1.5 times the rate, accrued with the hours it was earned in; in the total-gross mode, the paycheck prorated by workdays with every employee treated as under the wage bases; taxable wages totaled per tax and rounded once, the way Form 941 figures tax on total wages; state wage bases counted by the date wages are paid; for 2027 paydays, 2026's Social Security and state bases until the 2027 figures are published. The example's 2.7% Texas rate is the 2026 rate for new employers, used as an example for a 2027 paycheck; a real client uses its own rate for the payday's year.
• The example (Lopez Cleaning Co, its employees, Northline Bookkeeping) is fictional.
• Not covered: bonuses, commissions and vacation pay beyond the short section, other state and local payroll taxes, multi-state employers, and the federal income tax withheld from each paycheck.

What changed

• October 2026: first published.
• October 2026, after review: added a second way to give the wages (the paycheck's total gross prorated by workdays), optional overtime hours, state wage bases by year, and the California FUTA preset at 1.8%.

Reusing this page: the guide's text, tables, and diagrams are licensed under CC BY 4.0. Credit "Ledgental" with a link to this page. Quotations from federal regulations and the IRS are public domain, and quotations from other sources stay under their owners' terms.

Sources

1. 26 CFR 31.3111-3, When employer tax attaches, Code of Federal Regulations (via Cornell LII)
2. 26 CFR 31.3111-2, Rate and computation of employer tax, Code of Federal Regulations (via Cornell LII)
3. 26 CFR 31.3121(a)-2, Wages; when paid and received, Code of Federal Regulations (via Cornell LII)
4. 26 CFR 31.3102-1, Collection of, and liability for, employee tax, Code of Federal Regulations (via Cornell LII)
5. Publication 15 (2026), Employer's Tax Guide, Internal Revenue Service
6. Publication 15-A (2026), Employer's Supplemental Tax Guide, Internal Revenue Service
7. Instructions for Form 940, Internal Revenue Service
8. General Instructions for Forms W-2 and W-3, Internal Revenue Service
9. FUTA credit reductions, U.S. Department of Labor
10. Tax rates (unemployment tax), Texas Workforce Commission
11. Tax-rated employers, California Employment Development Department
12. Form NYS-50, Employer's Guide to Unemployment Insurance, Wage Reporting, and Withholding Tax, New York State
13. Washington's average wage increased to $95,160 in 2024 (2026 wage base), Washington Employment Security Department
14. Treas. Reg. 1.404(b)-1T, deferred compensation (2½-month rule), Code of Federal Regulations (via Cornell LII)
15. 26 U.S.C. 404, Deduction for contributions of an employer to deferred compensation plans, U.S. Code (via Cornell LII)
16. 26 U.S.C. 267, Losses, expenses, and interest with respect to transactions between related taxpayers, U.S. Code (via Cornell LII)
17. Treas. Reg. 1.461-4, Economic performance, Code of Federal Regulations (via Cornell LII)
18. Treas. Reg. 1.461-5, Recurring item exception, Code of Federal Regulations (via Cornell LII)
19. Rev. Rul. 2007-12 (summarizes Rev. Rul. 96-51), Internal Revenue Service
20. Principles of Accounting, Volume 1, 4.2 Adjusting entries, OpenStax, Rice University
21. Reversing entries, principlesofaccounting.com
22. Vacation, sick pay accruals resulting from the coronavirus pandemic (July 2021), Journal of Accountancy (AICPA)
23. Reverse or delete a journal entry (QuickBooks Online), Intuit
24. How to accrue payroll at year end, QuickBooks Community
25. Manual journal editing: add auto-reverse date, Xero Product Ideas