Payroll Advances & Draws
Payroll advances and draws (payroll advance, payroll draw) aren't tracked automatically in AccountEdge, but you can still write advance checks for your employees and keep accurate payroll records. For simplicity, AccountEdge will assume your employee will receive an advance or draw, and will repay that advance or draw when the payroll check is created. Follow these steps to distribute a payroll advance or draw to an employee, and record its repayment.
Note: In this note, an advance or draw check is created without withholding taxes or employer expenses. Check with your accounting professional to verify whether or not taxes should be withheld and payroll expenses paid on advances and draws.
Setup a Payroll Advance / Draw
- Create a Wage Category for the payroll advance:
- Open the Wage Category window (Lists > Payroll Categories > Wages)
- Click the New button
- Enter the name of this wage category, e.g., Advance, Draw
- You can assign a separate expense account to track the advance, otherwise the advance expense will be allocated to the default wages expense account. To assign the advance to a separate account:
- Place a check mark to the left of Override Employees' Wage Expense Account
- Click the account dropdown arrow
- If an account does not exist, click New to create a new account
- If an account existed, or you just created an account, select the account for this wage category
- Assign the wage category to the appropriate employee by clicking the Employee button at the bottom of the Wages Information window
- Click the Exempt button to reveal exemptions. In this scenario, the wage category is exempt from all taxes and deductions; place a check mark to the left of the items.
- Click OK
- Click OK
Pay a Payroll Advance
- Click on Process Payroll to process your payroll. On the Review and Edit Paychecks window, click the arrow to the left of the employee receiving the advance. Enter the advance amount in the amount field on the line you created for payroll advance. Clear regular wages line(s). Deductions, employer expenses and taxes will be calculated automatically, depending on the exemptions you indicated.
To Record Repayment of the Advance
Repayment is recorded at the same time a regular payroll check is created. That is, the advanced is repaid, and a regular wage is allocated.
- Record the repayment on a paycheck. In Select and Edit Paychecks window of Process Payroll, enter the advance repayment amount, as a negative value, in the Amount field of the advance wage line.
- Since the advance or draw is being repaid (or partially repaid), the regular wages should not include the advance amount. The advance will either be zero because it will have been repaid, or there will be an untaxed balance, which can be determined by inspecting the YTD values on the Payroll Earnings report
|Report||Advance||Repay & Payroll||Payroll only|
|Payroll Earnings||Will show advance amount||Advance line will be negative, reflecting amount repaid; YTD values will accurately reflect status of payroll and advance||YTD values will accurately reflect status of payroll and advance|
|Payroll Activity||Will show advance if not zero, what was withheld otherwise||Normal Wage and what was withheld / expensed|
|Tax Detail||Wage without tax (if exempt)||Wage without tax (if exempt), what was withheld otherwise||Normal Wage and what was withheld / expensed|
|Payroll Register||Wage with no deduction||Advance & wage total; what was withheld; no advance if it is zero||Wage and what was withheld|
Under ideal situations, advances will have been repaid, and regular payroll checks issued before a quarter ends. Otherwise, if you indicate the advance wage category is exempt from withholding taxes and expenses, and an outstanding advance value exists (which can be determined from the YTD values on the Payroll Earnings report), the 941 will not reflect this value. If you add this value to the 941 and haven't withheld taxes, your 941 will show you have under withheld, and under expensed. Seek the advice of your accounting professional about handling this situation.
When preparing W-2s, you should add the advance wage category to the wages (lines 1, 3 and 5). If taxes have not been withheld, the employee will need to settle with the authorities when filing.
Withholding Taxes and Expenses
If you intend to provide payroll advances or draws with taxes withheld and expenses paid, you may need to change the Pay Frequency (Lists > Cards > Employees > [Employee] > Payroll Details > Wages). Withholding taxes are based on annual gross wages, which are determined by payroll check amount times pay frequency.