Does BalanceMCP calculate payroll withholding for me?

No — there is no built-in payroll engine. If you run real payroll, the numbers typically come from a dedicated payroll provider, and this account mirrors what that provider reports rather than computing it independently.

Why does this balance need to clear quickly?

Because it represents money that legally belongs to someone else — the government or a benefits provider — not the business. Letting it grow instead of remitting on schedule is a compliance risk worth taking seriously.

2200liabilityNormal balance: Creditbusiness

2200 — Payroll Liabilities

Every payday, a business collects money on behalf of someone else without ever really owning it — income tax withheld from an employee's paycheck, the employee's share of Social Security and Medicare, benefit premiums deducted before the check is cut. None of that is the business's money to keep; it is being held temporarily until it is sent along to the right destination.

Payroll Liabilities is where that holding happens. As a liability, it carries a normal credit balance: running payroll credits this account for everything withheld, and remitting those amounts to the taxing authority or benefits provider debits it back to zero. The gross wages paid out to the employee are a completely separate expense (Payroll, 6700) — this account is strictly the withheld and accrued pieces, not the paycheck itself.

This ledger does not calculate payroll taxes or run payroll on its own. If you run real payroll, those numbers almost always come from a dedicated payroll provider, and entries here are meant to mirror what that provider reports rather than to compute withholding independently. A balance that keeps growing instead of clearing on schedule is worth flagging to an accountant or payroll provider quickly — falling behind on payroll remittances carries real compliance risk.

What belongs here

federal and state income tax withheld from an employee's paycheck
the employee's share of Social Security and Medicare withheld
the employer share of payroll taxes accrued but not yet paid
benefit deductions withheld pending remittance, such as a 401(k) contribution or health premium

What does not belong here

gross wages paid to the employee — Payroll (6700), a separate expense account
payments to a 1099 independent contractor — Subcontractors (5100), which involves no withholding at all
the actual remittance once sent to the taxing authority or benefits provider — that clears this account rather than adding to it
a business owner's own draw — Owner's Draw (3900), unrelated to employee withholding

Where it shows up

Shows on the balance sheet as a current liability that should be short-lived — rising on payday, clearing on remittance. A balance that keeps growing rather than clearing signals remittances falling behind.

Common questions

Does BalanceMCP calculate payroll withholding for me?: No — there is no built-in payroll engine. If you run real payroll, the numbers typically come from a dedicated payroll provider, and this account mirrors what that provider reports rather than computing it independently.
Why does this balance need to clear quickly?: Because it represents money that legally belongs to someone else — the government or a benefits provider — not the business. Letting it grow instead of remitting on schedule is a compliance risk worth taking seriously.