The company did a payroll in December 2012 but paid payroll taxes(employee and employer portion) in January 2013. How to record those tax payments without a need to reconcile a Dec bank account because they had no QuickBooks last year, they want to set up QuickBooks starting as of Jan 2013 but those tax payments are from payroll Dec 2012??

The payroll is the outsourced so it has to be entered manually. There was no books last year at all. They want to start Quickbooks as of this year. But they paid taxes this year from the wages for the last year

The appropriate procedure depends on whether the company is on the cash basis of accounting or on the accrual method.

If the former, the January payments for the Dec payroll taxes would just be recorded as a January expense (Dr Payroll tax expense; Cr Cash).

If the latter, set up the opening (Jan 01 2013) balance sheet to include an accrual liability for the unpaid (as of Dec 31) Dec payroll taxes. Then the entry for the January payment of those taxes would be a Dr to this liability account, rather than to an expense account.

The company is on a cash basis. Dr Payroll tax and Cr Cash won't work because those taxes paid included also employees portion( withholdings, which aren't not employer expense). By doing so I would be overstating payroll tax expenses. So what is the solution?

Yup, my bad... forgot about the employee portion (withholdings) of the taxes.

Then if the company is on a strictly cash basis, it only recorded a salaries / wages expense in Dec for the net pay checks. Hence in January it can debit Salaries / Wages expense for the remittance of the withheld taxes.

Example: One employee, has December gross pay of 100, and withholding taxes of 15. Was paid 85 in December which was debited to Wages expense.

In January employer sends 30 to the gummint, representing the withheld 15 plus a matching 15 from the employer. January entry:

Dr 15 Wages expense
Dr 15 Payroll tax expense
Cr 30 Cash

Then, considering Dec and Jan together, employer shows 85 + 15 = 100 in the Wages expense account. It's analogous to Employer telling Employee, "I'll give you 85 of your 100 in December and the remaining 15 in January. But instead of giving you that remaining 15 directly I'll send it to the IRS on your behalf."

Hence Employer actually gives Employee his 100 in two pieces, an 85 piece in Dec and the 15 piece in Jan. Being cash basis, Employer debits each piece to Wage expense when each piece is actually paid.

Thank you so much for your help but I don't think it will work because the gross wages were "recorded" on their end in December and deducted on the tax return. As 941 and all other state and fed payroll reports have gross wages paid not net wages paid. I am thinking maybe to do some trial balance type of thing to record opening balances of liability accounts. But I am not sure how to do it in QuickBooks. Only thing that is carried over is liabilities for payroll taxes and, from what I realized just now, two credit cards will have carry over balances as well. What do you think?

From what you've described, they're not on a purely cash basis, but rather on something of a hybrid. They used an accrual-basis approach to recording their December payroll, by recording not just the net cash paid, but rather by recording the gross wages and creating a payroll tax liability for the payroll taxes to be paid in Jan.

So I'd agree with your proposal to set up that same liability in the opening (Jan 01) GL / trial balance, and then debiting the Jan payment of the taxes against that liability.

The employer portion of the Jan payment, though, will likely be debited to an expense acct in January.