working · Lesson 7 · 9 min
Payroll, Gusto, and contractors
Wages split into expense, withholdings, and employer tax. Contractors are AP plus 1099 discipline — not “wage expense.”
Dotted words have a reminder. Hover on a computer, tap on a phone.
From earlier
- AP
- clearing account
- P&L
- QBO
- CPA
The wage journal, simplified
Gross wages are an expense. Employee withholdings (federal income tax, state, Social Security, Medicare) are liabilities until remitted. Employer FICA and unemployment are extra expenses and extra liabilities. Net pay is the remaining credit to bank (or to a payroll clearing account if a provider draws later).
| Account | Debit | Credit |
|---|---|---|
| 6700 Wages | $3,000.00 | |
| 6800 Payroll taxes (employer) | $230.00 | |
| 1000 Checking (net pay) | $2,280.00 | |
| 2400 Payroll liabilities | $950.00 | |
| Totals | $3,230.00 | $3,230.00 |
Xero US payroll
Xero Payroll in the US is powered by Gusto. The provider calculates, files, and typically posts a summary journal (or a batch of them) into Xero. Your job is to confirm wages land in Wages, tax in liabilities/expense, and the bank draw matches. Do not recode the Gusto lines to “contract labor” to make a P&L target.
Contractors and 1099s
A true independent contractor is not on payroll. Enter their bills (or spend-money) to Subcontractors or a 1099-mapped account, and collect a W-9 before you pay. For US federal 1099-NEC / 1099-MISC, the reporting threshold for payments made in 2026 is $2,000 (it was $600 through 2025; it indexes for inflation beginning 2027). Confirm the current IRS amount each January — some states still use $600. Backup withholding can apply at any amount if you have no valid TIN. QBO has stronger native 1099 tools; Xero US plans include W-9 + 1099 management, and Gusto can cover contractors too.
QuickBooks Payroll
QBO Payroll is built in (paid add-on). It posts similar journals and handles filings. The bookkeeping test is identical: wages expense, tax liabilities, net pay, then match the bank. Don’t enter a duplicate manual journal “because the P&L looked low.”
Check
Choices shuffle each visit. Misses send you back to the section. Look back clears the quiz so you can try again. Practice drills deal a new problem on try-again.
Choose an answer, then check.
This try
The IRS tax draw for withheld and employer tax should be coded to:
Practice this
Stay in the flow — open a drill without backing out to the list.