What are Beginning Balances in Payroll?
In payroll, the term “beginning balances” refers to amounts paid to and withheld from an employee during previous payroll runs in a fiscal period. You may also hear them called starting or opening balances.
You will typically only need to enter beginning balances if you switch payroll providers in the middle of the year or quarter. To record starting balances in your payroll software, you’ll record the total hourly or salary amounts you’ve paid them so far this year. Then, you’ll record any additional types you’ve paid them, like bonuses and overtime. You’ll also record how much you’ve withheld from each paycheck for taxes and deductions, like 401(k) contributions. For every subsequent payroll run, your system will track this information for you, so you only need to enter beginning balances once.
Why are beginning balances important?
Beginning balances ensure that your year-to-date information is correct for each member of your team so you can seamlessly file W-2s and other tax forms at the end of the year. It’s a lot easier to record opening balances all at once, instead of having to log each prior paycheck individually.
Some payroll programs also let you record beginning balances based on the quarter, instead of just a lump sum for the year. This can help ensure that your tax payments and quarterly forms, like Form 941, are correct.
Learn how to enter beginning balances in Workful.
It’s also vital that you have accurate information for future taxes. By taking advantage of beginning balances when switching payroll systems, you can ensure you’re withholding the right amount of taxes and not overpaying your own taxes as an employer. For example, when an employee makes over a certain amount, you need to stop withholding Social Security taxes. And, you typically only need to pay unemployment taxes on the first couple of thousand dollars each worker makes during the year.
Read also: Does My Small Business Need to Pay Unemployment Insurance Taxes?
Not only is year-to-date information vital for tax purposes, it can also help you with your budget, too. You can easily see how much payroll has cost you so far this year, so you know if you’re able to afford to hire additional staff or if you need to lay off some folks.
Why are beginning balances important for my employees?
By taking advantage of your payroll system’s beginning balances, you can ensure your team’s pay stubs are up to date without manually recording each previous paycheck. Pay stubs are a vital source of info for your team members. A worker’s pay stub shows how much they have paid in taxes so far this year and might reveal that it’s time to update their W-4 form. Some mortgage lenders use an applicant’s previous pay stubs to determine if the person earns enough to pay their debt.