MaryJoyD:  Thank you but I still cannot get the answer to my question. My clients uses QBO but uses an outside payroll service who pays the taxes and files the quarterly forms for the company.  QB advice is to set up both expense and liabilities accounts for wages, taxes, and tax liabilities; HOWEVER, the company does not pay those directly. They are paid by the payroll company.  How do I enter those payments? Why are they liabilities instead of expenses to the payroll service?  If I enter a pay check and deduct the taxes, the taxes show up as negative numbers. If I do journal entries for gross wages, taxes, and employer/employee taxes (as credits), how do I reduce the liabilities when the service deducts those amounts from the checking account?