What Are Tax Reconciliation Debits?
Tax reconciliation is a process where we ensure the correct tax amounts have been paid and reported to government agencies. As each payroll runs, Warp debits the required taxes and submits them to tax authorities. When adjustments affect tax obligations after payrolls have processed, additional collections or refunds may be necessary.
Tax reconciliations help you reduce errors and stay compliant
Tax reconciliations are a normal part of running payroll and staying compliant, and they're standard on all modern payroll platforms. Think of them as us double checking, at each quarter end, that all outstanding balances are squared away - this helps your company stay up to date in paying taxes and avoiding penalties.
These periodic reviews ensure your tax accounts remain accurate throughout the year, especially when changes occur to employee status, company locations, or tax rates. By proactively reconciling tax obligations each quarter, Warp helps prevent larger discrepancies that could lead to significant unexpected costs or compliance issues at year-end.
When Tax Reconciliations Occur
Reconciliations may happen automatically on a quarterly basis or when specific account changes occur. When processed, you may see:
A debit to your company for additional taxes owed based on updated information
A credit (refund) for taxes that may have been overpaid
If your company has multiple bank accounts, we'll use the default bank account on file for these transactions.
How tax reconciliations appear in employer bank transactions
When reviewing your bank statements, you may notice specific transaction descriptions related to tax reconciliations.
Warp Payroll - TAX: Refers to the total in the "Variance" column. This would be an amount either collected or refunded during quarter-end balancing. When you see this code on your bank statement, it indicates a tax reconciliation debit or credit has been processed.
Warp Payroll - AFR: the code AFR is used when Warp refunds tax amounts because the return filed was rejected. The most common reason for this is an incorrect or missing state tax account IDs. The amount refunded would be listed in the "Deposits" column next to the Tax Code with the incorrect/missing EIN.
These billing codes help you identify the purpose of transactions in your bank account and can be referenced when reviewing your Reconciliation Recap or when contacting our support team with questions about specific transactions.
Common Causes of Tax Reconciliations
State Unemployment Rate Changes
When your State Unemployment Insurance (SUI) rate changes mid-quarter due to state unemployment department adjustments, a reconciliation debit typically occurs at quarter-end.
FUTA Credit Reduction States
If your business operates in a FUTA credit reduction state, higher federal taxes may be due on Form 940, typically resulting in a year-end debit.
Non-Warp Payrolls
Adding or removing payrolls processed outside Warp may impact how previous payrolls should have been taxed, potentially requiring additional tax payments.
Work/Home Location Changes
When your company or employees change work or home locations, different tax jurisdictions may apply, affecting tax obligations.
Benefit Adjustments
Changes to employee benefits can impact taxable wages and resulting tax amounts.
Tax Exemptions
Adding or removing tax exemptions may increase or decrease taxes owed, requiring reconciliation.
Finding Your Reconciliation Details
To view a breakdown of tax collection amounts, check the Reconciliation Recap in your Warp account under:
Taxes and Compliance > Company Tax Documents > Document titled "Recap"
Understanding Your Reconciliation Recap
The Reconciliation Recap summarizes activity for each tax type and is included in quarterly company tax returns. It outlines:
Summary Section:
Fraction: Marginal tax differences that will be written off (Warp writes off any variance less than $1.00)
Deposit: Amounts to be collected from your company
Credit: Amounts to be refunded to your company
Carry: Amounts carried forward to next quarter, reducing future tax obligations
Refund: Overpayments that will be refunded by the tax agency
Detailed Grid Section:
Tax Code: Identifies the applicable state and tax type
Description: Details about the specific tax represented
EIN: Tax ID used for the applicable tax
Liability: Sum of individual payroll tax obligations for the quarter
Prepaid: Tax payments assumed from company implementation history
Deposits: Amount owed to the agency (may differ from Liability due to rate changes)
Prior Adjustment: Adjustments from previous quarters affecting current balancing
Variance: Difference between Liability/Prepaid and Deposits columns