We pay a county lodging tax and the county kicks back 5% of the tax due if we pay on time.
I am receiving the tax into a liability account and then paying the tax when due, most months less 5%. How do I move the 5% from the liability account into an income account?
I assume you mean you remit lodging tax collected from your customers to the county, not that your business pays a lodging tax.
The easiest thing is to post the receipt directly to an income account. After all, it is income the county pays you for the service of timely tax collection on the county’s behalf. It will be a credit in the income account.
A more complex approach is to post the receipt back to the tax liability account as you are now, where it will be a credit. In a second step, create a journal entry, debiting the tax liability account and crediting an income account. The end result will be the same, but why go through two steps?