Employer Taxes, Payments, and Reports Chapter Nine Employer Taxes, Payments, and Reports

Performance Objectives Calculate the amount of payroll tax expense and journalize the related entry Journalize the entry for the deposit of employees’ federal income taxes withheld and FICA taxes (both employees’ withheld and employer’s matching share) and prepare the deposit coupon Journalize the entries for the payment of employer’s state and federal unemployment taxes Journalize the entry for the deposit of employees’ state income taxes withheld Copyright © Houghton Mifflin Company. All rights reserved.

Performance Objectives Complete Employer’s Quarterly Federal Tax Return, Form 941 Prepare W-2 and W-3 forms and Form 940 Calculate the premium for workers’ compensation insurance, and prepare the entry for payment in advance Determine the amount of the end-of-the-year adjustments for (a) workers’ compensation insurance and (b) accrued salaries and wages, and record the adjustments Copyright © Houghton Mifflin Company. All rights reserved.

Chapters 8 and 9: Overview Withhold employees’ taxes Create liabilities (payables) Chapter 9 Pay off those liabilities Calculate and pay employer taxes Copyright © Houghton Mifflin Company. All rights reserved.

Employer Identification Number The number assigned each employer by the Internal Revenue Service Used to submit reports and payments for FICA taxes and federal income tax withheld Listed on all deposit slips Individuals have Social Security numbers Employers have employer identification number IRS uses both numbers to track taxes Copyright © Houghton Mifflin Company. All rights reserved.

Employer’s Payroll Tax Expense A general expense account used for recording: FICA tax (employer’s share) State unemployment tax (varies by state) Federal unemployment tax Paid by employer on behalf of employees Copyright © Houghton Mifflin Company. All rights reserved.

Performance Objective 1 Calculate the amount of payroll tax expense and journalize the related entry Copyright © Houghton Mifflin Company. All rights reserved.

Payroll Tax Components FICA tax (employer’s share) Calculate Social Security amount (using 6.2%, $84,9000 ceiling) Calculate Medicare amount (using 1.45%) State unemployment tax (SUTA) Levied only on the employer in most states Rate varies by state (book assumes 5.4%, $7,000 ceiling) Pays subsistence benefits to unemployed workers Federal unemployment tax (FUTA) Levied only on the employer Rate varies (book assumes 0.80%, $7,000 ceiling) Used to administer federal unemployment fund Copyright © Houghton Mifflin Company. All rights reserved.

Copyright © Houghton Mifflin Company. All rights reserved. Calculate Payroll Tax Expense Take taxable amounts directly from payroll register FICA tax (employer’s share) State unemployment tax (varies by state) Federal unemployment tax Copyright © Houghton Mifflin Company. All rights reserved.

Copyright © Houghton Mifflin Company. All rights reserved. Calculate Payroll Tax Expense Do not use calculated amounts from employee’s deductions. You must take totals and recalculate amounts. (As a result there may be rounding differences.) Copyright © Houghton Mifflin Company. All rights reserved.

Journalize Payroll Tax Expense Entry Payroll taxes are an expense of doing business Debit Payroll Tax Expense Credit associated payable account Copyright © Houghton Mifflin Company. All rights reserved.

T-Accounts: Beginning Balance Balance from employees’ deductions Copyright © Houghton Mifflin Company. All rights reserved.

T-Accounts: Employer’s FICA Copyright © Houghton Mifflin Company. All rights reserved.

T-Accounts: Employer’s SUTA Copyright © Houghton Mifflin Company. All rights reserved.

T-Accounts: Employer’s FUTA Copyright © Houghton Mifflin Company. All rights reserved.

T-Accounts: Total Payroll Tax Expense Total Payroll Tax Expense, journalized and posted Copyright © Houghton Mifflin Company. All rights reserved.

Copyright © Houghton Mifflin Company. All rights reserved. To Summarize Copyright © Houghton Mifflin Company. All rights reserved.

1. Record Current Period Payroll in Payroll Register Copyright © Houghton Mifflin Company. All rights reserved.

Copyright © Houghton Mifflin Company. All rights reserved. 2. Based on Payroll Register, Make Journal Entry for Employee Salary/Wages Expense Copyright © Houghton Mifflin Company. All rights reserved.

Copyright © Houghton Mifflin Company. All rights reserved. 3. From Taxable Earnings Columns of Payroll Register, Calculate and Journalize Payroll Tax Expense Copyright © Houghton Mifflin Company. All rights reserved.

4. Journalize Cash Payments to Employees Copyright © Houghton Mifflin Company. All rights reserved.

Performance Objective 2 Journalize the entry for the deposit of employees’ federal income taxes withheld and FICA taxes (both employees’ withheld and employer’s matching share) and prepare the deposit coupon Copyright © Houghton Mifflin Company. All rights reserved.

Copyright © Houghton Mifflin Company. All rights reserved. Federal Tax Deposits Include combined total of: Employees’ federal income taxes withheld Employees’ FICA taxes withheld Employer’s share of FICA taxes Made to authorized commercial or Federal Reserve banks and forwarded to U.S. Treasury Timing depends on amounts owed (the more you owe, the more often you pay) Copyright © Houghton Mifflin Company. All rights reserved.

Prepare the Deposit Coupon Copyright © Houghton Mifflin Company. All rights reserved.

Journal Entry for Payments of FICA and Federal Income Tax Withholdings 0.00 DR CR - + 4,824.96 6,478.00 FICA Tax Payable Employees' Federal Income Tax Payable Reduces payables (liabilities) Reduces Cash Leaves payable accounts with zero balances after posting Copyright © Houghton Mifflin Company. All rights reserved.

Performance Objective 3 Journalize the entries for the payment of employer’s state and federal unemployment taxes Copyright © Houghton Mifflin Company. All rights reserved.

Payments of State Unemployment Tax (SUTA) Usually paid quarterly Due by the end of the month following the end of the quarter (same as Form 941) After posting, the payable account has a zero balance Journal entry looks like this: Copyright © Houghton Mifflin Company. All rights reserved.

Payments of Federal Unemployment Tax (FUTA) Calculated quarterly (due dates same as form 941) If liability > $100, funds are submitted with deposit card After posting, the payable account has a zero balance Journal entry looks like this: Copyright © Houghton Mifflin Company. All rights reserved.

Performance Objective 4 Journalize the entry for the deposit of employees’ state income taxes withheld Copyright © Houghton Mifflin Company. All rights reserved.

Deposits of Employees’ State Income Tax Withholding Deposited quarterly (due dates same as SUTA) After posting, the payable account has a zero balance Journal entry looks like this: Copyright © Houghton Mifflin Company. All rights reserved.

Performance Objective 5 Complete Employer’s Quarterly Federal Tax Return, Form 941 Copyright © Houghton Mifflin Company. All rights reserved.

Form 941 (Employer’s Quarterly Federal Tax Return) A quarterly report showing the tax liability for withholdings of employees’ federal income tax and FICA taxes and the employer’s share of FICA taxes; total tax deposits made in the quarter are also listed on Form 941 Due April 30, July 31, October 31, January 31 See textbook for example Copyright © Houghton Mifflin Company. All rights reserved.

Copyright © Houghton Mifflin Company. All rights reserved. Quarters Three consecutive months Also referred to as calendar quarters Jan-Mar (1st Quarter) Apr-Jun (2nd Quarter) Jul-Sep (3rd Quarter) Oct-Dec (4th Quarter) Copyright © Houghton Mifflin Company. All rights reserved.

Performance Objective 6 Prepare W-2 and W-3 forms and Form 940 Copyright © Houghton Mifflin Company. All rights reserved.

Form W-2 (Wage and Tax Statement) Form containing information about employee earnings and tax deductions for the year After last day of calendar year, employer must complete and furnish employee with at least two copies (before January 31) One copy to the Social Security Administration One copy to state (if appropriate) Two or more copies to employee for: Employee’s records Employee to send to IRS Employee to send to state and local tax agencies if those taxes withheld One copy for employer’s records Copyright © Houghton Mifflin Company. All rights reserved.

Copyright © Houghton Mifflin Company. All rights reserved.

Form W-3 (Transmittal of Wage and Tax Statements) Annual report (due Feb. 28) sent to Social Security Administration listing: Total wages and tips Total federal income taxes withheld Total Social Security and Medicare taxable wages and taxes withheld Must attach Copy A of employees’ W-2 forms Total amounts must match grand total of W-2 and four quarterly 941 forms Copyright © Houghton Mifflin Company. All rights reserved.

Copyright © Houghton Mifflin Company. All rights reserved.

Form 940 (Employer’s Annual Federal Unemployment Tax Return) Due Jan. 31, or Feb. 10 if payments made in full Lists: Total wages paid to employees Total wages subject to federal unemployment tax Total federal unemployment tax Other information Copyright © Houghton Mifflin Company. All rights reserved.

Copyright © Houghton Mifflin Company. All rights reserved.

Performance Objective 7 Calculate the premium for workers’ compensation insurance, and prepare the entry for payment in advance Copyright © Houghton Mifflin Company. All rights reserved.

Workers’ Compensation Insurance Provides benefits for employees injured or killed on the job Rates vary according to the degree of risk inherent in the job Plans may be sponsored by states or by private firms Employer pays premium in advance, based on estimated payroll for the year Rates are adjusted after exact payroll is known Copyright © Houghton Mifflin Company. All rights reserved.

Calculate the Premium in Advance Copyright © Houghton Mifflin Company. All rights reserved.

Prepare the Entry for Payment in Advance Copyright © Houghton Mifflin Company. All rights reserved.

Calculate Exact Premium at End of Year Copyright © Houghton Mifflin Company. All rights reserved.

Performance Objective 8a Determine the amount of the end-of-the-year adjustment for worker’s compensation insurance, and record the adjustment Copyright © Houghton Mifflin Company. All rights reserved.

Calculate Unpaid Premium and Make Adjusting Entry $3,653.00 Total exact premium $3,595.50 Less total estimated premium paid $57.50 Additional premium owed Copyright © Houghton Mifflin Company. All rights reserved.

Performance Objective 8b Determine the amount of the end-of-the-year adjustment for accrued salaries and wages, and record the adjustment Copyright © Houghton Mifflin Company. All rights reserved.

Year-end Adjustments for Accrued Salaries and Wages Are there adjusting entries for wages expense and wages payable? Yes, salaries and wages accrue between the last payday and the end of the year Are there adjusting entries for FICA, federal income tax withholdings, or payroll taxes? No These taxes are not legal obligations until employees are paid Copyright © Houghton Mifflin Company. All rights reserved.

Demonstration Problem Copyright © Houghton Mifflin Company. All rights reserved.

Look to Beginning Earnings to Determine If There Are Taxable Earnings Copyright © Houghton Mifflin Company. All rights reserved.

Calculate Ending Cumulative Earnings Copyright © Houghton Mifflin Company. All rights reserved.

Calculate Taxable Earnings Copyright © Houghton Mifflin Company. All rights reserved.

Copyright © Houghton Mifflin Company. All rights reserved. Calculate Deductions Copyright © Houghton Mifflin Company. All rights reserved.

Calculate Payments and Expense Copyright © Houghton Mifflin Company. All rights reserved.

Make Journal Entry from Register Payables Expense Copyright © Houghton Mifflin Company. All rights reserved.

Copyright © Houghton Mifflin Company. All rights reserved. Record Salary Expense Copyright © Houghton Mifflin Company. All rights reserved.

Record Payables to Make DR = CR Copyright © Houghton Mifflin Company. All rights reserved.

Calculate Payroll Taxes Copyright © Houghton Mifflin Company. All rights reserved.

Record Payroll Expense Copyright © Houghton Mifflin Company. All rights reserved.

Journalize Cash Payments to Employees Copyright © Houghton Mifflin Company. All rights reserved.