Chapter Nine Employer Taxes, Payments, and Reports

Accounting Is Fun! Performance Objectives 1.Calculate the amount of payroll tax expense and journalize the related entry 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 3.Journalize the entries for the payment of employer’s state and federal unemployment taxes 4.Journalize the entry for the deposit of employees’ state income taxes withheld

Accounting Is Fun! Performance Objectives 5.Complete Employer’s Quarterly Federal Tax Return, Form Prepare W-2 and W-3 forms and Form Calculate the premium for workers’ compensation insurance, and prepare the entry for payment in advance 8.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

Accounting Is Fun! Chapters 8 and 9: Overview Chapter 8 –Withhold employees’ taxes –Create liabilities (payables) Chapter 9 –Pay off those liabilities –Calculate and pay employer taxes

Accounting Is Fun! 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

Accounting Is Fun! 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

Accounting Is Fun! Performance Objective 1 Calculate the amount of payroll tax expense and journalize the related entry

Accounting Is Fun! 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

Accounting Is Fun! 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

Accounting Is Fun! 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.)

Accounting Is Fun! Journalize Payroll Tax Expense Entry Payroll taxes are an expense of doing business Debit Payroll Tax Expense Credit associated payable account

Accounting Is Fun! T-Accounts: Beginning Balance Balance from employees’ deductions

Accounting Is Fun! T-Accounts: Employer’s FICA

Accounting Is Fun! T-Accounts: Employer’s SUTA

Accounting Is Fun! T-Accounts: Employer’s FUTA

Accounting Is Fun! T-Accounts: Total Payroll Tax Expense Total Payroll Tax Expense, journalized and posted

Accounting Is Fun! To Summarize

Accounting Is Fun! Record Current Period Payroll in Payroll Register

Accounting Is Fun! Based on Payroll Register, Make Journal Entry for Employee Salary/Wages Expense

Accounting Is Fun! From Taxable Earnings Columns of Payroll Register, Calculate and Journalize Payroll Tax Expense

Accounting Is Fun! Journalize Cash Payments to Employees

Accounting Is Fun! 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

Accounting Is Fun! 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)

Accounting Is Fun! Prepare the Deposit Coupon

Accounting Is Fun! Journal Entry for Payments of FICA and Federal Income Tax Withholdings Reduces payables (liabilities) Reduces Cash Leaves payable accounts with zero balances after posting 0.00 DRCR -+ 4, DRCR -+ 6, FICA Tax Payable Employees' Federal Income Tax Payable

Accounting Is Fun! Performance Objective 3 Journalize the entries for the payment of employer’s state and federal unemployment taxes

Accounting Is Fun! 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:

Accounting Is Fun! 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:

Accounting Is Fun! Performance Objective 4 Journalize the entry for the deposit of employees’ state income taxes withheld

Accounting Is Fun! 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:

Accounting Is Fun! Performance Objective 5 Complete Employer’s Quarterly Federal Tax Return, Form 941

Accounting Is Fun! 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

Accounting Is Fun! Quarters Three consecutive months –Also referred to as calendar quarters

Accounting Is Fun! Performance Objective 6 Prepare W-2 and W-3 forms and Form 940

Accounting Is Fun! 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

Accounting Is Fun!

Accounting Is Fun! 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

Accounting Is Fun!

Accounting Is Fun! 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

Accounting Is Fun!

Accounting Is Fun! Performance Objective 7 Calculate the premium for workers’ compensation insurance, and prepare the entry for payment in advance

Accounting Is Fun! 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

Accounting Is Fun! Calculate the Premium in Advance

Accounting Is Fun! Prepare the Entry for Payment in Advance

Accounting Is Fun! Calculate Exact Premium at End of Year

Accounting Is Fun! Performance Objective 8a Determine the amount of the end-of-the- year adjustment for worker’s compensation insurance, and record the adjustment

Accounting Is Fun! Calculate Unpaid Premium and Make Adjusting Entry $3,653.00Total exact premium $3,595.50Less total estimated premium paid $57.50Additional premium owed

Accounting Is Fun! Performance Objective 8b Determine the amount of the end-of-the- year adjustment for accrued salaries and wages, and record the adjustment

Accounting Is Fun! 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

Accounting Is Fun! Demonstration Problem

Accounting Is Fun! Look to Beginning Earnings to Determine If There Are Taxable Earnings

Accounting Is Fun! Calculate Ending Cumulative Earnings

Accounting Is Fun! Calculate Taxable Earnings

Accounting Is Fun! Calculate Deductions

Accounting Is Fun! Calculate Payments and Expense

Accounting Is Fun! Make Journal Entry from Register ExpensePayables

Accounting Is Fun! Record Salary Expense

Accounting Is Fun! Record Payables to Make DR = CR

Accounting Is Fun! Calculate Payroll Taxes

Accounting Is Fun! Record Payroll Expense

Accounting Is Fun! Journalize Cash Payments to Employees