Payroll Accounting, Taxes, and Reports Chapter 14: Payroll Accounting, Taxes, and Reports

Different Forms of Payroll Info Payroll info for each pay period is recorded in the payroll register Journal entries are made to record the payment of the payroll and the employer payroll taxes Various quarterly and annual payroll tax reports are required to report the payment of payroll taxes

14.1 Recording a Payroll Payroll Register: The payroll journal entry is based on the totals in the Earnings column, each deduction column and the Net Pay column

Analyzing Payment of Payroll Earning Total- is the Salary Expense and will be debited Credit: Employee Income Tax, Soc Sec Tax, Medicare Tax, Health Ins Premium Tax, US Savings Bonds, United Way Donations, etc (ie: CREDIT EACH DEDUCTION) AND Cash (cash credit will equal net pay amount)

Journalizing Payment of a Payroll Date, Title of Accounts affected Debit: Salary Expense Credit: Cash and Deduction Payable Accounts ***Total Earnings is the debit amount for Salary Exp *** Net Pay is the credit amount for Cash

14.1 Review: p. 343 Audit Your Understanding #1-4 Work Together #5-6 On Your Own #7-8

14.2 Recording Employer Payroll Taxes Employers must pay to the government all taxes withheld from employee pay checks This includes: federal income tax, social security tax, and Medicare taxes The are liabilities until they are paid to the government Most employers pay 4 separate taxes of their OWN: employer social security tax, Medicare tax, federal unemployment tax and state unemployment tax These amounts based on a % of employee earnings

Calculating Social Security and Medicare are paid by BOTH employer and employee Employer must pay the same amount withheld from employees For example: For pay period ending December 15 Omni withheld $247.25 in SS tax and $57.07 in Medicare tax from employees. Omni must pay these amounts as well

Unemployment Taxable Earnings Laws require that employers pay taxes for unemployment compensation These funds are used to pay workers benefits for limited periods of unemployment and to administer unemployment compensation Unemployment tax is applied to the first $7,000 earned by an employee EACH calendar year

Unemployment For each employee, enter accumulated earnings as of previous pay period. Enter earnings from current pay period Enter unemployment taxable earnings for pay period if accumulated earnings are LESS than $7000.00 Total Unemployment Taxable Earnings

Unemployment Taxes Federal: tax rate is 6.2% of first $7,000 of employee’s earnings less state deducted % (no more than 5.4%) Unemployment Taxable Earnings * Federal Unemployment Tax Rate (0.8% for most states)= Federal Unemployment Tax State: Most states require 5.4% to be paid on first $7,000. Unemployment Taxable Earnings * State Unemployment Tax Rate(5.4%)= State Unemployment Tax

Journalizing December 15. Recorded employer payroll taxes expense, $315.72, for the semimonthly pay period ended December 15. Taxes owed are: social security tax, $247.26; Medicare tax, $57.07; federal unemployment tax, $1.47; state unemployment tax $9.92. Memorandum No. 63 Date Payroll Taxes Expense Debit; Credit Liability Accounts: SS Tax, Medicare Tax, Unemployment Tax- Federal, Unemployment Tax- State

14.2 Review: p. 348 Terms Review Audit Your Understanding #1-2 Work Together #3-5 On Your Own #6-8

14.3 Reporting Withholding and Payroll Taxes Each employer who withholds income tax, ss tax, and Medicare tax from employee earnings must furnish an annual report This report is Internal Revenue Service Form W-2 and are given to each employee by January 31 of the next year Four copies are given to the employee

Employer’s Quarterly Tax Return (p350) Employers are required to periodically report payroll taxes withheld Some quarterly and some annually Quarterly Federal Tax Return Shows federal tax, SS tax and Medicare taxes Form 941 Filed before the last day of the month following end of calendar quarter

Employer Annual Reporting of Payroll Taxes Form W-3: Transmittal of Wage and Tax Statements Sent to Social Security Administration by February 28 of each year Reports the previous year’s earnings and all payroll taxes withheld for all employees Copy A of each W2 is attached If number of employees is >250, the employer must send this info via computer files to the IRS

14.3 Review p. 353 Audit Your Understanding #1-2 Work Together #3 On Your Own #4

14.4 Paying Withholding and Payroll Taxes Employers must pay to the federal, state, and local governments all payroll taxes withheld Frequency determined by amount owed If taxes for previous 4 quarters is $50,000 or less, employers are a monthly depositor and must pay by the 15th of the following month with form 8109 Two Exceptions: (1) less than $500 tax liability is accumulated in a quarter-employer can pay @ the end of that quarter; (2) tax liability is >$100,000 is accumulated on any day, amount must be deposited on the next banking day Form 941

Journalizing January 15. Paid cash for liability for employee income tax, $542.00; social security tax, $985.40; and Medicare tax, $227.42; total, $1,754.82. Check No 330 Date, Debit- each tax account (General Debit), Credit-Cash

Federal Unemployment Tax Paid at the end of the month following each quarter if liability amount is <$100. Uses Form 8109 also Type of tax is 940

Journalizing January 31. Paid cash for federal unemployment tax liability for quarter ended December 31, $8.40. Check No. 343 Unemployment Tax Payable (Federal)-Debit, Cash-Credit January 31. Paid cash for state unemployment tax liability for quarter ended December 31, $56.70. Check No. 344 Unemployment Tax Payable (State)- Debit, Cash Credit

14.4 Review: p. 359 Audit Your Understanding #1-2 Work Together #3-4 On Your Own #5-6

Chapter 14 Review Application Problems 14.1- 14.1