8–1 McQuaig Bille 1 College Accounting 10 th Edition McQuaig Bille Nobles © 2011 Cengage Learning PowerPoint presented by Douglas Cloud Professor Emeritus of Accounting, Pepperdine University Chapter 8 Employer Taxes, Payments, and Reports

Copyright © Houghton Mifflin Company. All rights reserved.9 | 2 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.9 | 3 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.9 | 4 Payroll Tax Components FICA tax (employer’s share) –Calculate Social Security amount (using 6.2%, $106,800 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 0.8%, $7,000 ceiling) –Used to administer federal unemployment fund

Copyright © Houghton Mifflin Company. All rights reserved.9 | 5 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.9 | 6 Calculate Payroll Tax Expense (cont’d) Do not use calculated amounts from employee’s deductions. You must take totals and recalculate amounts. (As a result, there may be rounding differences.) State Unemployment Tax (Rates Vary)958.20x5.4%=$51.74 Federal Unemployment Tax (Rates Vary)958.20x0.8%=$7.67

Copyright © Houghton Mifflin Company. All rights reserved.9 | 7 Journalize Payroll Tax Expense Entry Payroll taxes are an expense of doing business. Debit Payroll Tax Expense. Credit associated payable account. Description Post. Ref.DebitCredit 20-- Oct.7Payroll Tax Expense1, FICA Tax Payable1, State Unemployment Tax Payable51.74 Federal Unemployment Tax Payable7.67 To record employer's share of FICA tax and employer's state and federal unemployment taxes. General Journal Page 9 Date

Copyright © Houghton Mifflin Company. All rights reserved.9 | 8 T Accounts: Beginning Balance DRCRDRCR , DRCR -+ DRCR -+ Payroll Tax ExpenseFICA Tax Payable State Unemployment Tax Payable Federal Unemployment Tax Payable Balance from employees’ deductions

Copyright © Houghton Mifflin Company. All rights reserved.9 | 9 T Accounts: Employer’s FICA DRCRDRCR , , , DRCR -+ DRCR -+ Payroll Tax ExpenseFICA Tax Payable State Unemployment Tax Payable Federal Unemployment Tax Payable © Royalty Free C Squared Studios/ Getty Images

Copyright © Houghton Mifflin Company. All rights reserved.9 | 10 T Accounts: Employer’s SUTA DRCRDRCR , , , DRCR DRCR -+ Payroll Tax ExpenseFICA Tax Payable State Unemployment Tax Payable Federal Unemployment Tax Payable © Royalty Free C Squared Studios/ Getty Images

Copyright © Houghton Mifflin Company. All rights reserved.9 | 11 T Accounts: Employer’s FUTA DRCRDRCR , , , DRCR DRCR Payroll Tax ExpenseFICA Tax Payable State Unemployment Tax Payable Federal Unemployment Tax Payable 1,

Copyright © Houghton Mifflin Company. All rights reserved.9 | 12 T Accounts: Total Payroll Tax Expense DRCRDRCR , , , , DRCR DRCR Payroll Tax ExpenseFICA Tax Payable State Unemployment Tax Payable Federal Unemployment Tax Payable Total Payroll Tax Expense, journalized and posted

Copyright © Houghton Mifflin Company. All rights reserved.9 | 13 Based on Payroll Register, Make Journal Entry for Employee Salaries and Wages Expense Description Post. Ref.DebitCredit 20-- Oct.7Sales Wages Expense14, Office Wages Expense4, Employees' Federal Income Tax Payable2, FICA Tax Payable1, Employees' State Income Tax Payable Employees' Medical Insurance Payable Employees' United Way Payable Accounts Receivable30.00 Wages Payable13, Payroll Register, page 56, for week ended October 7. General Journal Page 9 Date

Copyright © Houghton Mifflin Company. All rights reserved.9 | 14 From Taxable Earnings Columns of Payroll Register, Calculate and Journalize Payroll Tax Expense Description Post. Ref.DebitCredit 20-- Oct.7Payroll Tax Expense1, FICA Tax Payable1, State Unemployment Tax Payable51.74 Federal Unemployment Tax Payable7.67 To record employer's share of FICA tax and employer's state and federal unemployment taxes. General Journal Page 9 Date

Copyright © Houghton Mifflin Company. All rights reserved.9 | 15 Journalize Cash Payments to Employees Description Post. Ref.DebitCredit 20-- Oct.8Wages Payable13, Cash—Payroll Bank Account13, Paid wages for week ended October 7. General Journal Page 11 Date

Copyright © Houghton Mifflin Company. All rights reserved.9 | 16 Federal Tax Deposits Include combined total of: 1.Employees’ federal income taxes withheld 2.Employees’ FICA taxes withheld 3.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.9 | 17 Prepare the Deposit Coupon

Copyright © Houghton Mifflin Company. All rights reserved.9 | 18 Journal Entry for Payments of FICA and Federal Income Tax Withholdings Description Post. Ref. DebitCredit 20-- Oct.15Employees' Federal Income Tax Payable5, FICA Tax Payable5, Cash11, Issued check for federal tax deposit, Bangor Bank. Date General Journal Page 3 Reduces payables (liabilities) Reduces Cash Leaves payable accounts with zero balances after posting 0.00 DRCR -+ 5, DRCR -+ 5, FICA Tax Payable Employees' Federal Income Tax Payable

Copyright © Houghton Mifflin Company. All rights reserved.9 | 19 DRCR -+ 3, State Unemployment Tax Payable Payments of State Unemployment Tax (SUTA) Description Post. Ref. DebitCredit 20-- April30State Unemployment Tax Payable3, Cash3, Issued check for payment of state unemployment tax. Page 17 Date General Journal 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.9 | 20 DRCR Federal Unemployment Tax Payable Payments of Federal Unemployment Tax (FUTA) Description Post. Ref. DebitCredit 20-- April30Federal Unemployment Tax Payable Cash Issued check for deposit of federal unemployment tax. General Journal Date Page 17 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.9 | 21 Description Post. Ref. DebitCredit 20-- April30Employees’ State Income Tax Payable1, Cash1, Issued check for state income tax deposit. General Journal Date Page 17 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: DRCR -+ 1, State Income Tax Payable

Copyright © Houghton Mifflin Company. All rights reserved.9 | 22 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

Copyright © Houghton Mifflin Company. All rights reserved.9 | 23 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.9 | 24 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.9 | 25 Form W-3

Copyright © Houghton Mifflin Company. All rights reserved.9 | 26 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.9 | 27 Workers’ Compensation Insurance 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.9 | 28 Calculate the Premium in Advance

Copyright © Houghton Mifflin Company. All rights reserved.9 | 29 Prepare the Entry for Payment in Advance

Copyright © Houghton Mifflin Company. All rights reserved.9 | 30 Calculate Exact Premium at End of Year

Copyright © Houghton Mifflin Company. All rights reserved.9 | 31 Calculate Unpaid Premium and Make Adjusting Entry $3,646.19Total exact premium 3,573.00Less total estimated premium paid $ 73.19Additional premium owed