Chapter 14 Payroll Accounting, Taxes, and Reports

Analyzing Payment of a Payroll The column totals of a payroll register provide the debit and credit amounts needed to journalize a payroll. The total of the Total Earnings column is the salary expense for the period. Therefore, Salary Expense is debited for the amount. Employee Income Tax, FICA Tax, Health Insurance Premiums, U.S. Savings Bonds, and United Way Donations are all liabilities until payment is made. Therefore, we would credit these accounts.

Calculating Employer Payroll Taxes Most employers must pay three separate payroll taxes. They are: 1. Employer FICA Tax 2. Federal Unemployment Tax 3. State Unemployment Tax –These are based on a percentage of employee earnings.

Employer FICA Tax A business pays the same amount of FICA tax as the amount withheld from employees. –Tax Base - The maximum amount of earnings on which a tax is calculated. Earnings up to $55,500, multiply by 8% Earnings over $55,500 but less than $130,200, multiply by 1.5% Earnings over $130,200, do not calculate FICA tax

Federal Unemployment Tax Employers are required by law to pay taxes for unemployment compensation. Used to pay workers benefits for limited periods of unemployment. Paid solely by the employer. The unemployment tax rate is.8% of Accumulated Earnings for each employee up to a tax base of $7,000.00

Formula: Unemployment Taxable Earnings X Federal Unemployment Tax Rate = Federal Unemployment Tax

State Unemployment Tax Most states require that employers pay unemployment tax of 5.4% on the first $7, earned by each employee. Formula: Unemployment Taxable Earnings X State Unemployment Tax Rate = State Unemployment Tax

Journalizing Employer Payroll Taxes Payroll Taxes Expense is debited for the total amount of the payroll taxes. (This shows an increase in the balance of this expense account) FICA Tax Payable is credited for the amount of FICA tax. (This shows an increase in payroll tax liability) Unemployment Tax Payable-Federal is credited for the amount of unemployment tax. (This shows an increase in unemployment tax liability) Unemployment Tax Payable-State is credited for the amount of unemployment tax. (This shows an increase in unemployment tax liability)

Reporting Withholding and Payroll Taxes Each employer is required by law to periodically report the payroll taxes withheld from employee salaries; Some reports are submitted quarterly and others annually.

Employer Quarterly Federal Tax Return Each employer must file a quarterly federal tax return showing federal income tax and FICA taxes due to the government; Submitted every 3 months on Form 941. Info needed for Form 941 is obtained from employee earnings records.

Employer Annual Report to Employees of Taxes Withheld Each employer must furnish the employee with a W-2 Form, which shows the total year’s earnings and the amounts withheld for taxes for each employee. Must be furnished by January 31 of the next year. If the employee ends employment before December 31, must be furnished within 30 days of the last date of employment.

W-2 Four copies of Form W-2 are prepared for each employee: 1.Copies B and C are given to employee; Copy B is attached to the employee’s federal income tax return and Copy C is kept in personal records. 2.Copy A is sent to the Social Security Administration. 3.Copy D is kept for business records.

Form W-3, Transmittal of Income and Tax Statement Sent to Social Security Administration by Feb 28 each year. Reports previous year’s earnings and payroll taxes withheld for all employees.

Paying Withholding and Payroll Taxes Tax payments for Employee Income Tax and FICA tax are made to banks authorized by the Internal Revenue Service to accept these payments or to a Federal Reserve Bank. Payment is accompanied by a Form 8109, Federal Tax Deposit Coupon, which shows the amount and purpose of the payment.