Payroll Liabilities and Tax Records Making Accounting Relevant Federal, state, and local governments pass tax laws in order to generate revenue for government services. Making Accounting Relevant Federal, state, and local governments pass tax laws in order to generate revenue for government services. Can you name some uses for your tax dollars?

Why It’s Important Payroll deductions are liabilities of the business. It is essential that payroll deductions are journalized and posted in a timely manner. Why It’s Important Payroll deductions are liabilities of the business. It is essential that payroll deductions are journalized and posted in a timely manner. Section 1Journalizing and Posting the Payroll (cont'd.) Key Terms  Salaries Expense Key Terms  Salaries Expense

Analyzing the Payroll Transaction  Employee earnings are a normal operating expense of a business.  Various deductions, such as income and FICA taxes, are withheld from gross earnings each pay period.  Net pay is the amount actually paid out in cash by the employer to the employees.  Employee earnings are a normal operating expense of a business.  Various deductions, such as income and FICA taxes, are withheld from gross earnings each pay period.  Net pay is the amount actually paid out in cash by the employer to the employees. Section 1Journalizing and Posting the Payroll (cont'd.)

Journalizing the Payroll JOURNAL ENTRY

Why It’s Important In addition to the amounts withheld from employees’ payroll checks, the employer owes taxes based on the weekly payroll. These taxes are liabilities of the business. Why It’s Important In addition to the amounts withheld from employees’ payroll checks, the employer owes taxes based on the weekly payroll. These taxes are liabilities of the business. Section 2Employer’s Payroll Taxes (cont'd.) Key Terms  Federal Unemployment Tax Act (FUTA)  State Unemployment Tax Act (SUTA)  Payroll Tax Expense Key Terms  Federal Unemployment Tax Act (FUTA)  State Unemployment Tax Act (SUTA)  Payroll Tax Expense

The Employer’s FICA Taxes  The current rates are 6.2% for social security tax and 1.45% for Medicare tax.  The employer and the employee pay social security tax on gross earnings up to the maximum taxable limit per employee.  The employer and the employee pay Medicare tax on all gross earnings; there is no maximum taxable limit.  The current rates are 6.2% for social security tax and 1.45% for Medicare tax.  The employer and the employee pay social security tax on gross earnings up to the maximum taxable limit per employee.  The employer and the employee pay Medicare tax on all gross earnings; there is no maximum taxable limit. Section 2Employer’s Payroll Taxes (cont'd.)

Federal and State Unemployment Taxes  The Federal Unemployment Tax Act (FUTA) and the State Unemployment Tax Act (SUTA) require employers to pay unemployment taxes.  The employer pays both federal and state unemployment taxes.  The maximum federal unemployment tax is.8% on the first $7,000 of an employee’s annual wages.  State unemployment tax rates and maximum taxable amounts vary among states; 5.4% on first $9,000 of an employee’s annual wages.  The Federal Unemployment Tax Act (FUTA) and the State Unemployment Tax Act (SUTA) require employers to pay unemployment taxes.  The employer pays both federal and state unemployment taxes.  The maximum federal unemployment tax is.8% on the first $7,000 of an employee’s annual wages.  State unemployment tax rates and maximum taxable amounts vary among states; 5.4% on first $9,000 of an employee’s annual wages. Section 2Employer’s Payroll Taxes (cont'd.)

Journalizing the Employer’s Payroll Taxes  The employer’s payroll taxes are business expenses recorded in the Payroll Tax Expense account.  Use the Social Security Tax Payable and the Medicare Tax Payable accounts to record both the employees’ and the employer’s FICA taxes.  Record the employer’s unemployment taxes in the Federal Unemployment Tax Payable and State Unemployment Tax Payable accounts.  The employer’s payroll taxes are business expenses recorded in the Payroll Tax Expense account.  Use the Social Security Tax Payable and the Medicare Tax Payable accounts to record both the employees’ and the employer’s FICA taxes.  Record the employer’s unemployment taxes in the Federal Unemployment Tax Payable and State Unemployment Tax Payable accounts. Section 2Employer’s Payroll Taxes (cont'd.)

Journalizing the Employer’s Payroll Taxes (cont'd.) JOURNAL ENTRY

Why It’s Important Business owners must pay their payroll liabilities and file payroll tax reports promptly and accurately. Why It’s Important Business owners must pay their payroll liabilities and file payroll tax reports promptly and accurately. Section 3Tax Liability Payments and Tax Reports (cont'd.) Key Terms  Federal Tax Deposit Coupon  Electronic Federal Tax Payment System  Form 940  Form 941  Form W-2  Form W-3 Key Terms  Federal Tax Deposit Coupon  Electronic Federal Tax Payment System  Form 940  Form 941  Form W-2  Form W-3

FICA and Federal Income Taxes One payment is made for: FICA and Federal Income Taxes One payment is made for:  Social Security and Medicare taxes (both the employees’ and the employer’s share)  Employees’ Federal Income taxes withheld The Federal Tax Deposit Coupon (Form 8109) is prepared and sent with the check. The form identifies the type of tax and the tax period.  Social Security and Medicare taxes (both the employees’ and the employer’s share)  Employees’ Federal Income taxes withheld The Federal Tax Deposit Coupon (Form 8109) is prepared and sent with the check. The form identifies the type of tax and the tax period. Section 3Tax Liability Payments and Tax Reports (cont'd.)

Payment of Federal Payroll Tax Liabilities Section 3Tax Liability Payments and Tax Reports (cont'd.) JOURNAL ENTRY Form Show Form 941 on overhead and report

Section 3Tax Liability Payments and Tax Reports (cont'd.) JOURNAL ENTRY Payment of State Income Taxes

Section 3Tax Liability Payments and Tax Reports (cont'd.) JOURNAL ENTRY Payment of Federal Unemployment Taxes Form Show Form 940 on overhead

Section 3Tax Liability Payments and Tax Reports (cont'd.) JOURNAL ENTRY Payment of State Unemployment Taxes

Payment of Other Payroll Liabilities For example:  insurance premiums  union dues  charitable contributions For example:  insurance premiums  union dues  charitable contributions Section 3Tax Liability Payments and Tax Reports (cont'd.) JOURNAL ENTRY

Preparing Payroll Tax Reports  Form W-2 summarizes an employee’s earnings and withholdings for the calendar year.  Form 940 is used to report the employer’s unemployment (state and federal) taxes.  Form 941 is the employer’s quarterly federal tax return on which accumulated amounts of FICA and federal income tax withheld from employees’ earnings, as well as FICA tax owned by the employer, are reported.  Form W-2 summarizes an employee’s earnings and withholdings for the calendar year.  Form 940 is used to report the employer’s unemployment (state and federal) taxes.  Form 941 is the employer’s quarterly federal tax return on which accumulated amounts of FICA and federal income tax withheld from employees’ earnings, as well as FICA tax owned by the employer, are reported. Section 3Tax Liability Payments and Tax Reports (cont'd.)

Tax Tables for 2013

Transmittal of Wage and Tax Statements Form W-3 summarizes the information contained on the employees’ Forms W-2. Transmittal of Wage and Tax Statements Form W-3 summarizes the information contained on the employees’ Forms W-2. Section 3Tax Liability Payments and Tax Reports (cont'd.)