1. Chapter 9
Payroll Accounting: Employer Taxes and Reports

2. Describe and calculate employer payroll taxes.
Learning Objective 1
Describe and calculate employer payroll taxes.

3. Employer Payroll Taxes
In addition to the gross pay for each employee, the employer must pay payroll taxes:
FICA
FUTA (Federal Unemployment Tax Act)
SUTA (state unemployment tax)
These taxes add substantially to the cost of having employees.

4. Employer FICA Taxes, Part 1
Both the employee and employer pay FICA taxes. Each pays an equal share.
Social Security = 6.2% on maximum earnings of $118,500. -
No maximum on Medicare
The amount of earnings subject to Social Security tax is obtained from the payroll register.

5. Employer FICA Taxes, Part 2

6. Employer FICA Taxes, Part 3
Medicare = 1.45% of ALL earnings.

7. Employer FUTA Tax
The FUTA (Federal Unemployment Tax Act) tax is levied on employers to raise funds to administer the combined federal/state unemployment compensation program.
The current rate is 6.0% applied to maximum earnings of $7,000 for each employee, but employers are allowed a credit of up to 5.4% for participation in state unemployment programs.

8. Employer SUTA Tax (cont.)
Most states have an experience-rating system to encourage employers to provide regular employment to workers.
If an employer has very few former employees receiving unemployment compensation, the employer qualifies for a lower state unemployment tax rate.

9. Account for employer payroll taxes expense.
Learning Objective 2
Account for employer payroll taxes expense.

10. General Journal, Part 1
A journal entry is needed to record the expense and liabilities of these payroll taxes.

11. Payroll Register (Left Side), Part 8
Step number 1. Obtain the total earnings and taxable earnings amounts from the Earnings – Total and Taxable Earnings columns of the payroll register.

12. Payroll Register (Left Side), Part 9
Step number 2. Compute the amount of employer Social Security tax by multiplying the Social Security taxable earnings by 6.2 percent. (5,035 dollars multiplied by 6.2 percent equals dollars).

13. Payroll Register (Left Side), Part 10
Step number 3. Compute the amount of employer Medicare tax by multiplying total earnings by 1.45 percent. (6,035 dollars times 1.45 percent equals dollars).

14. Payroll Register (Left Side), Part 11
Step number 4. Compute the amount of FUTA by multiplying the Unemployment Taxable earnings by 0.6 percent. (300 dollars times 0.6 percent equals 1.80 dollars)

15. Payroll Register (Left Side), Part 12
Step number 5. Compute the amount of SUTA tax by multiplying the Unemployment Taxable earnings by 5.4 percent. (300 dollars times 5.4 percent equals dollars)

16. General Journal, Part 2
Step number 6. Prepare the appropriate journal entry using the amounts computed in steps 2 to 5.

17. General Journal, Part 3
Payroll Taxes Expense is debited for the total of all employer taxes. ( dollars plus dollars plus 1.80 dollars plus dollars).

18. General Journal, Part 4

19. Total Payroll Cost of an Employee

20. Total Payroll Cost of an Employee
Dollar Amount
Gross Wages
26,000 dollars
Social Security
1,612 dollars
Medicare
377 dollars
SUTA
378 dollars
FUTA
42 dollars
Total Cost=
28,409 dollars
Total Cost!

21. A Broader View
Dealing with Payroll Complexity—LET SOMEONE ELSE DO IT A common way for both small and large businesses to deal with the complexity of payroll reports, deposit rules, and due dates is to hire an outside company to handle the payroll. Payroll processing companies have combined payroll expertise with the power of computers to create a major business enterprise based on the efficient and effective provision of payroll services. The extent to which businesses use outside companies to handle payroll can be seen in the two largest payroll processing compa­nies: Automatic Data Processing, Inc. (ADP) and Paychex, Inc. ADP has operations in the United States, Canada, Europe, South America, Africa, the Mid-East, Australia, and Asia; provides payroll services to 610,000 clients; and has revenues of over $12 billion. Paychex has more than 100 locations nationwide, provides services to 580,000 clients, and has revenues of $2.5 billion. These companies prepare employee paychecks, journals, and summary reports; collect and remit funds for federal, and local payroll taxes; and file all required forms with government taxing authorities.