CHAPTER 13CHAPTER 13

Payroll Accounting, Taxes, and Reports

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13-1 RECORDING PAYROLL13-1 RECORDING PAYROLLpage 369

The payroll register and employee earnings records provide all the payroll information need to prepare payroll and payroll tax reports.

The payroll journal entry is based on the total of the Earnings Total columns, each deduction column, and the Net Pay column,

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ANALYZING PAYMENT OF A PAYROLLANALYZING PAYMENT OF A PAYROLLpage 370

Remember Debits = Credits!

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6. Write the titles of accounts credited.

JOURNALIZING PAYMENT OF A PAYROLLJOURNALIZING PAYMENT OF A PAYROLL

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page 371

December 15. Paid cash for payroll, $4,609.46. Check No. 335.

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1. Write the date.

2. Write the title of the account debited.

3. Write the check number.

4. Write the account debited. 7. Write the amounts credited.

5. Write the total amount paid to employees.

13-2 RECORDING EMPLOYER PAYROLL TAXES13-2 RECORDING EMPLOYER PAYROLL TAXES

Employers must pay to the government taxes withheld from employee earnings.-The amounts withheld are liabilities until they are paid.

Employers must ALSO pay several of their own payroll taxes:1. Social Security (6.2% on earnings up to $87,000.00)2. Medicare Tax (1.45% no earnings cap)3. Federal Unemployment Tax4. State Unemployment Tax

These taxes are based on a percentage of total employee earnings.

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UNEMPLOYEMENT TAXABLE EARNINGSUNEMPLOYEMENT TAXABLE EARNINGS

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page 374

111. Enter accumulated earnings and total earnings for each employee.

2. Enter unemployment taxable earnings.

3. Total the Unemployment Taxable Earnings column.

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FederalUnemployment

Tax=

FederalUnemployment

Tax Rate×

UnemploymentTaxableEarnings

StateUnemployment

Tax=

StateUnemployment

Tax Rate×

UnemploymentTaxableEarnings

UNEMPLOYMENT TAXESUNEMPLOYMENT TAXES page 375

$6.32=0.8%×$790.00

$42.66=5.4%×$790.00

Federal Unemployment Tax - A federal tax used for state and federal administrative expenses of the unemployment program.

(.8% on first $7,000.00 of total earnings)

State Unemployment Tax - A state tax used to pay benefits to unemployed workers. (5.4% on first $7,000.00 of total earnings)

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JOURNALIZING EMPLOYER JOURNALIZING EMPLOYER PAYROLL TAXESPAYROLL TAXES page 376

December 15. Recorded employer payroll taxes expense, $485.92, for the semimonthly pay period ended December 15. Taxes owed are: social security tax, $354.11; Medicare tax, $82.83; federal unemployment tax, $6.32; state employment tax, $42.66. Memorandum No. 63.

(continued on next slide)

•The liability is incurred when salaries are paid.•The transaction to record payroll taxes is journalized the same day the payroll is journalized.

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JOURNALIZING EMPLOYER JOURNALIZING EMPLOYER PAYROLL TAXESPAYROLL TAXES

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page 376

4. Write the debit amount.1. Write the date.

5. Write the titles of the liability accounts credited.

2. Write the title of the expense account debited.

6. Write the credit amounts.3. Write the memorandum number.

(continued from previous slide)

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13-3 Reporting Withholding and Payroll Taxes13-3 Reporting Withholding and Payroll Taxespage 378

W-2 Wage and Tax Statement - is a report prepared by the employerthat shows total year’s earnings and amounts withheld for taxes foran employee.

•You get the info from theemployee earnings record•W2 is an IRS form•Employers are required bylaw to furnish a W-2 to each employee by Jan 31.•Employees attach copies to federal and state & local tax returns.

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EMPLOYER’S QUARTERLY FEDERAL EMPLOYER’S QUARTERLY FEDERAL TAX RETURNTAX RETURN page 379(continued on next slide)

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1. Heading 2. Number of employees

Each employer must file a quarterly federal tax return showing federalincome tax, social security tax, and Medicare tax due the gov’t.

•Form 941 is submitted every three months.•Filed the last day of themonth following the endof the calendar quarter.•Info needed to prepare Form 941 is obtainedfrom the employee earnings record.

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EMPLOYER’S QUARTERLY FEDERAL EMPLOYER’S QUARTERLY FEDERAL TAX RETURNTAX RETURN page 379(continued on next slide)

3. Total quarterly earnings

4. Income tax withheld

5. Employee and employer social security and Medicare taxes 7. Total taxes

6. Social security plus Medicare taxes

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EMPLOYER’S QUARTERLY FEDERAL EMPLOYER’S QUARTERLY FEDERAL TAX RETURNTAX RETURN page 379(continued from previous slide)

88 88 8899

8. Total taxes for each month 9. Total taxes

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EMPLOYER ANNUAL REPORTING OF PAYROLL TAXESEMPLOYER ANNUAL REPORTING OF PAYROLL TAXESpage 381

Form W-3, Transmittal of Wage and Tax Statement is sent to the Social Security Administration by February 28 each year.

•Reports the previous yearsearnings and payroll taxeswithheld for all employees.•A copy of each employeeForm W-2 is attached to the Form W-3.•Companies with 250+ have to send to IRS electronically.

13-4 Paying Withholding & Payroll Taxes13-4 Paying Withholding & Payroll Taxes

Employers must pay to the federal, state, and local governments allpayroll taxes withheld from employee earnings as well as the employerpayroll taxes.

The payment of payroll taxes with the government is referred to as a Deposit. Two amounts determine how often deposits are made to thefederal government.1. The amount of payroll taxes collected during the current deposit

period.2. The amount of payroll taxes owed during the prior 12-month

period.-the 12-month period that ends on June 30th of the prior yearis called the lookback period.

16PAYING THE LIABILITY FOR EMPLOYEE PAYING THE LIABILITY FOR EMPLOYEE INCOME TAX, SOCIAL SECURITY TAX, AND INCOME TAX, SOCIAL SECURITY TAX, AND MEDICARE TAXMEDICARE TAX page 383

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FORM 8109, FORM 8109, FEDERAL DEPOSIT COUPONFEDERAL DEPOSIT COUPON page 384

This form is used to deposit federal, social security and Medicare taxes.-Hobby Shack pays monthly.-Deposit with an authorized bank or electronically.

18JOURNALIZING PAYMENT OF LIABILITY FOR JOURNALIZING PAYMENT OF LIABILITY FOR EMPLOYEE INCOME TAX, SOCIAL SECURITY EMPLOYEE INCOME TAX, SOCIAL SECURITY TAX, AND MEDICARE TAXTAX, AND MEDICARE TAX

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January 15. Paid cash for liability for employee income tax, $757.00; social security tax, $1,451.38; and Medicare tax, $339.42; total, $2,547.80. Check No. 347.

1. Write the date.

2. Write the titles of the three accounts debited.

3. Write the check number.

4. Write the debit amounts.

5. Write the amount of the credit.

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PAYING THE LIABILITY FOR PAYING THE LIABILITY FOR FEDERAL UNEMPLOYMENT TAXFEDERAL UNEMPLOYMENT TAX

page 386

Federal unemployment insurance is paid by the end of the monthfollowing each quarter if the liability amount is more than $100.

-all outstanding amounts are due at the end of the calendar year.-deposit with an authorized bank.

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JOURNALIZING PAYMENT OF LIABILITY JOURNALIZING PAYMENT OF LIABILITY FOR FEDERAL UNEMPLOYMENT TAXFOR FEDERAL UNEMPLOYMENT TAX

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page 387

January 31. Paid cash for federal unemployment tax liability for quarter ended December 31, $34.60. Check No. 367.

1. Write the date.

5. Write the amount of the credit to Cash.

4. Write the debit amount.

3. Write the check number.

2. Write the title of the account debited.

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JOURNALIZING PAYMENT OF LIABILITY JOURNALIZING PAYMENT OF LIABILITY FOR STATE UNEMPLOYMENT TAXFOR STATE UNEMPLOYMENT TAX page 387

January 31. Paid cash for state unemployment tax liability for quarter ended December 31, $233.55. Check No. 368.

1. Date

5. Credit amount

4. Debit amount

3. Check number

2. Account debited

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