Accounting Chapter 14

1
Accounting Chapter 14

• Payroll Accounting, Taxes, and Reports

2
Recording a Payroll

• Amount of net pay and all withholdings
  (liabilities) must be journalized
• The total of net pay and all withholdings is
  considered the company's salary expense.
• Information comes from the payroll register
• Journal entry to record a payroll (pages 352-353)
• Debit Salary Expense (amount of total earnings )
• Credit Employee Income Tax Payable, FICA Tax
  Payable, Health Insurance Premiums Payable,
  U.S. Savings Bonds Payable, United Way
  Donations Payable, Cash (amount of net pay)

3
Recording Employer Payroll Taxes

• Employers pay to the government
• Employee Income Tax (Federal Income Tax) and FICA
  Tax
• Employer FICA Tax responsibility
• Federal Unemployment Tax
• State Unemployment Tax
• These taxes must be calculated and journalized

4
FICA Tax

• Employees and employers pay equal amounts (8
  total)
• Tax base
• Old age, survivors, and disability
• 6.5 tax rate
• 55,200 tax base
• Medicare
• 1.5 tax rate
• 130,200 tax base

5
Federal Unemployment Tax

• Paid ONLY by employer
• Covers administrative costs of the unemployment
  program
• Based on a of employees' earnings
• 0.8 tax rate based on a 7,000 tax base for each
  employee (p356)
• Information necessary to calculate
• Accumulated earnings of each employee
• Total earnings for the pay period for each
  employee (taxable earnings)
• Formula
• Unemployment Taxable Earnings X Fed Unemp Tax
  Rate (0.8)

6
State Unemployment Tax

• Paid ONLY by employer
• Covers unemployment benefits
• Based on a of employees' earnings
• 5.4 tax rate (varies per state) based on a
  7,000 tax base for each employee (p356)
• Information necessary to calculate
• Accumulated earnings of each employee
• Total earnings for the pay period for each
  employee (taxable earnings)
• Formula
• Unemployment Taxable Earnings X State Unemp Tax
  Rate (5.4)

7
Journalizing Employer Payroll Taxes

• These taxes are considered a liability until they
  are paid to the government
• The total of the three are considered an expense
  to the employer, called Payroll Taxes Expense
• Entry
• Debit Payroll Taxes Expense (total of the three
  taxes)
• Credit FICA Tax Payable, Unemployment Tax
  Payable Federal, Unemployment Tax Payable -
  State
• Post all entries to the General Ledger after
  journalizing

8
Reporting Withholding and Payroll Taxes

• Employer Quarterly Federal Tax Return
• Form 941
• Reports federal income tax withheld and FICA tax
  due
• Submitted quarterly (every three months) to fed.
  gov.
• Federal income tax -
• figured on form - you fill in the information
• FICA tax -
• total earnings X 13 (for old-age, survivors,
  disability benefit - 6.5 X 2)
• total earnings X 3 (Medicare - 1.5 X 2)
• The bottom portion breaks down the tax liability
  for each pay period.

• Employer Annual Report to Employees of Taxes
  Withheld
• W-2 form
• Shows total earnings and taxes withheld for an
  entire year
• Must be sent to all employees by January 31
• Needed for individuals to file income taxes
• Four copies
• A - sent to Social Security Administration by
  employer
• B - attach to federal income tax forms
• C - personal records (and for state tax forms)
• D - kept at the business

9
Paying Withholding and Payroll Taxes

• Federal Income Tax and FICA TAx
• Federal income tax and FICA tax must be paid
  quarterly
• Federal Tax Deposit Coupon
• Form 8109
• Filled out and sent along with payment
• Darken tax type - 941
• Darken tax period - quarter
• Liabilities are paid with cash
• Debit - Employee Income Tax Payable
• Debit - FICA tax payable
• Credit - Cash
• Source document - check

• Federal Unemployment Tax
• Paid quarterly
• Federal Tax Deposit Coupon
• Form 8109
• Filled out and sent along with payment
• Darken tax type - 940
• Darken tax period - quarter
• Liability is paid with cash
• Debit - Unemployement Tax Payable -
  Federal
• Credit - Cash
• Source document - check
• State Unemployment Tax
• Liability is paid with cash
• Debit - Unemployement Tax Payable - State
• Credit - Cash
• Source document - check
• Each state will have its own form to fill out and
  send along with the payment.