Payroll Liabilities and Tax Records

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Chapter 13

Payroll Liabilities and Tax Records

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?
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Chapter 13

JOURNALIZING AND POSTING PAYROLL

• What Youll Learn
• How to compute the business payroll deductions.
• How to record the payroll entry in the general
  journal.

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Chapter 13

Payroll Basics

• Employees, ranging from design engineers at Ford
  Motor Company to the waitresses at a neighborhood
  coffee shop, expect their payroll checks to
  arrive on time and be accurate!
• Employee earnings are a normal operating expense
  of every business.

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Chapter 13

Analyzing the Payroll Transaction

• The business has to keep accurate payroll
  records. Therefore, JOURNAL ENTRIES summarizing
  all of the payroll details must be recorded each
  pay period.
• First lets look at the debit!
• The total earnings of all of your employees are
  recorded under an account called Salaries Expense.

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Chapter 13

Analyzing the Payroll Transaction

• What about the credits?
• Various deductions, such as income and FICA
  taxes, are withheld from gross earnings each pay
  period.
• The employer retains the amounts withheld until
  it is time to pay the appropriate government
  agencies and businesses.
• The amounts withheld but not yet paid are the
  liabilities, or the amounts owed, of a business.
  Each part of the payroll liabilities are recorded
  in their own separate account.
• Liabilities all have normal credit balances.

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Chapter 13

Journalizing the Payroll

JOURNAL ENTRY


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Chapter 13

Does the employer owe taxes too?

• YES, THEY DO!
• In ADDITION to the amounts withheld from
  employees payroll checks, the employer owes
  taxes based on the weekly payroll.
• These taxes are also liabilities of the business.

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Chapter 13

The Employers 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.

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Chapter 13

Federal and State Unemployment Taxes

• The Federal Unemployment Tax Act (FUTA) and the
  State Unemployment Tax Act (SUTA) require
  employers to pay federal and state unemployment
  taxes.
• The maximum federal unemployment tax is 6.2 on
  the first 7,000 of an employees annual wages.
• State unemployment tax rates and maximum taxable
  amounts vary among states.

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Chapter 13

Journalizing the Employers Payroll Taxes

• The employers 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 employers FICA taxes.
• Record the employers unemployment taxes in the
  Federal Unemployment Tax Payable and State
  Unemployment Tax Payable accounts.

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Chapter 13

Journalizing the Employers Payroll Taxes
(cont'd.)

JOURNAL ENTRY


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Chapter 13

Paying the Payroll Tax Liabilities Business
owners must pay their payroll liabilities and
file payroll tax reports promptly and accurately.



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Chapter 13

FICA and Federal Income Taxes One payment is made
for

• Social Security and Medicare taxes (both the
  employees and the employers shares) and
• 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.
• Separate payments and journal entries are used to
  record the other payroll taxes.

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Chapter 13

Payment of Federal Payroll Tax Liabilities

JOURNAL ENTRY


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Chapter 13

Payment of State Income Taxes

JOURNAL ENTRY


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Chapter 13

Payment of Federal Unemployment Taxes

JOURNAL ENTRY


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Chapter 13

Payment of State Unemployment Taxes

JOURNAL ENTRY


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Chapter 13

Payment of Other Payroll Liabilities

• For example
• insurance premiums
• union dues
• charitable contributions

JOURNAL ENTRY

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Chapter 13

Preparing Payroll Tax Reports

• Forms that employers must complete
• Form W-2 summarizes an employees earnings and
  withholdings for the calendar year.
• Employees must receive these by January 31 of the
  following year.
• Form 940 is used to report the employers
  unemployment (state and federal) taxes.
• Form 941 is the employers 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.

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Chapter 13

• Transmittal of Wage and Tax Statements
• Employers must file a Form W-3 with the federal
  government by February 28.
• This form summarizes the information contained on
  the employees W-2.