Accounting 1 Chapter 13:Payroll Liabilities & Tax Records
Essential Outcomes13. Understands and applies employer’s payroll theories and procedures by being able to: a. Record payroll information in the general journal b. Describe & calculate the employer’s payroll taxes. c. Record the employer’s payroll taxes in the general journal d. Record the payment of tax liabilities in the general journal e. Define the accounting terms for this chapter
Analyzing the Payroll Transaction• Salaries Expense: used to record the gross earnings of all employees pay in one pay period (weekly, bi- weekly, bi- monthly, monthly)• Debited for total gross pay of all employees
Analyzing the Payroll Transaction • Cash in the Bank: is credited for the net pay of all employees in the pay period • Difference between the two amounts is called deductions! • Deductions are credited.
Analyzing the Payroll Transaction• Thus, you have the following:Salaries Expense Debited Deductions Credited Cash in Bank Credited• Salaries paid to employees is a “compound entry”
Deductions from Salary Payroll• Various types of deductions, such as: Federal Income Tax Medicare Tax Social Security Tax Insurance Premiums• These Salary Taxes are all credited for the total amount for all employees.
Deductions from Salary Payroll Federal Income Tax • Employees’ Federal Income Tax Payable Social Security Tax • Social Security Tax Medicare tax Payable Hospital Insurance • Medicare Tax Payable premiums • Hospital Insurance Premiums Payable Savings Bonds • U.S. Savings Bonds Union Dues Payable • Union Dues Payable United Way • United Way Payable
Journalizing Salary Payroll20---June 10 Salaries Expense 1,350.25 Employees’ Fed. Inc. Tax Payable 100.00 Employees’ State Inc. Tax. Payable 27.01 Social Security Tax Payable 83.73 Medicare Tax Payable 19.57 Hosp. Ins. Premiums Payable 23.65 U.S. Savings Bonds Payable 25.00 Cash in Bank 1,071.29 Payroll 6/30—Check #186
Computing Employer’s Payroll taxes (Not Salary Taxes)• In addition to withholding taxes for the employees wages, the employer also pays taxes on these wages• Three taxes paid by the employer: 1. FICA taxes—Social Security & Medicare 2. Federal Unemployment Tax 3. State Unemployment Tax
Employer’s FICA Taxes • Under Federal Insurance Contribution Act, both employee & employer pay FICA Taxes: Medicare & Social Security • Employer: withholds FICA taxes from employees “gross earnings” • Employer also “matches” same amount that employee pays
Employer’s FICA Taxes• Current rate for Social Security is: 6.2% or .062• Current rate for Medicare is: 1.45% or .0145
Federal & State Unemployment Tax• FUTA: (Federal Unemployment Tax Act• SUTA: (State Unemployment Tax Act • FUTA is paid to the federal government • SUTA is paid to the state government • Both require two different checks.
Federal & State Unemployment Tax• FUTA: (Federal Unemployment Tax Act• SUTA: (State Unemployment Tax Act • Maximum federal unemployment tax is .08% (.008) on the first $7,000 • Maximum state unemployment tax is 5.4% (.054) on first $7,000
Journalizing Salary Payroll Entries are as follows for Employer Payroll Taxes:20---June 10 Payroll Taxes Expense 187.00 Social Security Tax Payable 83.72 Medicare Tax Payable 19.57 Federal Unemployment Tax Payable 10.80 State Unemployment Tax Payable 72.91Employermatches what theemployee pays
Posting Employer Taxes to General Ledger • When post Social Security and Medicare Taxes, should have two amounts posted that are the same: 1. One is amount employees pay 2. One is amount that employer matches
Paying the Payroll Tax Liabilities• After withholding employees taxes, comes time when they are paid by employer: 1. FICA and Employees’ Federal income taxes 2. Employees’ state income taxes 3. Federal and state unemployment taxes 4. Amounts voluntary withheld from employees earnings
FICA & Federal Income Tax Payments• One payment is made to federal government for following: 1. Social security (employee & employer) 2. Medicare (employee & employer) 3. Federal income withheld
FICA & Federal Income Tax Payments• Payment must be made at authorized institution or Federal Reserve Bank• Small business make payment made monthly by 15th day of month• Example:July’s payroll taxes must be made by August 15.
FICA & Federal Income Tax Payments• Larger business make payments every two weeks or sometimes within days of payroll date.• Small businesses fill out Federal Tax Deposit Coupon (Form 8109) & is sent with check• Larger businesses use Electronic Federal Tax Payment System (EFTPS).
State Income Tax State income tax is NOT sent to federal government, but rather is sent to state government Each state determines how & when payments are made & what reports are filed.
Federal Unemployment Taxes• FUTA tax is usually paid quarterly• If make less than $100 for year, only one annual payment is made (use Federal Tax Deposit Coupon [form 8109] ) is prepared and sent with check
Federal Unemployment Taxes• FUTA tax is usually paid quarterly• If make less than $100 for year, only one annual payment is made (use Federal Tax Deposit Coupon [form 8109] is prepared and sent with check• Goes to federal government
State Unemployment Taxes• SUTA tax is usually paid quarterly• Sent to state government
Accounts for Federal & State Unemployment Taxes Federal Unemployment Tax Payable State Unemployment Tax Payable Upon payment:State/Federal Unemployment Tax Payable are debited and Cash in Bank is credited
Accounting 1 That’s all folks!Thanks for listening!