CHAPTER NINE

1
CHAPTER NINE

• PAYROLL ACCOUNTING EMPLOYER TAXES AND REPORTS

2
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.

3
EMPLOYERS FICA TAXES
Both the employee and employer pay FICA taxes.
Each pays an equal share.
Social Security 6.2 on maximum earnings of
76,200
The amount of earnings subject to Social Security
tax is obtained from the Payroll Register.
4
PAYROLL REGISTER
EARNINGS

MARITAL STATUS
NAME
REGULAR
OVER-TIME
TOTAL
ALLOW.
Cadrain, Sarah
4
M
1,200.00
60.00
1,260.00
760.00
Guder, James
1
S
140.00
900.00
Istone, Ken
M
6
545.00
545.00
Sarah earned 1,260 this period.
M
480.00
294.00
774.00
Kuzmik, Helen
2
440.00
440.00
M
Lee, Hoseoup
3
Swaney, Linda
2
528.00
198.00
S
726.00
Tucci, Paul
5
490.00
M
490.00
S
300.00
Wiles, Harry
1
300.00
4,743.00
5,435.00
692.00
5
PAYROLL REGISTER
EARNINGS
TAXABLE EARNINGS
TOTAL
CUMULATIVE TOTAL
UNEMPLOYMENT COMP.
SOCIAL SECURITY
76,800.00
1,260.00
660.00
900.00
43,400.00
900.00
27,025.00
545.00
545.00
But only 660 of her earnings are below the
maximum and therefore subject to Social Security
tax.
774.00
774.00
31,000.00
440.00
22,340.00
440.00
27,500.00
726.00
726.00
25,050.00
490.00
490.00
300.00
300.00
6,300.00
300.00
5,435.00
259,415.00
300.00
4,835.00
6
PAYROLL REGISTER
EARNINGS
TAXABLE EARNINGS
TOTAL
CUMULATIVE TOTAL
UNEMPLOYMENT COMP.
SOCIAL SECURITY
76,800.00
1,260.00
660.00
900.00
43,400.00
900.00
27,025.00
545.00
545.00
This periods total earnings subject to Social
Security tax
774.00
774.00
31,000.00
440.00
22,340.00
440.00
27,500.00
726.00
726.00
25,050.00
490.00
490.00
300.00
300.00
6,300.00
300.00
5,435.00
259,415.00
300.00
4,835.00
7
EMPLOYERS FICA TAXES
Social Security Taxable Earnings
Tax Rate
Tax
X
299.77
4,835
6.2
X
299.77
Withheld from employee
299.77
Paid by employer

599.54
Total Social Security tax to be paid to the IRS
8
EMPLOYERS FICA TAXES
Medicare 1.45 of ALL earnings
Tax
Total Earnings
Tax Rate
X
78.81
5,435
1.45
X
78.81
Withheld from employee
78.81
Paid by employer
157.62
Total Medicare tax to be paid to the IRS
9
SELF-EMPLOYMENT TAX
10
SELF-EMPLOYMENT TAX

• Paid by individuals who own and run their own
  businesses
• They are both employee and employer.
• Taxed at double the FICA rates
• i.e., they pay both the employee and employer
  portions.
• Computed on Self-employment Income
• Net income of the business

11
EMPLOYERS FUTA TAX
Federal Unemployment Tax Act levies a tax on
employers to raise funds to administer the
combined federal/state unemployment compensation
program.
Tax rate is 6.2 applied to maximum earnings of
7,000 with credits given based on employers
participation in state unemployment program.
Lets look back at the Payroll Register and
determine the FUTA tax owed.
12
PAYROLL REGISTER
EARNINGS
TAXABLE EARNINGS
TOTAL
CUMULATIVE TOTAL
UNEMPLOYMENT COMP.
SOCIAL SECURITY
76,800.00
1,260.00
660.00
Only 1 employees earnings is below the 7,000
and therefore subject to FUTA tax
900.00
43,400.00
900.00
27,025.00
545.00
545.00
774.00
774.00
31,000.00
440.00
22,340.00
440.00
27,500.00
726.00
726.00
25,050.00
490.00
490.00
300.00
300.00
6,300.00
300.00
5,435.00
259,415.00
300.00
4,835.00
13
PAYROLL REGISTER
EARNINGS
TAXABLE EARNINGS
TOTAL
CUMULATIVE TOTAL
UNEMPLOYMENT COMP.
SOCIAL SECURITY
76,800.00
1,260.00
660.00
A credit of 5.4 is granted because this company
participates in a state unemployment
program. 6.2 - 5.4 0.8 FUTA rate
900.00
43,400.00
900.00
27,025.00
545.00
545.00
774.00
774.00
31,000.00
440.00
22,340.00
440.00
27,500.00
726.00
726.00
25,050.00
490.00
490.00
300.00
300.00
6,300.00
300.00
5,435.00
259,415.00
300.00
4,835.00
14
PAYROLL REGISTER
EARNINGS
TAXABLE EARNINGS
TOTAL
CUMULATIVE TOTAL
UNEMPLOYMENT COMP.
SOCIAL SECURITY
76,800.00
1,260.00
660.00
900.00
43,400.00
900.00
FUTA tax is 2.40. 0.8 x 300
27,025.00
545.00
545.00
774.00
774.00
31,000.00
440.00
22,340.00
440.00
27,500.00
726.00
726.00
25,050.00
490.00
490.00
300.00
300.00
6,300.00
300.00
5,435.00
259,415.00
300.00
4,835.00
15
EMPLOYERS SUTA TAX

• Levied on employers
• Commonly 5.4 of 7,000 maximum earnings
• Per employee
• Many states have MERIT-RATING system
• Lower rate to employers with few former employees
  receiving unemployment compensation

16
PAYROLL REGISTER
EARNINGS
TAXABLE EARNINGS
TOTAL
CUMULATIVE TOTAL
UNEMPLOYMENT COMP.
SOCIAL SECURITY
76,800.00
1,260.00
660.00
SUTA tax is 16.20. 300 x 5.4
900.00
43,400.00
900.00
27,025.00
545.00
545.00
774.00
774.00
31,000.00
440.00
22,340.00
440.00
27,500.00
726.00
726.00
25,050.00
490.00
490.00
300.00
300.00
6,300.00
300.00
5,435.00
259,415.00
300.00
4,835.00
17
GENERAL JOURNAL
DATE
DESCRIPTION
PR
DEBIT
CREDIT
1
2
A journal entry is needed to record the
expense and liabilities of these payroll taxes.
3
4
5
6
7
8
9
10
11
18
PAYROLL REGISTER
EARNINGS
TAXABLE EARNINGS
TOTAL
CUMULATIVE TOTAL
UNEMPLOYMENT COMP.
SOCIAL SECURITY
76,800.00
1,260.00
660.00
Step 1 Obtain taxable earnings amounts from
Payroll Register
900.00
43,400.00
900.00
27,025.00
545.00
545.00
774.00
774.00
31,000.00
440.00
22,340.00
440.00
27,500.00
726.00
726.00
25,050.00
490.00
490.00
300.00
300.00
6,300.00
300.00
5,435.00
259,415.00
300.00
4,835.00
19
PAYROLL REGISTER
EARNINGS
TAXABLE EARNINGS
TOTAL
CUMULATIVE TOTAL
UNEMPLOYMENT COMP.
SOCIAL SECURITY
76,800.00
1,260.00
660.00
Step 2 Compute Social Security tax 4,835 x
6.2 299.77
900.00
43,400.00
900.00
27,025.00
545.00
545.00
774.00
774.00
31,000.00
440.00
22,340.00
440.00
27,500.00
726.00
726.00
25,050.00
490.00
490.00
300.00
300.00
6,300.00
300.00
5,435.00
259,415.00
300.00
4,835.00
20
PAYROLL REGISTER
EARNINGS
TAXABLE EARNINGS
TOTAL
CUMULATIVE TOTAL
UNEMPLOYMENT COMP.
SOCIAL SECURITY
76,800.00
1,260.00
660.00
Step 3 Compute Medicare tax 5,435 x 1.45
78.81
900.00
43,400.00
900.00
27,025.00
545.00
545.00
774.00
774.00
31,000.00
440.00
22,340.00
440.00
27,500.00
726.00
726.00
25,050.00
490.00
490.00
300.00
300.00
6,300.00
300.00
5,435.00
259,415.00
300.00
4,835.00
21
PAYROLL REGISTER
EARNINGS
TAXABLE EARNINGS
TOTAL
CUMULATIVE TOTAL
UNEMPLOYMENT COMP.
SOCIAL SECURITY
76,800.00
1,260.00
660.00
Step 4 Compute FUTA tax 300 x .08 2.40
900.00
43,400.00
900.00
27,025.00
545.00
545.00
774.00
774.00
31,000.00
440.00
22,340.00
440.00
27,500.00
726.00
726.00
25,050.00
490.00
490.00
300.00
300.00
6,300.00
300.00
5,435.00
259,415.00
300.00
4,835.00
22
PAYROLL REGISTER
EARNINGS
TAXABLE EARNINGS
TOTAL
CUMULATIVE TOTAL
UNEMPLOYMENT COMP.
SOCIAL SECURITY
76,800.00
1,260.00
660.00
Step 5 Compute SUTA tax 300 x 5.4 16.20
900.00
43,400.00
900.00
27,025.00
545.00
545.00
774.00
774.00
31,000.00
440.00
22,340.00
440.00
27,500.00
726.00
726.00
25,050.00
490.00
490.00
300.00
300.00
6,300.00
300.00
5,435.00
259,415.00
300.00
4,835.00
23
GENERAL JOURNAL
DATE
DESCRIPTION
PR
DEBIT
CREDIT
1
2
Step 6 Prepare journal entry using the
amounts computed in steps 2 - 5
3
4
5
6
7
8
9
10
11
24
GENERAL JOURNAL
DATE
DESCRIPTION
PR
DEBIT
CREDIT
1
Dec.
19
Payroll Taxes Expense
397.18
2
Social Security Tax Payable
299.77
3
Medicare Tax Payable
78.81
4
FUTA Tax Payable
2.40
5
SUTA Tax Payable
16.20
6
Payroll Taxes Expense is debited for the total of
all employer taxes. (299.77 78.81 2.40
16.20)
7
8
9
10
11
25
GENERAL JOURNAL
DATE
DESCRIPTION
PR
DEBIT
CREDIT
1
Dec.
19
Payroll Taxes Expense
397.18
2
Social Security Tax Payable
299.77
3
Medicare Tax Payable
78.81
4
FUTA Tax Payable
2.40
5
SUTA Tax Payable
16.20
6
Employer payroll taxes for
7
Week ended Dec. 19
8
9
10
11
26
TOTAL PAYROLL COST OF AN EMPLOYEE
Gross Wages
26,000
Lets look at the total costs of an employee who
earns 26,000/year.
27
TOTAL PAYROLL COST OF AN EMPLOYEE
Gross Wages
26,000
Social Security
1,612
26,000 x 6.2
28
TOTAL PAYROLL COST OF AN EMPLOYEE
Gross Wages
26,000
Social Security
1,612
Medicare
377
26,000 x 1.45
29
TOTAL PAYROLL COST OF AN EMPLOYEE
Gross Wages
26,000
Social Security
1,612
Medicare
377
SUTA
378
7,000 x 5.4
30
TOTAL PAYROLL COST OF AN EMPLOYEE
Gross Wages
26,000
Social Security
1,612
Medicare
377
SUTA
378
FUTA
56
7,000 x 0.8
31
TOTAL PAYROLL COST OF AN EMPLOYEE
Gross Wages
26,000
Social Security
1,612
Medicare
377
SUTA
378
FUTA
56
28,423
Total Cost!!
32
REPORTING AND PAYMENT OF TAXES
Determining when payments of Federal Income,
Social Security, and Medicare taxes are due
Deposit Amount
Deposit Due
Less than 1,000 at the end of the current quarter
End of month following end of quarter
1,000 or more at the end of the current quarter
and 50,000 or less in total during the lookback
period
33
LOOKBACK PERIOD
The four quarters beginning July 1, two years
ago, and ending June 30, one year ago
Large amounts of payroll taxes in the lookback
period require frequent future deposits.
34
REPORTING AND PAYMENT OF TAXES
Determining when payments of Federal Income,
Social Security, and Medicare taxes are due
Deposit Amount
Deposit Due
Less than 1,000 at the end of the current quarter
End of month following end of quarter
Deposit 15 days after the end of the month
1,000 or more at the end of the current quarter
and 50,000 or less in total during the lookback
period
35
REPORTING AND PAYMENT OF TAXES
Determining when payments of Federal Income,
Social Security, and Medicare taxes are due
Deposit Amount
Deposit Due
500 or more at the end of the current quarter
and more than 50,000 in total during the
lookback period
Deposit every other Wednesday or Friday,
depending on day of the week payroll payments are
made
Deposit by the end of the next banking day
100,000 or more on any day during the current
quarter
36
DEPOSITING PAYROLL TAXES

• Deposits may be made using either
• Electronic Federal Tax Payment System (EFTPS)
• An electronic funds transfer system
• Required for taxpayers who deposited more than
  200,000 in the prior year
• Form 8109 Federal Tax Deposit Coupon
• Submitted with deposit made at
• Federal Reserve Bank, or
• Other authorized commercial bank

37
Form 8109

• Includes
• Employer Identification Number (EIN)
• Obtained from the IRS
• Must be shown on all payroll forms and reports
  filed with the IRS
• Amount of the deposit
• Type of tax
• Tax period

38
GENERAL JOURNAL
DATE
DESCRIPTION
PR
DEBIT
CREDIT
1
2
3
4
Each deposit requires a journal entry.
5
6
7
8
9
10
11
39
GENERAL JOURNAL
DATE
DESCRIPTION
PR
DEBIT
CREDIT
1
Feb.
15
2
3
4
This companys quarterly payroll taxes exceed
1,000 therefore, the Januarys deposit is due
on the 15th of February.
5
6
7
8
9
10
11
40
GENERAL JOURNAL
DATE
DESCRIPTION
PR
DEBIT
CREDIT
1
Feb.
15
Employee Income Tax Payable
2,526.80
2
Social Security Tax Payable
2,692.48
3
Medicare Tax Payable
631.60
4
5
This payment includes both the employer and
employee portions and leaves the liability
accounts with zero balances.
6
7
8
9
10
11
41
GENERAL JOURNAL
DATE
DESCRIPTION
PR
DEBIT
CREDIT
1
Feb.
15
Employee Income Tax Payable
2,526.80
2
Social Security Tax Payable
2,692.48
3
Medicare Tax Payable
631.60
4
Cash
5,850.88
5
Deposit of employee federal
6
income tax and Social
7
Security and Medicare taxes
8
9
10
11
42
FORM 941

• Employers Quarterly Federal Tax Return
• Must be filed with IRS at the end of month
  following each calendar quarter
• Due April 30, July 31, October 31, and January 31
• Reports the following taxes for the quarter
• Employee federal income tax withheld
• Employee Social Security Medicare taxes
  withheld
• Employer Social Security Medicare taxes

43
FUTA TAXES

• Calculated quarterly
• Deposit due end of month following end of quarter
• Deposit required only when amount exceeds 100
• If 100 or below, amount is added to the
  following quarters deposit.
• using Form 8109 or EFTPS

44
GENERAL JOURNAL
DATE
DESCRIPTION
PR
DEBIT
CREDIT
1
Apr.
30
FUTA Tax Payable
408.00
2
Cash
408.00
3
4
FUTA is paid on the first 7,000 of earnings per
employee. The first quarters deposit is usually
the largest.
5
6
7
8
9
10
11
45
GENERAL JOURNAL
DATE
DESCRIPTION
PR
DEBIT
CREDIT
1
Apr.
30
FUTA Tax Payable
408.00
2
Cash
408.00
3
Paid federal unemployment
4
tax
5
6
7
8
9
10
11
46
SUTA TAXES

• Usually on a quarterly basis
• Forms required vary by state

47
GENERAL JOURNAL
DATE
DESCRIPTION
PR
DEBIT
CREDIT
1
Apr.
30
SUTA Tax Payable
2,754.00
2
Cash
2,754.00
3
Paid state unemployment
4
tax
5
6
7
8
9
10
11
48
WAGE AND TAX STATEMENT W-2

• Given to each employee by January 31
• Shows total amount of wages paid taxes withheld
• Prepared from employee earnings record
• Multiple copies prepared
• Copy A - to Social Security Administration
• Copy B - to employee for federal income tax
  return
• Copy C - to employee for their own records
• Copy D- employer retains for their records
• Copy 1 - to state and local tax department
• Copy 2 - to employee for state or local tax return

49
TRANSMITTAL OF WAGE AND TAX STATEMENTW-3

• Sent by employers to Social Security
  Administration
• With Copy A of W-2
• Due by last day of February following end of
  taxable year
• Summarizes employee earnings and tax information

50
WORKERS COMPENSATION INSURANCE

• Provides insurance for employees who suffer
  job-related illness or injury
• Required by most states
• Employer usually pays entire cost
• Rate depends on
• of employees, riskiness of job, and companys
  accident history
• Rate is applied to estimated payroll
• Year-end adjustment is made when actual payroll
  is known

51
WORKERS COMPENSATION INSURANCE
EXAMPLE Lockwood Co. expects its payroll for the
year to be 210,000. Its workers compensation
insurance rate is 0.2.
Estimated Payroll
Estimated Insurance Premium
Rate
X
420.00
210,000
.002
52
GENERAL JOURNAL
DATE
DESCRIPTION
PR
DEBIT
CREDIT
1
Workers Comp. Ins. Expense
420.00
2
Cash
420.00
3
Paid insurance premium
4
Lockwood Co. pays the premium based on estimated
payroll costs.
5
6
7
8
9
10
11
53
WORKERS COMPENSATION INSURANCE
EXAMPLE If Lockwoods actual payroll for the
year is 220,000, what adjustment is needed?
Actual Payroll
Estimated Insurance Premium
Rate
X
220,000
440.00
.002
420.00
Premium Paid
20.00
Additional premium due
54
GENERAL JOURNAL
DATE
DESCRIPTION
PR
DEBIT
CREDIT
1
Workers Comp. Ins. Expense
20.00
Dec.
31
2
Workers Comp. Ins. Pay.
20.00
3
Adjustment for insurance
4
premium
5
6
7
8
9
10
11
55
WORKERS COMPENSATION INSURANCE
EXAMPLE What if Lockwoods actual payroll had
been 205,000 instead?
Actual Payroll
Estimated Insurance Premium
Rate
X
205,000
410.00
.002
420.00
Premium Paid
10.00
Refund due
56
GENERAL JOURNAL
DATE
DESCRIPTION
PR
DEBIT
CREDIT
1
Insurance Refund Receivable
10.00
Dec.
31
2
Workers Comp. Ins. Exp.
10.00
3
Adjustment for insurance
4
premium
5
6
7
8
9
10
11