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CENTURY 21 ACCOUNTING © Thomson/South-Western
LESSON 13-1
Recording A Payroll
CENTURY 21 ACCOUNTING © Thomson/South-Western
Different Forms of Payroll Information
Payroll information for each pay period is recorded in
a payroll register
Each pay period the payroll information for each
employee is also recorded on each employee
earnings record
Separate payroll accounts for each employee are not
kept in the general journal ledger
Instead, accounts are kept in the general ledger to
summarize total earnings and deductions for all
employees
2
LESSON 13-1
CENTURY 21 ACCOUNTING © Thomson/South-Western
Chapter 13:
The payroll register and employee earnings records
provide all the payroll information needed to prepare
payroll and payroll tax reports
Journal entries are made to record the payment of
the payroll and the employer payroll taxes
In addition, various quarterly and annual payroll tax
reports are required to report the payment of payroll
taxes
Now we will learn how to record the payroll in the
necessary accounts
It is extremely important the payroll be journalized!
3
LESSON 13-1
CENTURY 21 ACCOUNTING © Thomson/South-Western
4
LESSON 13-1
PAYROLL REGISTER page 369
Similar to a special journal, the column totals of a payroll register provide
the debit and credit amounts needed to journalize a payroll
The payroll journal entry is based on the totals of Earnings Total
Account column, “each” deduction column, and the Net Pay column
only
CENTURY 21 ACCOUNTING © Thomson/South-Western
5
LESSON 13-1
ANALYZING PAYMENT OF A PAYROLL page 370
“Total Earnings”
column total
(Debit)
Deductions
(Credit)
Check amount
written for
payroll (net pay)
(Credit)
CENTURY 21 ACCOUNTING © Thomson/South-Western
6
LESSON 13-1
6. Write the titles of accounts credited (posted individually to ledger accounts).
JOURNALIZING PAYMENT OF A
PAYROLL
12
3 4 5
6
page 371
December 15. Paid cash for payroll, $4,609.46. Check No. 335.
71. 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 (net pay) (posted at end of month to ledger
account)
CENTURY 21 ACCOUNTING © Thomson/South-Western
LESSON 13-2
Recording Employer
Payroll Taxes
CENTURY 21 ACCOUNTING © Thomson/South-Western
Payroll Taxes
Employers must pay to the government the taxes
withheld from employee earnings
Federal Income Tax
Social Security Tax
Medicare Tax
The amounts withheld are liabilities to the business
until they are actually paid to the government
8
LESSON 13-1
CENTURY 21 ACCOUNTING © Thomson/South-Western
Payroll Taxes
In addition, employers must pay several of their own
payroll taxes
Employer payroll taxes are business expenses
Most employers pay four (4) separate payroll taxes:
Employer Social Security Tax
Medicare Tax
Federal Unemployment Tax
State Unemployment Tax
Employer payroll taxes expense is based on a
percentage of employee earnings
9
LESSON 13-1
CENTURY 21 ACCOUNTING © Thomson/South-Western
Employer Social Security and Medicare Taxes
Social Security and Medicare Taxes are the only
payroll taxes paid by both the employees and the
employer
Hobby Shack owes the same amount of Social
Security and Medicare taxes as the amount withheld
from employees
Congress sets the Social Security and Medicare tax
rate for employees and employers
Social Security 6.2% (.062) up to $87,000
Medicare 1.45% (.0145)
10
LESSON 13-1
CENTURY 21 ACCOUNTING © Thomson/South-Western
Unemployment Tax (Federal)
Federal Unemployment Tax—a federal tax used for state
and federal administrative expenses of the unemployment
program
The federal unemployment tax is 6.2% (.062) of the first $7,000 earned
by an employee
An employer generally can deduct from federal unemployment
payments the amounts paid to state unemployment funds
The deduction cannot be more than 5.4% of taxable earnings
The effective federal unemployment tax rate in more states is,
therefore, 0.8% on the first $7,000 earn by each employee
Federal, 6.2% - deductible for state, 5.4% = 0.8% (.008)
11
LESSON 13-1
Unemployment
Taxable Earnings
Federal
Unemployment Rate
Federal
Unemployment Tax
$790.00 0.8% (.008) $6.32x =
CENTURY 21 ACCOUNTING © Thomson/South-Western
Unemployment Tax (State)
State Unemployment Tax—a state tax used to pay benefits to
unemployed workers
The Social Security Act specifies certain standards for
unemployment compensation laws
However, details of state unemployment laws do differ
Many states require that employers pay unemployment tax of 5.4%
(.054) on the first $7,000 earned by each employee
12
LESSON 13-1
Unemployment
Taxable Earnings
State Unemployment
Rate
State Unemployment
Tax
$790.00 5.4% (.054) $42.66x =
CENTURY 21 ACCOUNTING © Thomson/South-Western
13
LESSON 13-1
UNEMPLOYMENT TAXABLE EARNINGS
2
3
page 374
1
1. Enter accumulated earnings and total earnings for each employee.
2. Enter unemployment taxable earnings.
3. Total the Unemployment Taxable Earnings column.
CENTURY 21 ACCOUNTING © Thomson/South-Western
14
LESSON 13-1
Federal
Unemployment
Tax
=
Federal
Unemployment
Tax Rate
×
Unemployment
Taxable
Earnings
State
Unemployment
Tax
=
State
Unemployment
Tax Rate
×
Unemployment
Taxable
Earnings
UNEMPLOYMENT TAXES page 375
$6.32=0.8% (.008)×$790.00
$42.66=5.4% (.054)×$790.00
CENTURY 21 ACCOUNTING © Thomson/South-Western
15
LESSON 13-1
JOURNALIZING EMPLOYER
PAYROLL 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)
CENTURY 21 ACCOUNTING © Thomson/South-Western
16
LESSON 13-1
JOURNALIZING EMPLOYER
PAYROLL TAXES
1
2
3
5
4
6
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)
CENTURY 21 ACCOUNTING © Thomson/South-Western
LESSON 13-3
Reporting Withholding And
Payroll Taxes
CENTURY 21 ACCOUNTING © Thomson/South-Western
W-2 Wage and Tax Statement
Each employer who withholds income tax, social security
tax, and Medicare from employee earnings must furnish
each employer with an annual report of these withholdings
The report shows total year’s earnings and the amounts
withheld for taxes for an employee
The report is prepared on the Internal Revenue Service
Form W-2, Wage and Tax Statement
Employers are required to furnish Form W2 to each
employee by January 31 of the next year
18
LESSON 13-1
CENTURY 21 ACCOUNTING © Thomson/South-Western
W-2 Wage and Tax Statement
Four (4) copies (A-D) of Form W-2 are prepared for
each employee:
Copy A – Social Security Administration copy
Copy B – Employee attaches it to a personal federal income
tax return
Copy C – Employee keeps for a personal record
Copy D – Kept for the business records
Businesses in states with state income tax must
prepare additional copies of Form W-2 to attach to
the state income tax return
19
LESSON 13-1
CENTURY 21 ACCOUNTING © Thomson/South-Western
20
LESSON 13-1
EMPLOYER ANNUAL REPORT TO
EMPLOYEES OF TAXES WITHHELD page 378
CENTURY 21 ACCOUNTING © Thomson/South-Western
EMPLOYER’S QUARTERLY FEDERAL
TAX RETURN
Each employer is required by law to periodically report the payroll taxes
withheld from employee salaries and the employer payroll taxes due the
government (some reports are submitted quarterly and others annually)
Each employer must file a quarterly federal tax return showing the federal
income tax, social security tax, and Medicare due the government
One reason for this report is so that the IRS can monitor a company’s deposits
of withheld taxes
The information is submitted every three months on Form 941,
Employer’s Quarterly Federal Tax Return
Form 941 is filed before the last day of the month following the end of a
calendar quarter
The information needed to prepare Form 941 is obtained from employee
earnings records
21
LESSON 13-1
CENTURY 21 ACCOUNTING © Thomson/South-Western
22
LESSON 13-1
EMPLOYER’S QUARTERLY FEDERAL
TAX RETURN pages 379-380(continued on next slide)
1
2
1. Heading 2. Number of employees
CENTURY 21 ACCOUNTING © Thomson/South-Western
23
LESSON 13-1
EMPLOYER’S QUARTERLY FEDERAL
TAX 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
4
5
3
6
7
CENTURY 21 ACCOUNTING © Thomson/South-Western
24
LESSON 13-1
EMPLOYER’S QUARTERLY FEDERAL
TAX RETURN page 379(continued from previous slide)
8 8 89
8. Total taxes for each month 9. Total taxes
CENTURY 21 ACCOUNTING © Thomson/South-Western
25
LESSON 13-1
EMPLOYER ANNUAL REPORTING OF
PAYROLL TAXES page 381
CENTURY 21 ACCOUNTING © Thomson/South-Western
LESSON 13-4
Paying Withholding and
Payroll Taxes
CENTURY 21 ACCOUNTING © Thomson/South-Western
PAYING THE LIABILITY FOR EMPLOYEE INCOME TAX,
SOCIAL SECURITY TAX, AND MEDICARE TAX
Employers must pay to the federal, state, and local
governments all payroll taxes withheld from employee
earnings as well as the employer payroll taxes
The payment of payroll taxes with the government is referred
to as a deposit
Two (2) amounts determine how often deposits are made to
the federal government:
1. The amount of payroll taxes collected during the current deposit
period
2. The amount of payroll taxes owed during a prior 12-month period
3. The 12-month period that ends on June 30th of the prior year is called
the lookback period
27
LESSON 13-1
CENTURY 21 ACCOUNTING © Thomson/South-Western
28
LESSON 13-1
PAYING THE LIABILITY FOR EMPLOYEE INCOME TAX,
SOCIAL SECURITY TAX, AND MEDICARE TAX page 383
The IRS gives
businesses
this flowchart
to determine
when to make
tax deposits.
CENTURY 21 ACCOUNTING © Thomson/South-Western
PAYING THE LIABILITY FOR EMPLOYEE INCOME TAX,
SOCIAL SECURITY TAX, AND MEDICARE TAX
Hobby Shack is classified as a monthly depositor
The payroll taxes are deposited with a local
authorized financial institution by the 15th day of the
following month accompanied by Form 8109 (Federal
Deposit Form) (page 384)
The type of tax (federal income, social security, and
Medicare taxes) is indentified by marking the 941 circle
The calendar quarter is identified on the right side of the
form
29
LESSON 13-1
CENTURY 21 ACCOUNTING © Thomson/South-Western
30
LESSON 13-1
FORM 8109,
FEDERAL DEPOSIT COUPON page 384
CENTURY 21 ACCOUNTING © Thomson/South-Western
31
LESSON 13-1
JOURNALIZING PAYMENT OF LIABILITY FOR
EMPLOYEE INCOME TAX, SOCIAL SECURITY
TAX, AND MEDICARE TAX
1
2
3
4
5
page 385
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 (the balances of the liability accounts are reduced
(debit) by this transaction). Check No. 347 (credit)
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 cash
credit.
CENTURY 21 ACCOUNTING © Thomson/South-Western
PAYING THE LIABILITY FOR
FEDERAL UNEMPLOYMENT TAX
Federal unemployment insurance is paid by the end of the
month following each quarter if the liability amount is $100.
However, ALL unemployment tax liabilities outstanding at the
end of a calendar year should be paid
Federal unemployment tax is paid to the federal government by
making a tax deposit with an authorized bank
The deposit for federal unemployment is similar to the deposit
required for income tax, social security tax, and Medicare tax
Form 8190, Federal Tax Deposit Coupon accompanies the
employment tax deposit
The total of federal unemployment taxes paid during a calendar year
is reported on 940 circle on the 8109 form (page 386)
32
LESSON 13-1
CENTURY 21 ACCOUNTING © Thomson/South-Western
33
LESSON 13-1
PAYING THE LIABILITY FOR
FEDERAL UNEMPLOYMENT TAX page 386
CENTURY 21 ACCOUNTING © Thomson/South-Western
34
LESSON 13-1
JOURNALIZING PAYMENT OF LIABILITY
FOR FEDERAL UNEMPLOYMENT TAX
1 2 3 4 5
page 387
January 31. Paid cash for federal unemployment tax liability for quarter
ended December 31, $34.60 (the balances of the liability accounts are
reduced (debit) by this transaction). Check No. 367 (credit).
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.
CENTURY 21 ACCOUNTING © Thomson/South-Western
35
LESSON 13-1
JOURNALIZING PAYMENT OF LIABILITY
FOR 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
1 2 3 4 5
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