Payroll Liabilities and Tax Records

Chapter 13

Analyzing and Journalizing the Payroll

• When a business has more than a couple employees, it typically handles it’s payroll from a separate payroll account.– A check is written from the general account and deposited into the payroll

account– The amount transferred is equal to the total net pay for the pay period

• Salaries Expense is debited the amount of Gross Pay and Cash (the amount of net pay) and payroll liability accounts are credited

• Deductions are liabilities to the company (money owed to someone else). They are stored in separate accounts until paid to the proper place– Employees’ Federal Income Tax Payable– Social Security Tax Payable– Medicare Tax Payable– Hospital Insurance Premium Payable– U.S. Savings Bonds Payable– Etc.

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Journalizing and Posting Payroll

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Employer’s Payroll Taxes

• For each employee a company has, it must pay it’s own share of taxes.– FICA• Social Security• Medicare

– Federal Unemployment Tax– State Unemployment Tax

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Computing Payroll Tax Expense

• FICA– Employers pay the same percent of FICA as employees.

The percent is multiplied by the total gross income amount.

• Federal and State Unemployment Taxes– Employers pay Federal Unemployment Taxes on the

first $7,000 of annual earnings per employee– State Unemployment Taxes are usually about .8%

• Federal Tax Rate – deduction of 5.4% max of state rate• (6.2% - 5.4% = .8%) (state rate – maximum deductible

amount)Pg 347

Journalizing the Employer Payroll Taxes

• Payroll Tax Expense is where all payroll taxes are expensed from payables.

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Paying Payroll Tax Liabilities

• FICA and Federal Income Taxes – A business makes one payment combining Social Security, Medicare, and Employee’s Federal Income Tax– Most businesses do this monthly– Taxes are due by the 15th day of the month following the

payroll month– Many businesses pay their tax withholdings using Form 8109

(Federal Tax Deposit Coupon)• 941 means it is for the taxes listed above• 2nd quarter indicates the quarter the pay period fell in

– Many larger businesses use the Electronic Federal Tax Payment System (EFTPS)

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Form 8109

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Journalizing Employer’s Fed and State Inc Tax Liability

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Federal Unemployment Tax

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State Unemployment Tax & Voluntary Deductions

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Posting Payment of

Payroll Liabilities

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Preparing Payroll Tax Forms

• Employers must complete a variety of payroll-related tax forms:– W-2 – Wage and Tax Statement – Annually– W-3 – Transmittal of Wage and Tax Statement –

Annually– 941 – Employer’s Quarterly Federal Tax Return -

Quarterly– Employer’s Annual Federal Unemployment (FUTA)

Tax Return - Annually

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