Payroll Liabilities &

Tax Records

Chapter 13

Business Accounting

Payroll

• affects all employees• must be accurate and on-time• includes many deductions• needs to be journalized and posted• money transferred to payroll account

Analyze and Journalize

• Employees’ Earnings– Operating Expense

• Salaries Expense– debit

• Withholdings– Liabilities

• Payables (taxes payable, ins. prem. payable, etc..)– credit

• Net Pay– Lower Assets

• Cash in Bank– credit

Required Withholdings

• Employees’ Federal Income Tax Payable• Employees’ State Income Tax Payable• Social Security Tax Payable• Medicare Tax Payable

Voluntary Deductions

• U.S. Savings Bonds Payable• Credit Union Payable• Union Dues Payable• United Way Payable

Payroll Journal Entry

Salaries ExpenseEmployees’ Federal Income Tax PayableEmployees’ State Income Tax PayableSocial Security Tax PayableMedicare Tax PayableU.S. Savings Bonds PayableCredit Union PayableUnion Dues PayableUnited Way Payable401(k) PayableCash in Bank

Employer’s Payroll Taxes

• Employers pay taxes too!– FICA• Social Security• Medicare

– Unemployment Taxes• Federal• State

FICA

• Federal Insurance Contribution Act of 1935– Social Security• income replacement in retirement• usually 6.2%

– currently 4.2%

• up to $110,100 for 2012

– 1.45% for Medicare• provides medical insurance in retirement

Unemployment Taxes

• provide funds to unemployed workers• Federal (FUTA)– up to 6.2% of first $7,000 of earnings– deduct up to 5.4% for state payments• therefore, usually 0.8% of $7,000 for federal

• State (SUTA)– laws vary

Journal Entry

Payroll Tax ExpenseSocial Security Tax PayableMedicare Tax PayableState Unemployment Taxes PayableFederal Unemployment Taxes Payable

Tax Payments and Reports

• paid at regular intervals

Federal Tax Payments

• one payment for federal taxes– Social Security, Medicare, and Federal Income– employee and employer

• made at bank or through EFTPS– Electronic Federal Tax Payment System

Federal Tax Payments (con’t)

• usually by 15th of following month– twice a month for big businesses

• with Form 8109– Federal Tax Deposit Coupon

State and Local Payments

• at regular intervals• details differ by state / municipality

Tax Forms

• W-2– annual wage and tax statement

• W-3– annual transmittal of W-2’s

• 941– quarterly Federal Tax Return

• 940– annual FUTA Tax Return

W-2

• W-2– annual summary• each employee’s earnings and withholdings

– gross earnings– federal withholdings– FICA withholdings– state and local withholdings

– to employee by January 31st

– copies sent to IRS, state, and local government

W-3

• Transmittal of Wage and Tax Statements– sent with W-2’s– summary of all W-2 info– due by Feb 28