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