8–1 mcquaig bille 1 college accounting 10 th edition mcquaig bille nobles © 2011 cengage learning...

8–1McQuaig

Bille

11College Accounting10th Edition

McQuaig Bille Nobles

© 2011 Cengage Learning

PowerPoint presented by Douglas Cloud Professor Emeritus of Accounting, Pepperdine

University

Chapter 8

Employer Taxes, Payments, and Reports

Copyright © Houghton Mifflin Company. All rights reserved. 9 | 2

Employer Identification Number

• The number assigned each employer by the Internal Revenue Service

• Used to submit reports and payments for FICA taxes and federal income tax withheld

• Listed on all deposit slips

• Individuals have Social Security numbers.

• Employers have employer identification number.

• IRS uses both numbers to track taxes.


Employer’s Payroll Tax Expense

• A general expense account used for recording: – FICA tax (employer’s share)– State unemployment tax (varies by state)– Federal unemployment tax

• Paid by employer on behalf of employees


Payroll Tax Components

• FICA tax (employer’s share)– Calculate Social Security amount (using 6.2%,

$106,800 ceiling)– Calculate Medicare amount (using 1.45%)

• State unemployment tax (SUTA)– Levied only on the employer in most states– Rate varies by state (book assumes 5.4%, $7,000 ceiling)– Pays subsistence benefits to unemployed workers

• Federal unemployment tax (FUTA)– Levied only on the employer– Rate varies (book assumes 0.8%, $7,000 ceiling)– Used to administer federal unemployment fund


Calculate Payroll Tax Expense

• Take taxable amounts directly from payroll register:– FICA tax (employer’s share)– State unemployment tax (varies by state)– Federal unemployment tax


Calculate Payroll Tax Expense (cont’d)

Do not use calculated amounts from

employee’s deductions. You must take totals

and recalculate amounts. (As a result, there may be rounding

differences.)

State Unemployment Tax(Rates Vary) 958.20 x 5.4% = $51.74Federal Unemployment Tax(Rates Vary) 958.20 x 0.8% = $7.67


Journalize Payroll Tax Expense Entry

• Payroll taxes are an expense of doing business.

• Debit Payroll Tax Expense.

• Credit associated payable account.

DescriptionPost.Ref. Debit Credit

20--Oct. 7 Payroll Tax Expense 1,490.72

FICA Tax Payable 1,431.31State Unemployment Tax Payable 51.74Federal Unemployment Tax Payable 7.67

To record employer's share of FICA tax andemployer's state and federal unemployment taxes.

General Journal Page 9

Date


T Accounts: Beginning Balance

DR CR DR CR

+ - - +1,431.33

DR CR

- +

DR CR

- +

Payroll Tax Expense FICA Tax Payable

State Unemployment Tax Payable

Federal Unemployment Tax PayableBalance from employees’ deductions


T Accounts: Employer’s FICA

DR CR DR CR

+ - - +1,431.31 1,431.33

1,431.31

DR CR

- +

DR CR

- +



Federal Unemployment Tax Payable

© Royalty Free C Squared Studios/ Getty Images


T Accounts: Employer’s SUTA

DR CR DR CR

+ - - +1,431.31 1,431.33

51.74 1,431.31

DR CR

- +

51.74

DR CR

- +




© Royalty Free C Squared Studios/ Getty Images


T Accounts: Employer’s FUTA

DR CR DR CR

+ - - +1,206.22 1,431.33

1,431.317.67

DR CR

- +

51.74

DR CR

- +

7.67




1,431.3151.74


T Accounts: Total Payroll Tax Expense

DR CR DR CR

+ - - +1,431.31 1,431.33

51.74 1,431.317.67

1,490.72

DR CR

- +

51.74

DR CR

- +

7.67



Federal Unemployment Tax PayableTotal Payroll Tax

Expense, journalized and posted


Based on Payroll Register, Make Journal Entry for Employee Salaries and Wages Expense


20--Oct. 7 Sales Wages Expense 14,332.15

Office Wages Expense 4,467.28Employees' Federal Income Tax Payable 2,838.00FICA Tax Payable 1,431.33Employees' State Income Tax Payable 567.60Employees' Medical Insurance Payable 320.70Employees' United Way Payable 185.00Accounts Receivable 30.00Wages Payable 13,426.80

Payroll Register, page 56, for week ended October 7.


Date


From Taxable Earnings Columns of Payroll Register, Calculate and Journalize Payroll Tax Expense


20--Oct. 7 Payroll Tax Expense 1,490.72

FICA Tax Payable 1,431.31State Unemployment Tax Payable 51.74Federal Unemployment Tax Payable 7.67

To record employer's share of FICA tax andemployer's state and federal unemployment taxes.


Date


Journalize Cash Payments to Employees


20--Oct. 8 Wages Payable 13,426.80

Cash—Payroll Bank Account 13,426.80Paid wages for week ended October 7.


Date


Federal Tax Deposits

• Include combined total of:1. Employees’ federal income taxes withheld2. Employees’ FICA taxes withheld3. Employer’s share of FICA taxes

• Made to authorized commercial or Federal Reserve banks and forwarded to U.S. Treasury

• Timing depends on amounts owed (the more you owe, the more often you pay)


Prepare the Deposit Coupon


Journal Entry for Payments of FICA and Federal Income Tax Withholdings


20--Oct. 15 Employees' Federal Income Tax Payable 5,676.00

FICA Tax Payable 5,725.32Cash 11,401.32

Issued check for federal tax deposit, Bangor Bank.

Date


• Reduces payables (liabilities)

• Reduces Cash• Leaves payable accounts

with zero balances after posting

0.00

DR CR- +

5,725.32 5,725.320.00

DR CR- +

5,676.00 5,676.00

FICA Tax Payable

Employees' Federal Income Tax Payable


DR CR- +

3,257.55 3,257.550.00


Payments of StateUnemployment Tax (SUTA)


20--April 30State Unemployment Tax Payable 3,257.55

Cash 3,257.55Issued check for payment of state unemployment tax.

Page 17

Date

General Journal

• Usually paid quarterly• Due by the end of the month

following the end of the quarter (same as Form 941)

• After posting, the payable account has a zero balance.

• Journal entry looks like this:


DR CR- +

482.60 482.600.00


Payments of FederalUnemployment Tax (FUTA)


20--April 30 Federal Unemployment Tax Payable 482.60

Cash 482.60Issued check for deposit of federal unemployment tax.

General Journal

Date

Page 17

• Calculated quarterly (duedates same as form 941)

– If liability > $100, funds are submitted with deposit card.

• After posting, the payable account has a zero balance.




20--April 30Employees’ State Income Tax Payable 1,674.10

Cash 1,674.10Issued check for state income tax deposit.

General Journal

Date

Page 17

Deposits of Employees’ State Income Tax Withholding

• Deposited quarterly (due dates same as SUTA)

• After posting, the payable account has a zero balance


DR CR- +

1,674.10 1,674.100.00

State Income Tax Payable


Form 941 (Employer’s Quarterly Federal Tax Return)

• A quarterly report showing the tax liability for withholdings of employees’ federal income tax and FICA taxes and the employer’s share of FICA taxes; total tax deposits made in the quarter are also listed on Form 941

• Due April 30, July 31, October 31, January 31


Form W-2 (Wage and Tax Statement)

• Form containing information about employee earnings and tax deductions for the year

• After last day of calendar year, employer must complete and furnish employee with at least two copies (before January 31)

• One copy to the Social Security Administration• One copy to state (if appropriate)• Two or more copies to employee for:

– Employee’s records– Employee to send to IRS– Employee to send to state and local tax agencies if

those taxes withheld• One copy for employer’s records


Form W-3 (Transmittal of Wage and Tax Statements)

• Annual report (due Feb. 28) sent to Social Security Administration listing:– Total wages and tips– Total federal income taxes withheld– Total Social Security and Medicare taxable wages

and taxes withheld

• Must attach Copy A of employees’ W-2 forms

• Total amounts must match grand total of W-2 and four quarterly 941 forms


Form W-3


Form 940 (Employer’s Annual Federal Unemployment Tax Return)

• Due Jan. 31, or Feb. 10 if payments made in full

• Lists:– Total wages paid to employees– Total wages subject to federal unemployment tax– Total federal unemployment tax– Other information


Workers’ Compensation Insurance

• Workers’ compensation insurance provides benefits for employees injured or killed on the job.

• Rates vary according to the degree of risk inherent in the job.

• Plans may be sponsored by states or by private firms.

• Employer pays premium in advance, based on estimated payroll for the year.

• Rates are adjusted after exact payroll is known.


Calculate the Premium in Advance

Classification Predicted Payroll Rate (Percent) Estimated PremiumOffice Work $182,000 0.15 $182,000 x .0015 = $ 273.00Sales Work 660,000 0.50 $660,000 x .0050 = 3,300.00

Total estimated premium $ 3,573.00


Prepare the Entry for Payment in Advance


Calculate Exact Premium at End of Year

Classification Actual Payroll Rate (Percent) Estimated PremiumOffice Work $188,990 0.15 $188,990 x .0015 = $ 283.49Sales Work 672,540 0.50 $672,540 x .0050 = 3,362.70

Total estimated premium $3,646.19


Calculate Unpaid Premium and Make Adjusting Entry

$3,646.19 Total exact premium

3,573.00 Less total estimated premium paid

$ 73.19 Additional premium owed

8–1 mcquaig bille 1 college accounting 10 th edition mcquaig bille nobles © 2011 cengage learning...

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