Payroll Liabilities and Tax RecordsPayroll Liabilities and Tax RecordsMaking Accounting Relevant
Federal, state, and local governments
pass tax laws in order to generate
revenue for government services.
Making Accounting Relevant
Federal, state, and local governments
pass tax laws in order to generate
revenue for government services.
Can you name some uses for your tax dollars?
JOURNALIZING AND POSTING PAYROLL
JOURNALIZING AND POSTING PAYROLL
What You’ll Learn
How to compute the business
payroll deductions.
How to record the payroll entry in
the general journal.
What You’ll Learn
How to compute the business
payroll deductions.
How to record the payroll entry in
the general journal.
Payroll BasicsPayroll Basics
Employees, ranging from
design engineers at Ford
Motor Company to the
waitresses at a
neighborhood coffee shop,
expect their payroll checks to
arrive on time and be
accurate!
Employee earnings are a
normal operating expense of
every business.
Employees, ranging from
design engineers at Ford
Motor Company to the
waitresses at a
neighborhood coffee shop,
expect their payroll checks to
arrive on time and be
accurate!
Employee earnings are a
normal operating expense of
every business.
Analyzing the Payroll TransactionAnalyzing the Payroll Transaction
The business has to keep accurate payroll records. Therefore, JOURNAL ENTRIES summarizing all of the payroll details must be recorded each pay period.
First let’s look at the debit!
• The total earnings of all of your employees are recorded under an account called Salaries Expense.
The business has to keep accurate payroll records. Therefore, JOURNAL ENTRIES summarizing all of the payroll details must be recorded each pay period.
First let’s look at the debit!
• The total earnings of all of your employees are recorded under an account called Salaries Expense.
Analyzing the Payroll TransactionAnalyzing the Payroll Transaction
• What about the credits?• Various deductions, such as income
and FICA taxes, are withheld from gross earnings each pay period.– The employer retains the amounts withheld
until it is time to pay the appropriate government agencies and businesses.
– The amounts withheld but not yet paid are the liabilities, or the amounts owed, of a business. Each part of the payroll liabilities are recorded in their own separate account.
– Liabilities all have normal credit balances.
Journalizing the PayrollJournalizing the Payroll
JOURNAL ENTRY
Does the employer owe taxes too?Does the employer owe taxes too?
• YES, THEY DO!
• In ADDITION to the amounts withheld from employees’ payroll checks, the employer owes taxes based on the weekly payroll.
• These taxes are also liabilities of the business.
The Employer’s FICA TaxesThe Employer’s FICA Taxes
The current rates are 6.2% for social security tax and 1.45% for Medicare tax.
The employer and the employee pay social security tax on gross earnings up to the maximum taxable limit per employee.
The employer and the employee pay Medicare tax on all gross earnings; there is no maximum taxable limit.
The current rates are 6.2% for social security tax and 1.45% for Medicare tax.
The employer and the employee pay social security tax on gross earnings up to the maximum taxable limit per employee.
The employer and the employee pay Medicare tax on all gross earnings; there is no maximum taxable limit.
Federal and State Unemployment TaxesFederal and State Unemployment Taxes
The Federal Unemployment Tax Act (FUTA) and the State Unemployment Tax Act (SUTA) require employers to pay federal and state unemployment taxes.
The maximum federal unemployment tax is 6.2% on the first $7,000 of an employee’s annual wages.
State unemployment tax rates and maximum taxable amounts vary among states.
The Federal Unemployment Tax Act (FUTA) and the State Unemployment Tax Act (SUTA) require employers to pay federal and state unemployment taxes.
The maximum federal unemployment tax is 6.2% on the first $7,000 of an employee’s annual wages.
State unemployment tax rates and maximum taxable amounts vary among states.
Journalizing the Employer’s Payroll TaxesJournalizing the Employer’s Payroll Taxes The employer’s payroll taxes are
business expenses recorded in the Payroll Tax Expense account.
Use the Social Security Tax Payable and the Medicare Tax Payable accounts to record both the employees’ and the employer’s FICA taxes.
Record the employer’s unemployment taxes in the Federal Unemployment Tax Payable and State Unemployment Tax Payable accounts.
The employer’s payroll taxes are business expenses recorded in the Payroll Tax Expense account.
Use the Social Security Tax Payable and the Medicare Tax Payable accounts to record both the employees’ and the employer’s FICA taxes.
Record the employer’s unemployment taxes in the Federal Unemployment Tax Payable and State Unemployment Tax Payable accounts.
Journalizing the Employer’s Payroll Taxes (cont'd.)
Journalizing the Employer’s Payroll Taxes (cont'd.)
JOURNAL ENTRY
Paying the Payroll Tax Liabilities
Business owners must pay their payroll
liabilities and file payroll tax reports
promptly and accurately.
Paying the Payroll Tax Liabilities
Business owners must pay their payroll
liabilities and file payroll tax reports
promptly and accurately.
FICA and Federal Income Taxes
One payment is made for:
FICA and Federal Income Taxes
One payment is made for:
Social Security and Medicare taxes (both the employees’ and the employer’s shares) and
employees’ federal income taxes withheld.
The Federal Tax Deposit Coupon (Form 8109) is prepared and sent with the check. The form identifies the type of tax and the tax period.
Separate payments and journal entries are used to record the other payroll taxes.
Social Security and Medicare taxes (both the employees’ and the employer’s shares) and
employees’ federal income taxes withheld.
The Federal Tax Deposit Coupon (Form 8109) is prepared and sent with the check. The form identifies the type of tax and the tax period.
Separate payments and journal entries are used to record the other payroll taxes.
Payment of Federal Payroll Tax LiabilitiesPayment of Federal Payroll Tax Liabilities
JOURNAL ENTRY
JOURNAL ENTRY
Payment of State Income TaxesPayment of State Income Taxes
JOURNAL ENTRY
Payment of Federal Unemployment TaxesPayment of Federal Unemployment Taxes
JOURNAL ENTRY
Payment of State Unemployment TaxesPayment of State Unemployment Taxes
Payment of Other Payroll LiabilitiesPayment of Other Payroll LiabilitiesFor example: insurance premiums union dues charitable contributions
For example: insurance premiums union dues charitable contributions
JOURNAL ENTRY
Preparing Payroll Tax ReportsPreparing Payroll Tax Reports
Forms that employers must complete: Form W-2 summarizes an employee’s
earnings and withholdings for the calendar year.• Employees must receive these by
January 31 of the following year. Form 940 is used to report the employer’s
unemployment (state and federal) taxes. Form 941 is the employer’s quarterly
federal tax return on which accumulated amounts of FICA and federal income tax withheld from employees’ earnings, as well as FICA tax owned by the employer, are reported.
Forms that employers must complete: Form W-2 summarizes an employee’s
earnings and withholdings for the calendar year.• Employees must receive these by
January 31 of the following year. Form 940 is used to report the employer’s
unemployment (state and federal) taxes. Form 941 is the employer’s quarterly
federal tax return on which accumulated amounts of FICA and federal income tax withheld from employees’ earnings, as well as FICA tax owned by the employer, are reported.
Transmittal of Wage and Tax Statements
• Employers must file a Form W-3 with the federal government by February 28.
• This form summarizes the information contained on the employees’ W-2.
Transmittal of Wage and Tax Statements
• Employers must file a Form W-3 with the federal government by February 28.
• This form summarizes the information contained on the employees’ W-2.