Payroll Liabilities & Tax Records Chapter 13

1. Payroll Liabilities &Tax RecordsChapter 13 Business Accounting

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

3. 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

4. Required Withholdings • Employees’ Federal Income Tax Payable • Employees’ State Income Tax Payable • Social Security Tax Payable • Medicare Tax Payable

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

6. Payroll Journal Entry Salaries Expense Employees’ Federal Income Tax Payable Employees’ State Income Tax Payable Social Security Tax Payable Medicare Tax Payable U.S. Savings Bonds Payable Credit Union Payable Union Dues Payable United Way Payable 401(k) Payable Cash in Bank

7. Employer’s Payroll Taxes • Employers pay taxes too! • FICA • Social Security • Medicare • Unemployment Taxes • Federal • State

8. 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

9. 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

10. Journal Entry Payroll Tax Expense Social Security Tax Payable Medicare Tax Payable State Unemployment Taxes Payable Federal Unemployment Taxes Payable

11. Tax Payments and Reports • paid at regular intervals

12. 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

13. Federal Tax Payments (con’t) • usually by 15th of following month • twice a month for big businesses • with Form 8109 • Federal Tax Deposit Coupon

14. State and Local Payments • at regular intervals • details differ by state / municipality

15. 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

16. 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

17. W-3 • Transmittal of Wage and Tax Statements • sent with W-2’s • summary of all W-2 info • due by Feb 28