chapter 14: payroll accounting, taxes, and reports

Chapter 14:Chapter 14:Payroll Accounting, Taxes, and

Reports

Different Forms of Different Forms of Payroll InfoPayroll Info

Payroll info for each pay period is recorded in the payroll register

Journal entries are made to record the payment of the payroll and the employer payroll taxes

Various quarterly and annual payroll tax reports are required to report the payment of payroll taxes

14.1 Recording a 14.1 Recording a PayrollPayroll

Payroll Register: The payroll journal entry is based on the totals in the Earnings column, each deduction column and the Net Pay column

Analyzing Payment of Analyzing Payment of PayrollPayroll

Earning Total- is the Salary Expense and will be debited

Credit: Employee Income Tax, Soc Sec Tax, Medicare Tax, Health Ins Premium Tax, US Savings Bonds, United Way Donations, etc (ie: CREDIT EACH DEDUCTION) AND Cash (cash credit will equal net pay amount)

Journalizing Payment Journalizing Payment of a Payrollof a Payroll

Date, Title of Accounts affected

Debit: Salary Expense

Credit: Cash and Deduction Payable Accounts

***Total Earnings is the debit amount for Salary Exp

*** Net Pay is the credit amount for Cash

14.1 Review: p. 34314.1 Review: p. 343

Audit Your Understanding #1-4

Work Together #5-6

On Your Own #7-8

14.2 Recording 14.2 Recording Employer Payroll Employer Payroll

TaxesTaxesEmployers must pay to the government all taxes withheld from employee pay checks

This includes: federal income tax, social security tax, and Medicare taxes

The are liabilities until they are paid to the government

Most employers pay 4 separate taxes of their OWN: employer social security tax, Medicare tax, federal unemployment tax and state unemployment tax

These amounts based on a % of employee earnings

CalculatingCalculatingSocial Security and Medicare are paid by BOTH employer and employee

Employer must pay the same amount withheld from employees

For example: For pay period ending December 15 Omni withheld $247.25 in SS tax and $57.07 in Medicare tax from employees. Omni must pay these amounts as well

Unemployment Unemployment Taxable EarningsTaxable Earnings

Laws require that employers pay taxes for unemployment compensation

These funds are used to pay workers benefits for limited periods of unemployment and to administer unemployment compensation

Unemployment tax is applied to the first $7,000 earned by an employee EACH calendar year

UnemploymentUnemployment

For each employee, enter accumulated earnings as of previous pay period.

Enter earnings from current pay period

Enter unemployment taxable earnings for pay period if accumulated earnings are LESS than $7000.00

Total Unemployment Taxable Earnings

Unemployment TaxesUnemployment TaxesFederal: tax rate is 6.2% of first $7,000 of employee’s earnings less state deducted % (no more than 5.4%)

Unemployment Taxable Earnings * Federal Unemployment Tax Rate (0.8% for most states)= Federal Unemployment Tax

State: Most states require 5.4% to be paid on first $7,000.

Unemployment Taxable Earnings * State Unemployment Tax Rate(5.4%)= State Unemployment Tax

JournalizingJournalizingDecember 15. Recorded employer payroll taxes expense, $315.72, for the semimonthly pay period ended December 15. Taxes owed are: social security tax, $247.26; Medicare tax, $57.07; federal unemployment tax, $1.47; state unemployment tax $9.92. Memorandum No. 63

Date

Payroll Taxes Expense Debit; Credit Liability Accounts: SS Tax, Medicare Tax, Unemployment Tax- Federal, Unemployment Tax- State

14.2 Review: p. 34814.2 Review: p. 348

Terms Review

Audit Your Understanding #1-2

Work Together #3-5

On Your Own #6-8

14.3 Reporting 14.3 Reporting Withholding and Withholding and

Payroll TaxesPayroll TaxesEach employer who withholds income tax, ss tax, and Medicare tax from employee earnings must furnish an annual report

This report is Internal Revenue Service Form W-2 and are given to each employee by January 31 of the next year

Four copies are given to the employee

Employer’s Quarterly Employer’s Quarterly Tax Return (p350)Tax Return (p350)

Employers are required to periodically report payroll taxes withheld

Some quarterly and some annually

Quarterly Federal Tax Return

Shows federal tax, SS tax and Medicare taxes

Form 941

Filed before the last day of the month following end of calendar quarter

Employer Annual Employer Annual Reporting of Payroll Reporting of Payroll

TaxesTaxesForm W-3: Transmittal of Wage and Tax Statements

Sent to Social Security Administration by February 28 of each year

Reports the previous year’s earnings and all payroll taxes withheld for all employees

Copy A of each W2 is attached

If number of employees is >250, the employer must send this info via computer files to the IRS

14.3 Review p. 35314.3 Review p. 353

Audit Your Understanding #1-2

Work Together #3

On Your Own #4

14.4 Paying 14.4 Paying Withholding and Withholding and

Payroll TaxesPayroll TaxesEmployers must pay to the federal, state, and local governments all payroll taxes withheld

Frequency determined by amount owed

If taxes for previous 4 quarters is $50,000 or less, employers are a monthly depositor and must pay by the 15th of the following month with form 8109

Two Exceptions: (1) less than $500 tax liability is accumulated in a quarter-employer can pay @ the end of that quarter; (2) tax liability is >$100,000 is accumulated on any day, amount must be deposited on the next banking day

Form 941

JournalizingJournalizing

January 15. Paid cash for liability for employee income tax, $542.00; social security tax, $985.40; and Medicare tax, $227.42; total, $1,754.82. Check No 330

Date, Debit- each tax account (General Debit), Credit-Cash

Federal Federal Unemployment Tax Unemployment Tax

Paid at the end of the month following each quarter if liability amount is <$100.

Uses Form 8109 also

Type of tax is 940

JournalizingJournalizingJanuary 31. Paid cash for federal unemployment tax liability for quarter ended December 31, $8.40. Check No. 343

Unemployment Tax Payable (Federal)-Debit, Cash-Credit

January 31. Paid cash for state unemployment tax liability for quarter ended December 31, $56.70. Check No. 344

Unemployment Tax Payable (State)- Debit, Cash Credit

14.4 Review: p. 35914.4 Review: p. 359

Audit Your Understanding #1-2

Work Together #3-4

On Your Own #5-6

Chapter 14 ReviewChapter 14 Review

Application Problems 14.1- 14.1