© 2010 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 11e by Slater Paying, Recording, and Reporting Payroll and Payroll Taxes: The Conclusion of the Payroll Process Chapter 8

Recording payroll and payroll taxes Now, we get to learn how to journalize Wages Expense and also the employer’s share of the payroll taxes… (How much fun can one class be!)

Recording Salaries Expense Use the Payroll Register for your numbers in the journal entry Wages Payable = net pay Wages Expense = gross salary of all employees Credit “payable” accounts for all of the withheld taxes Here is how you do it…..

Record Salaries Expense Jan 15 Wages Expense FIT Payable SIT Payable30.00 FICA-OASDI Payable (6.2%)62.00 FICA-Medicare Payable (1.45%)14.50 Wages Payable (Net pay) Here is how you journalize it….. Gross pay (BEFORE deductions) Net pay (AFTER deductions)

Record Payment of Salaries When we actually write the payroll checks then….. Jan 15 Wages Payable Payroll Cash Net pay (AFTER deductions)

Calculating employer taxes for FICA OASDI, FICA Medicare, FUTA, SUTA, and workers’ compensation insurance Remember, the employer has to pay some payroll taxes as well.. I Don’t remember how to figure these taxes..

FICA, FUTA & SUTA Rates FICA- OASDI- 6.2% on the first $102,000 FICA- Medicare- 1.45% (no annual wage limit) FUTA-.08% on the first $7,000 SUTA- 5.6% (each state determines wage base max.) Here is a quick reminder about the taxes the employer must pay…..

EIN & SS-4 EIN - Employer Identification Number is a number assigned by the IRS to an employer. SS-4 - Form filled out by an employer to obtain an EIN. Yuk…Here comes some extra chapter 8 payroll terminology trivia

FIT and FICA taxes need to be deposited frequently… Deposited in an authorized depository or in a Federal Reserve Bank If company owes < $2,500 in total taxes, deposit quarterly Monthly depositor – deposit taxes on 15 th day of every month Semiweekly – deposit taxes once or twice each week Rules for employers as to when they need to deposit these taxes into the bank.

Employers fill out this form when they deposit FIT and FICA taxes... Form 8109 – Federal Tax Deposit Coupon – used when making deposits by check

Employers journalize the payment of FIT and FICA taxes with the following entry… Can you show me the journal entry that is made when the employer deposits the FIT and FICA taxes? (I know this will be on the test…) Okay. Thanks! (Withheld from employee) ($62 x2) ($14.5 x2)

I.R.S. Form 941 The form is filed Quarterly by the employer Completed after the end of each calendar quarter Reports total FICA (Social Security- OASDI and Medicare) taxes owed plus amount of FIT (federal income tax) withheld from employee’s pay

Form 941 (Partial) looks like this …..

Remember, employers pay ½ of their employees social security (OASDI) and ½ of their medicare taxes… They also pay all the unemployment taxes for their employees ! The journal entry to Record Payroll Tax Expense would be: ($1,000 x.062) ($1,000 x.0145) ($1,000 x.008) ($1,000 x.056) (Total all 4 taxes)

We have seen examples of recording (1)Wages Expense and (2) Payroll Tax Expense (3) We have also seen the journal entry to deposit the 941 Taxes into the bank. Now, let’s look at the journal entries to pay the SUTA, FUTA and Worker’s Compensation Insurance… O.M.G!! I don’t think I can cram one more journal entry into my brain! HELP!!! You can do it buddy! They’re easy squeezy lemon peezy!

Paying FUTA Tax If tax owed for calendar year < $500, employer pays to the IRS by end of January of the next year If amount owed > $500, employer pays quarterly due by the end of the month following the end of the calendar quarter © 2010 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 11e by Slater LO-4

Record Payment of FUTA Tax 8.00 ($1,000 x.8% Federal unempl. Tax paid)

Federal Unemployment Tax Returns IRS Form 940 must be filed annually ◦ Prepared at end of calendar year ◦ Reports the amount of unemployment tax due for the year (for Federal FUTA tax only)

Form 940 (Partial)

Paying SUTA Tax Paid to state government Typically due by end of month following each calendar quarter

Record Payment of SUTA Tax ($1,000 x 5.6% State unempl. Tax paid)

Record Payment of Workers’ Compensation Insurance ($1,000/$100 x insurance rate) My boss pays FUTA? My boss pays SUTA? Does my boss also pays ½ my social security and medicare taxes? That is right! All employers are required to pay these four taxes plus the Worker’s Compensation Insurance below…

Learning Objective 5 Preparing Forms W-2, W-3, and 940-EZ © 2010 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 11e by Slater LO-5

W-2: Wage and Tax Statement Prepared by employer each calendar year Provides summary of gross earnings and deductions to each employee Copies: ◦ Employee ◦ IRS ◦ Any state where employees’ income taxes have been withheld ◦ Social Security Administration ◦ Company records

Sample W-2 This is what each employee gets at the end of the year. It shows total earnings and taxes withheld.

W-3: Transmittal of Income and Tax Statements Completed by employer to verify the number of W-2’s and amounts withheld Sent to a Social Security Administration data processing center along with copies of each employee’s W-2 © 2010 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 11e by Slater LO-5

Sample W-3 This is what the employer sends along with all of the copies of the employees’ W- 2s. This W-3 form shows only the TOTALS of all of the W-2’s