Chapter 6 Payroll Accounting EBD-301 Managing Money in an Entrepreneurial Venture

Payroll Accounting If you have employees – you have payroll responsibilities IRS regulations are quite specific when it comes to payroll taxes and their timely remission The need to maintain absolutely accurate records is essential

Bookkeeping Requirements Payroll Accounting Bookkeeping Requirements Journal Accounts Wage and Salary Expense (when paid) Accrued Wages and Salaries Payable (when owed but not yet paid) Payroll taxes Payable (when taxes have not been remitted) Income Taxes Payable (Federal, State, Local)

Payroll Accounting Payroll withholdings Employee portion of Social Security tax Employee portion of Medicare tax Federal income tax State income tax Court-ordered withholdings Other withholdings

Payroll Cost Accounts

Mandated Taxes on Income Social Security FICA Tax (employer match) 2016: 6.2% of first $118,500 Medicare Tax (employer match) 2016: 1.45% on all income Plus 0.9% surtax on certain incomes) Federal Income Tax (importance of W-4 form) Rate of taxation a function of status State and Local Taxes Typically a flat rate

Court Ordered Judgments Miscellaneous Withholdings Other Withholdings Court Ordered Judgments Garnishment of wages to pay fines, etc. Miscellaneous Withholdings Union dues Insurance premiums Retirement fund contributions Charitable contributions

Employer Payroll Related Expense Employer portion of Social Security tax Employer portion of Medicare tax State unemployment tax Federal unemployment tax Worker compensation insurance Employer portion of insurance (health, dental, vision, life, disability) Employer paid holidays, vacations, and sick days Employer contributions toward 401(k), savings plans, & profit-sharing plans Post-retirement health insurance

State Unemployment Tax 100% of Federal and State Unemployment taxes are paid by employers Rates and amounts are based on amounts earned by each employee and historic experience

Worker compensation insurance Worker compensation insurance provides coverage for employees who are injured on the job. State law usually requires that employers carry this insurance. Worker compensation insurance rates are a function of at least three variables: the type of business or industry, the type of job being performed, and the employer's history of claims.

Employer Portion of Benefits Insurance Term Life Health Dental Vision Disability Vacation and Holiday Pay, Sick Days 10 Federal Holidays Amounts due based on length of service

Contributions to Retirement Plans Defined Benefit Plans Typically Insurance annuities fully funded by employer Defined Contribution Plans 401(k), 403(b) Employer and Employee bot contribute Employer typically matches some portion of employee’s contribution

Sample Journal Entries

Sample Journal Entries

Sample Journal Entries

Self-employed Person’s FICA Tax Rate for 2016 The self-employed person’s FICA tax rate for 2016 is 15.3% on the first $118,500 of net income and then 2.9% on the net income that is in excess of $118,500. Social Security: 12.4% of first $113,700 Medicare Tax: 2.90% of every dollar of income 0.9% surtax on income above $200,000 (single) or $250,000 (joint), $125,000 if filing separately.

Chapter Summary Payroll accounting is relatively simple. Care should be exercised each calendar year as rates are subject to change. The timely remission of payroll taxes to the federal, state, and local taxing authorities is of primary importance. Late submissions will accrue interest and penalties. The Federal and State tax authorities have gone to electronic submission. Care must be taken to make certain the ID numbers are exactly correct.

Chapter 6 Homework What are the IRS requirements for businesses with employees? Which items (taxes) are subject to payroll withholding? What is the importance of W-4 form; W-2 form? Describe the employer portion of Payroll Taxes; those paid only by the employer. Why must employers carry Worker Compensation Insurance? The combination of the Social Security tax and the Medicare tax is referred to by the acronym __________. The amount that an employee "clears" or "takes home" is the __________ pay.