Employer’s Payroll Taxes Accounting II Ms. Alltucker Chapter 13 Section 2 Employer’s Payroll Taxes Accounting II Ms. Alltucker

Employer’s Payroll Taxes What you will learn: How to calculate the employer’s FICA taxes. How to calculate federal and state unemployment taxes. How to journalize and post employer’s payroll taxes. Why it is important: In addition to the amount withheld from employees’ payroll checks, the employer owes taxes based on the weekly payroll. These taxes are liabilities of the business.

Section 1 Review Journalizing and posting the payroll entry Records taxes employees are required to pay on their earnings

Employer’s Payroll Taxes Medicare Social Security State unemployment Federal unemployment

Computing Payroll Tax Expenses Employer’s FICA taxes Both employee and employer pay FICA taxes Employer pays FICA taxes using the same percentage as employees—using the gross earnings 6.2% social security (maximum taxable limit $84,900 in 2002) Payroll clerk checks the accumulated earnings record 1.45% Medicare There is no maximum taxable limit

Federal and State Unemployment Taxes Based on a percentage of the employees’ gross earnings Collected to provide funds for workers who are temporarily unemployed Employer pays BOTH federal and state unemployment taxes Maximum unemployment 6.2% on the first $7,000 .8%  federal unemployment tax 5.4%  state unemployment tax (total 5.4 +.8 = 6.2%)

Journalizing the Employer Payroll Taxes Payroll tax expense: employer’s payroll taxes are business expenses Until paid they are liabilities of the business Accounts used: Social Security Tax Payable Medicare Tax Payable Federal Unemployment Tax Payable State Unemployment Tax Payable

Journalizing the Employer Payroll Taxes Using the payroll register as a source document

Journalizing the Employer Payroll Taxes Calculations: Social Security Tax Payable 1350.25 * .062 = $83.72 Medicare Tax Payable 1350.25 * .0145 = $19.58 Federal Unemployment Tax Payable 1350.25 * .008 = $10.80 State Unemployment Tax Payable 1350.25 * .054 = $72.91 Payroll Tax Expense 83.72 + 19.58 + 10.80 + 72.91 = 187.01

Journalizing the Employer Payroll Taxes JOURNAL ENTRY

Posting Payroll Taxes to the General Ledger Refer to page 325 for a review on how to post from the general journal to the general ledger DON’T FORGET POST REFERENCE NUMBERS

Thinking Critically What does the FICA require of employers and employees? Explain why the employer’s payroll taxes are a liability of the business.