Payroll Accounting, Taxes, and Reports Chapter 13

Do Now If you owed money to your parents but had to wait to be paid by your part-time job employer: Which party would represent the government for payroll purposes (your employer, you, or your parents)? Why? If you had to choose three columns from the payroll register to make a journal entry, which would they be? Which type of journal would you use to record payroll?

13-1: Recording a Payroll Payroll information for each pay period recorded in payroll register Each pay period, payroll information for each employee recorded on employee earnings record Provide all payroll information needed to prepare payroll and payroll tax reports Journal entries made to record payment of payroll and employer payroll taxes

13-1: Recording a Payroll Column totals of payroll register provide debit and credit amounts needed to journalize a payroll Based on total of Earnings Total column, each deduction column, and Net Pay column Earnings total = “Salary Expense” Deductions = Liability; “Payable” Net Pay = Cash Page 370 text reference

Exercises 13-1 WT: Text page 372, WP page 327 13-1 OYO: Text page 372, WP page 328

Reading Activity Read the following article and write down: How often you’d want to be paid as employee…explain why How often you’d like to pay employees as an employer…explain why

13-2: Recording Employer Payroll Taxes Amount of taxes withheld from employee earnings are liabilities of employers until they are paid to government Employers must also pay their own taxes Employer payroll taxes are business expenses

13-2: Recording Employer Payroll Taxes Employers pay 4 separate payroll taxes: Employer social security tax Medicare tax Federal unemployment tax State unemployment tax Employer payroll taxes based on percentage of employee earnings

13-2: Recording Employer Payroll Taxes Social security and Medicare taxes are only payroll taxes paid by both employees and employer Employers pay total of those columns in payroll register for the pay period Congress sets social security and Medicare tax rates for employees and employers and may change tax rates and tax base Social Security = 6.2% on maximum tax base of $87,000 Medicare = 1.45%, no tax base

13-2: Recording Employer Payroll Taxes Employers must pay taxes for unemployment compensation Total earnings subject to unemployment tax is unemployment taxable earnings Applied to first $7,000 earned by each employee for calendar year Visual aid on text page 374

13-2: Recording Employer Payroll Taxes Federal unemployment tax: federal tax used for state and federal administrative expenses of the unemployment program Usually 6.2% of first $7,000 earned by each employee Can deduct amounts paid to state unemployment funds to a maximum of 5.4% Results in 0.8% being the effective federal unemployment tax rate in most states on the first $7,000 earned by each employee Unemployment taxable earnings used to calculate federal unemployment tax

13-2: Recording Employer Payroll Taxes Example: Unemployment Taxable Earnings: $790.00 Federal Unemployment Tax Rate: 0.8% $790.00 X 0.008 = $6.32 Federal Unemployment Tax = $6.32

13-2: Recording Employer Payroll Taxes State unemployment tax: state tax used to pay benefits to unemployed workers 5.4% on first $7,000 earned by each employee Unemployment taxable earnings used to calculate federal unemployment tax are also used to calculate state unemployment tax

13-2: Recording Employer Payroll Taxes Example: Unemployment Taxable Earnings: $790.00 State Unemployment Tax Rate: 5.4% $790.00 X 0.054 = $42.66 Federal Unemployment Tax = $42.66

13-2: Recording Employer Payroll Taxes Transaction to record employer payroll taxes expense is journalized on same date payroll is journalized Salary expense and employer payroll taxes expense both recorded in same accounting period

Exercises 13-2 WT: Text page 377, WP page 329 13-1 OYO: Text page 377, WP page 330