Payroll Accounting, Taxes, and Reports Chapter 14 Payroll Accounting, Taxes, and Reports

Analyze payroll transactions and record a payroll. OBJECTIVES: Define accounting terms related to payroll accounting, taxes, and reports. Identify accounting concepts and practices related to payroll accounting, taxes, and reports. Analyze payroll transactions and record a payroll. Record employer payroll taxes. Prepare a selected payroll tax reports. Pay and record withholding and payroll taxes.

Different Forms of Payroll Information Payroll for each period is recorded in one payroll register and several individual employee earnings record Separate payroll accounts for each employee are NOT kept in general ledger TOTAL Payroll and Deductions Summarized and recorded in Cash Payments Journal/posted to the General Ledger Source Document is a check stub You need the payroll register to make out the check stub (made out to Payroll Account).

Ch 14-1: Recording a Payroll

Journal entries are based on TOTALS of: Total Earnings column Lesson 14-1 (GJ) PAYROLL REGISTER Journal entries are based on TOTALS of: Total Earnings column EACH Individual Deduction column Net Pay column Lesson 14-1, page 340

Recording Entry for Payroll – Cash Payments Journal Debit Salary Expense (Gross Earnings) Credit Cash (Net Earnings) Credit FICA Taxes Payable (Soc. Sec. and Medicare) Credit State Income Taxes Payable Credit Federal Income Taxes Payable Credit Health Insurance Payable Credit all OTHER deductions T-accounts will look like this…. 

ANALYZING PAYMENT OF PAYROLL Lesson 14-1, page 341

JOURNALIZING PAYMENT OF A PAYROLL December 15. Paid cash for semimonthly payroll, $2989.02 (total payroll, $3,803.75, less deductions: employee income tax, $273.00; social security tax, $247.26; Medicare tax, $57.07; health insurance premiums, $182.40; U.S. Savings Bonds, $35.00; United Way donations, $20.00). Check No. 312. Accounts Affected Salary Expense Employee Income Tax Payable Social Security Tax Payable Medicare Tax Payable Health Insurance Premiums Payable U.S. Savings Bond Payable United Way Donations Payable Cash Classification Expense Liability Asset Change Increased Decreased Entered Debit side Credit side

JOURNALIZING PAYMENT OF A PAYROLL 4 2 5 3 1 6 7 1. Write the date. 2. Write the title of the account debited. 3. Write the check number. 4. Write the amount debited to Salary Expense. 5. Write the amount credited to Cash. 6. Write the titles of the accounts credited. 7. Write the credit amounts.

TO DO: Work Together, pg 343 On your own, pg 343

CHAPTER 14-2: Recording Employer Payroll Taxes FICA – (paid by both employee and employer) Employer Social Security - 6.5% (base-$65,400) Medicare - 1.5% (no base) Total 8% Federal Unemployment Tax – 0.8% (TOTAL is 6.2%, but 5.4% is deductible for the state tax) = .008 State Unemployment Tax - 5.4% = .054 Unemployment is applied to first $7000 earned by EACH employee TAXES are based on percentage of employee TOTAL earnings ALL are Liabilities until paid to the Fed and state agency

Lesson 14-1 (GJ) UNEMPLOYMENT TAXABLE EARNINGS – first $7000 earned by each employee for each year 2 1 3 1. Enter accumulated earnings and total earnings for each employee. 2. Enter unemployment taxable earnings. 3. Total the unemployment taxable earnings column.

        UNEMPLOYMENT TAXES Calculate Unemployment Taxes—Federal     Unemployment Federal Federal Taxable Unemployment Unemployment Earnings  Tax Rate = Tax $183.75  0.8% (.008) = $1.47 Calculate Unemployment Taxes—State     Unemployment State State Taxable Unemployment Unemployment Earnings  Tax Rate = Tax $183.75  5.4% (.054) = $9.92

Recording Employer’s Payroll Taxes Recorded in the GENERAL JOURNAL Source Document is a MEMO BOTH Salary Expense and Payroll Tax Expense are recorded on the same date Debit Payroll Taxes Expense (Total of taxes) Credit FICA Taxes Payable Credit Unemployment Taxes Payable - Fed. Credit Unemployment Taxes Payable – State The FICA Taxes Payable account will show both the employer’s and employees tax. Both are liabilities of the employers.

JOURNALIZING EMPLOYER PAYROLL TAXES December 15. Recorded employer payroll taxes expense, $315.72, for the semimonthly pay period ended Dec. 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. Accounts Affected Payroll Taxes Expense Soc. Security Tax Pay. Medicare Tax Payable Unemp. Tax Pay.—Fed. Unemp. Tax Pay.—State Classification Expense Liability Change Increased Entered Debit side Credit side Medicare Tax Payable Unemployment Tax Payable—Federal Unemployment Tax Payable—State Social Security Tax Payable Payroll Taxes Expense normal balance normal balance normal balance  315.72  57.07  247.26 normal balance normal balance   1.47 9.92

JOURNALIZING EMPLOYER PAYROLL TAXES 2 1 3 4 5 6 1. Write the date. 2. Write the expense account debited. 3. Write the memorandum number. 4. Write the debit amount. 5. Write the titles of the liability accounts credited. 6. Write the credit amounts.

TERMS REVIEW federal unemployment tax state unemployment tax TO DO: Work Together, pg 348 On your own, pg 348 Application problem 14-1, 14-2, pg 361 READ chapter 14

Chapter 14-3: Reporting Withholding and Payroll Taxes

W-2 - Employer’s Report to Employees IRS Form W-2, Wage and Tax Statement Employer must give 4 copies to employee by January 31 of each year. 4 copies: *Copy A is for Employer sends to Soc Sec Admin *Copies B and C go to the employee B gets mailed in to IRS when filing taxes C is employee’s record *Copy D is for the employer’s records Copies are sent by employer to federal, state, and local governments. Amounts are obtained from employee earnings records.

EMPLOYER ANNUAL REPORT TO EMPLOYEES OF TAXES WITHHELD Lesson 14-1 (GJ) EMPLOYER ANNUAL REPORT TO EMPLOYEES OF TAXES WITHHELD

Employer Quarterly Federal Tax Return - Form 941 Must be filed quarterly- required by law It reports the following that are due to the gov.: Total deductions for Soc. Sec. and Medicare Federal Income Taxes Payments made by employer Info obtained from Payroll Register and Employee Earnings Record

EMPLOYER’S QUARTERLY FEDERAL TAX RETURN 1. Heading 2. Number of Employees (1) 1 3. Total Quarterly Earnings (2) 4. Income Tax Withheld (3-5) 5. Employee and Employer Social Security and Medicare Taxes (6-7) 2 3 4 6. Social Security plus Medicare Taxes (8) 5 6 7. Total Taxes (11) 7 8. Total Taxes for Each Month (17) 9. Total Taxes (17d) 8 9

PREPARING EMPLOYER’S QUARTERLY FEDERAL TAX RETURN Calculate Social Security and Medicare Taxes     Total Earnings  Tax Rate = Tax Social Security $22,575.00  13% = $2,934.75 Medicare $22,575.00 3% = $ 677.25 Calculate Social Security and Medicare Taxes     Employee Employer Social Social Federal Income Security and Security and Federal Tax Tax Withheld + Medicare Tax + Medicare Tax = Liability Dec. 1-15 $273.00 + $304.33 + $304.33 = 881.66 Dec. 16-31 $269.00 + 302.08 + $302.08 = $873.16 Totals $542.00 + 606.41 + 606.41 = $1,754.82

EMPLOYER ANNUAL REPORTING OF PAYROLL TAXES: W-3 Transmittal of Income and Tax Statements The employer must send this report with all the W-2’s prepared to the Social Security Administration by February 28. Reports previous year’s earnings and all payroll taxes withheld

TO DO: Work Together, pg 353 On your own, pg 353

Paying Withholding and Payroll Taxes CHAPTER 14-4 Paying Withholding and Payroll Taxes

Payment of Withholding and Payroll Taxes Omni – Monthly Schedule Depositor – payroll taxes are deposited with local authorized financial institution by the 15th of the following month after the quarter ends Quarters end on the last days of March, June, Sept., and Dec. Use Deposit Form 8109 READ PAGE 354 FOR TEST!

FORM 8109, FEDERAL DEPOSIT COUPON Lesson 14-1 (GJ) FORM 8109, FEDERAL DEPOSIT COUPON Federal Deposit Coupon – 8109 Reports Federal income tax and FICA taxes that are being paid by employer. Deposited with check at the bank.

Payment of any Payroll Liability Entry recorded in Cash Payments Journal: Source Document  Check stub. Debit Employee Income Tax Payable Debit Social Security Tax Payable Debit Medicare Tax Payable Credit Cash

JOURNALIZING PAYMENT OF LIABILITY FOR EMPLOYEE INCOME TAX, SOCIAL SECURITY TAX, AND MEDICARE TAX 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. Accounts Affected Employee Inc. Tax Pay. Social Security Tax Pay. Medicare Tax Payable Cash Classification Liability Asset Change Decreased Entered Debit side Credit side Cash Medicare Tax Payable Social Security Tax Payable Employee Inc. Tax Payable normal balance normal balance normal balance  542.00  985.40  227.42 normal balance 1,754.82 

JOURNALIZING PAYMENT OF LIABILITY FOR EMPLOYEE INCOME TAX, SOCIAL SECURITY TAX, AND MEDICARE TAX 1 3 4 5 2 1. Write the date. 2. Write the title of the three accounts debited. 3. Write the check number. 4. Write the three debit amounts. 5. Write the amount of the credit to Cash. Lesson 14-4, page 356

PAYING THE LIABILITY FOR FEDERAL UNEMPLOYMENT TAX – Form 8109 *Paid at end of month following each quarter to authorized bank *ALL outstanding liabilities should be paid at end of Calendar year *Form 8109 sent with unemployment tax pymt

JOURNALIZING PAYMENT OF LIABILITY FOR FEDERAL UNEMPLOYMENT TAX January 31. Paid cash for federal unemployment tax liability for quarter ended December 31, $8.40. Check No. 343. Accounts Affected Unemployment Tax Payable—Federal Cash Classification Liability Asset Change Decreased Entered Debit side Credit side Cash Unemployment Tax Payable—Federal normal balance normal balance  8.40 8.40 

JOURNALIZING PAYMENT OF LIABILITY FOR FEDERAL UNEMPLOYMENT TAX 1 2 3 4 5 1. Write the date. 2. Write the title of the account debited. 3. Write the check number. 4. Write the debit amount. 5. Write the amount of the credit to Cash.

JOURNALIZING PAYMENT OF LIABILITY FOR STATE UNEMPLOYMENT TAX 1 2 3 4 5 1. Write the date. 2. Write the title of the account debited. 3. Write the check number. 4. Write the debit amount. 5. Write the amount of the credit to Cash. **Methods for payment vary by state

TO DO: Work Together, pg 359 On your own, pg 359 Application problem 14-3, 14-4