© 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. College Accounting 11 th Edition Employer Taxes, Payments, and Reports chapter 8 8-1

© 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Everyone must have a Social Security number or an Individual Taxpayer Identification Number (ITIN). Employers of one or more persons are required to have an Employer Identification Number (EIN), and it must be listed on all reports and payments of employees’ federal income tax withholding and FICA taxes. Employer Identification Number (EIN) 8-2

© 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. An employer’s payroll taxes are based on the gross wages paid to employees. Payroll taxes are an expense of doing business A company would debit Payroll Tax Expense for the company’s portion of FICA taxes and for state and federal unemployment taxes. Employer’s Payroll Taxes 8-3

© 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. FICA tax is imposed equally on both employer and employee. The employer’s share is determined by multiplying the employer’s tax rate by the taxable earnings. The accountant obtains the Social Security and Medicare taxable earnings amounts from the payroll register. Employer’s Matching Portion of FICA Tax 8-4

© 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 8-5

© 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Employer’s Portion of FICA Taxes 8-6

© 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Employers’ SUTA & FUTA TAX The proceeds of the state unemployment tax (SUTA), which is levied only on the employer in most states, are used to pay subsistence benefits to unemployed workers. Green Sales Company is subject to a rate of 5.4 percent of the first $7,000 of each employee’s earnings; in our example, $ of earnings are subject to this tax. The federal unemployment tax (FUTA) is paid only by the employer. Green Sales Company is subject to a rate of 6% of the first $7,000 of each employee’s earnings (the same amount of earnings that is used for SUTA).

© 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Steps for Recording the Payroll 8-8

© 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 8-9

© 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 8-10

© 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Practice Exercise

© 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Payments of FICA Tax and Employees’ Federal Income Tax Withholding A federal tax deposit includes the combined total of three items: Employees’ federal income taxes withheld Employees’ FICA taxes (Social Security and Medicare) Employer’s share of the FICA taxes Social Security and Medicare) The IRS requires all tax deposits to be made electronically, using the Electronic Federal Tax Payment System (EFTPS). 8-12

© 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Payments of FICA Tax and Employees’ Federal Income Tax Withholding Employers submit a return, Form 941, every quarter (three consecutive months). The due dates for filing this return are as follows: 8-13

© 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Practice Exercise

© 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Payments of State Unemployment Insurance The state tax is usually paid quarterly and is due by the end of the month following the end of the quarter (the same due dates for Form 941). 8-15

© 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. The FUTA tax is calculated quarterly, during the month following the end of each calendar quarter. If the accumulated tax liability is greater than $500, the tax is deposited in a financial institution, accompanied by a preprinted federal tax deposit card. The due date for this deposit is the last day of the month following the end of the quarter. Payments of Federal Unemployment Insurance 8-16

© 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Practice Exercise

© 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Deposits of Employees’ State Income Tax Withholding 8-18

© 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. The purpose of Form 941, Employer’s Quarterly Federal Tax Return, is to report the tax liability for withholdings of employees’ federal income tax and FICA taxes, and also the employer’s share of FICA taxes. Employer’s Quarterly Federal Tax Return (Form 941) 8-19

© 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. After the end of a year (December 31) and by the following January 31, the employer must furnish for each employee a Wage and Tax Statement, known as Form W-2. The source of the information used to complete Form W-2 is the employee’s individual earnings record. Wage Withholding Statements for Employees (Form W-2) 8-20

© 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Form W-3, Transmittal of Wage and Tax Statements, is sent with the accompanying Copy A of the employees’ W-2 form to the Social Security administration. This form is due on February 28, following the end of the calendar year. The amounts shown on Form W-3 must be the same as the grand totals of the W-2 forms and the four quarterly 941 forms. Employer’s Annual Federal Income Tax Reports (Form W-3) 8-21

© 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 8-22

© 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Generally all employers are subject to the Federal Unemployment Tax Act. These employers must submit an Employer’s Annual Federal Unemployment (FUTA) Tax Return, Form 940, no later than January 31 following the close of the calendar year. This deadline may be extended until February 10 if the employer has made deposits paying the FUTA tax liability in full. Reports and Payments of Federal Unemployment Tax 8-23

© 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Most states require employers to provide workers’ compensation insurance either through plans administered by the state or through private insurance companies authorized by the state. This insurance provides industrial accident insurance for employees killed or injured on the job. Generally, the employer pays a premium in advance, based on the estimated payroll. Workers’ Compensation Insurance 8-24

© 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. The accountant determines the amount of the adjustment is $73.19 [$3, (total exact premium) – $3, (total estimated premium paid)]. The accountant then makes an additional adjusting entry for the extra premium. Workers’ Compensation Insurance 8-25

© 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Types of Payroll Fraud Ghost employee fraud - Someone is recorded in the payroll system who does not work for the business. False wage claim fraud - Extra hours or other relevant factors are added to wage information to increase the amount of pay. False expense reimbursement fraud - Improper claims are made for the reimbursement of expenses. 8-26

© 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Internal Controls to Prevent and Detect Payroll Fraud Require mandatory vacations Use cash payment or checks minimally and increase the use of direct deposit of payroll checks Require proper identification to receive paychecks Conduct periodic unannounced audits Cross-reference the payroll roster for duplicate addresses or Social Security numbers Conduct a thorough pre- employment reference check for all payroll personnel Compare payroll expense per the payroll register to the payroll deposit made Outsource payroll administration 8-27