1. Payroll Liabilities & Tax Records Chapter 13
Business Accounting

2. Payroll affects all employees must be accurate and on-time
includes many deductions
needs to be journalized and posted
money transferred to payroll account

3. Analyze and Journalize
Employees’ Earnings
Operating Expense
Salaries Expense
debit
Withholdings
Liabilities
Payables (taxes payable, ins. prem. payable, etc..)
credit
Net Pay
Lower Assets
Cash in Bank

4. Required Withholdings
Employees’ Federal Income Tax Payable
Employees’ State Income Tax Payable
Social Security Tax Payable
Medicare Tax Payable

5. Voluntary Deductions U.S. Savings Bonds Payable Credit Union Payable
Union Dues Payable
United Way Payable

6. Payroll Journal Entry
Salaries Expense Employees’ Federal Income Tax Payable Employees’ State Income Tax Payable Social Security Tax Payable Medicare Tax Payable U.S. Savings Bonds Payable Credit Union Payable Union Dues Payable United Way Payable 401(k) Payable Cash in Bank

7. Employer’s Payroll Taxes
Employers pay taxes too!
FICA
Social Security
Medicare
Unemployment Taxes
Federal
State

8. FICA Federal Insurance Contribution Act of 1935 Social Security
income replacement in retirement
usually 6.2%
currently 4.2%
up to $110,100 for 2012
1.45% for Medicare
provides medical insurance in retirement

9. Unemployment Taxes provide funds to unemployed workers Federal (FUTA)
up to 6.2% of first $7,000 of earnings
deduct up to 5.4% for state payments
therefore, usually 0.8% of $7,000 for federal
State (SUTA)
laws vary

10. Journal Entry
Payroll Tax Expense Social Security Tax Payable Medicare Tax Payable State Unemployment Taxes Payable Federal Unemployment Taxes Payable

11. Tax Payments and Reports
paid at regular intervals

12. Federal Tax Payments one payment for federal taxes
Social Security, Medicare, and Federal Income
employee and employer
made at bank or through EFTPS
Electronic Federal Tax Payment System

13. Federal Tax Payments (con’t)
usually by 15th of following month
twice a month for big businesses
with Form 8109
Federal Tax Deposit Coupon

14. State and Local Payments
at regular intervals
details differ by state / municipality

15. Tax Forms W-2 W-3 941 940 annual wage and tax statement
annual transmittal of W-2’s
941
quarterly Federal Tax Return
940
annual FUTA Tax Return

16. W-2 W-2 annual summary to employee by January 31st
each employee’s earnings and withholdings
gross earnings
federal withholdings
FICA withholdings
state and local withholdings
to employee by January 31st
copies sent to IRS, state, and local government

17. W-3 Transmittal of Wage and Tax Statements sent with W-2’s
summary of all W-2 info
due by Feb 28