Chapter 14:

1. Chapter 14: • Payroll Accounting, Taxes, and Reports

2. Different Forms of Payroll Info • Payroll info for each pay period is recorded in the payroll register • Journal entries are made to record the payment of the payroll and the employer payroll taxes • Various quarterly and annual payroll tax reports are required to report the payment of payroll taxes

3. 14.1 Recording a Payroll • Payroll Register: The payroll journal entry is based on the totals in the Earnings column, each deduction column and the Net Pay column

4. Analyzing Payment of Payroll • Earning Total- is the Salary Expense and will be debited • Credit: Employee Income Tax, Soc Sec Tax, Medicare Tax, Health Ins Premium Tax, US Savings Bonds, United Way Donations, etc (ie: CREDIT EACH DEDUCTION) AND Cash (cash credit will equal net pay amount)

5. Journalizing Payment of a Payroll • Date, Title of Accounts affected • Debit: Salary Expense • Credit: Cash and Deduction Payable Accounts • ***Total Earnings is the debit amount for Salary Exp • *** Net Pay is the credit amount for Cash

6. 14.1 Review: p. 343 • Audit Your Understanding #1-4 • Work Together #5-6 • On Your Own #7-8

7. 14.2 Recording Employer Payroll Taxes • Employers must pay to the government all taxes withheld from employee pay checks • This includes: federal income tax, social security tax, and Medicare taxes • The are liabilities until they are paid to the government • Most employers pay 4 separate taxes of their OWN: employer social security tax, Medicare tax, federal unemployment tax and state unemployment tax • These amounts based on a % of employee earnings

8. Calculating • Social Security and Medicare are paid by BOTH employer and employee • Employer must pay the same amount withheld from employees • For example: For pay period ending December 15 Omni withheld $247.25 in SS tax and $57.07 in Medicare tax from employees. Omni must pay these amounts as well

9. Unemployment Taxable Earnings • Laws require that employers pay taxes for unemployment compensation • These funds are used to pay workers benefits for limited periods of unemployment and to administer unemployment compensation • Unemployment tax is applied to the first $7,000 earned by an employee EACH calendar year

10. Unemployment • For each employee, enter accumulated earnings as of previous pay period. • Enter earnings from current pay period • Enter unemployment taxable earnings for pay period if accumulated earnings are LESS than $7000.00 • Total Unemployment Taxable Earnings

11. Unemployment Taxes • Federal: tax rate is 6.2% of first $7,000 of employee’s earnings less state deducted % (no more than 5.4%) • Unemployment Taxable Earnings * Federal Unemployment Tax Rate (0.8% for most states)= Federal Unemployment Tax • State: Most states require 5.4% to be paid on first $7,000. • Unemployment Taxable Earnings * State Unemployment Tax Rate(5.4%)= State Unemployment Tax

12. Journalizing • December 15. Recorded employer payroll taxes expense, $315.72, for the semimonthly pay period ended December 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 • Date • Payroll Taxes Expense Debit; Credit Liability Accounts: SS Tax, Medicare Tax, Unemployment Tax- Federal, Unemployment Tax- State

13. 14.2 Review: p. 348 • Terms Review • Audit Your Understanding #1-2 • Work Together #3-5 • On Your Own #6-8

14. 14.3 Reporting Withholding and Payroll Taxes • Each employer who withholds income tax, ss tax, and Medicare tax from employee earnings must furnish an annual report • This report is Internal Revenue Service Form W-2 and are given to each employee by January 31 of the next year • Four copies are given to the employee

15. Employer’s Quarterly Tax Return (p350) • Employers are required to periodically report payroll taxes withheld • Some quarterly and some annually • Quarterly Federal Tax Return • Shows federal tax, SS tax and Medicare taxes • Form 941 • Filed before the last day of the month following end of calendar quarter

16. Employer Annual Reporting of Payroll Taxes • Form W-3: Transmittal of Wage and Tax Statements • Sent to Social Security Administration by February 28 of each year • Reports the previous year’s earnings and all payroll taxes withheld for all employees • Copy A of each W2 is attached • If number of employees is >250, the employer must send this info via computer files to the IRS

17. 14.3 Review p. 353 • Audit Your Understanding #1-2 • Work Together #3 • On Your Own #4

18. 14.4 Paying Withholding and Payroll Taxes • Employers must pay to the federal, state, and local governments all payroll taxes withheld • Frequency determined by amount owed • If taxes for previous 4 quarters is $50,000 or less, employers are a monthly depositor and must pay by the 15th of the following month with form 8109 • Two Exceptions: (1) less than $500 tax liability is accumulated in a quarter-employer can pay @ the end of that quarter; (2) tax liability is >$100,000 is accumulated on any day, amount must be deposited on the next banking day • Form 941

19. Journalizing • 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 • Date, Debit- each tax account (General Debit), Credit-Cash

20. Federal Unemployment Tax • Paid at the end of the month following each quarter if liability amount is <$100. • Uses Form 8109 also • Type of tax is 940

21. Journalizing • January 31. Paid cash for federal unemployment tax liability for quarter ended December 31, $8.40. Check No. 343 • Unemployment Tax Payable (Federal)-Debit, Cash-Credit • January 31. Paid cash for state unemployment tax liability for quarter ended December 31, $56.70. Check No. 344 • Unemployment Tax Payable (State)- Debit, Cash Credit

22. 14.4 Review: p. 359 • Audit Your Understanding #1-2 • Work Together #3-4 • On Your Own #5-6

23. Chapter 14 Review • Application Problems 14.1- 14.1