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Comprehensive Payroll Accounting: Taxes, Withholding, and Reporting

This chapter covers the essentials of payroll accounting, including how to record payroll and calculate employer payroll taxes. It explains the components of the payroll register, detailing how total earnings relate to expenses, and highlights the various taxes employers must withhold, such as federal income tax, Social Security, and Medicare. Furthermore, it discusses the reporting requirements associated with withheld payroll taxes through forms like the W-2 and W-3. Understanding these processes is critical for accurate payroll management and compliance.

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Comprehensive Payroll Accounting: Taxes, Withholding, and Reporting

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  1. Chapter 14 Payroll Accounting, Taxes and Reports

  2. 14.1 Recording a Payroll

  3. Payroll Register • Column totals of a payroll register provide the debit & credit amounts needed to journalize payroll • Total Earnings Column = Salary Exp Deb • Net Pay = Cash Credit • Pg. 333

  4. 14.2 Recording Employer Payroll Taxes

  5. Calculating Employer Payroll Taxes • Employers withhold: • Federal income tax • Social security tax • Medicare tax • Liabilities until actually paid to the gov’t • Employers must pay: • Social security tax • Medicare tax • Federal Unemployment Tax • State unemployment Tax • Payroll taxes are expense based on % of employee earnings

  6. Employee Employer

  7. Employer Taxes • Employer owes same in Social Security and Medicare as employees • Employer SS + Employee SS =Total SS 6.5% 6.5% 13% Employer Med + Employee Med = Total M 1.5% 1.5% 3%

  8. Federal Unemployment Tax • Used to pay administrative exp for unemp. program • 0.8% of the first $7,000 earned (0.008) • State Unemployment • Used to pay benefits to workers • 5.4% of first $7,000 earned (0.054 • Employer payroll taxes are paid at later date – Liability is incurred when salaries are paid

  9. 14.3 Reporting Withholding and Payroll Taxes

  10. Employer Annual Report • W-2 furnished to employee from employer showing employee earnings and taxes withheld • W-2 must be furnished by Jan 31st • 4 copies of W-2 are prepared for employees (A-D) • Copies B & C – Employee – B to IRS – C personal • Copy A – Social Security Admin • Copy D – Employer Copy

  11. Preparing Employer’s Quarterly Federal Tax Return • Must periodically report payroll taxes withheld • Must file quarterly return showing federal income tax, social sec. and Med tax due • Submit Form 941by last day of month following the end of quarter

  12. Employer Annual Reporting of Payroll Taxes • Form W3 – Transmittal of Income and Tax Statements • Sent to the SSA by Feb 28 • Also Copy A of W-2 • Employers with >250 employees file electronically

  13. 14.4 Paying Withholding and Payroll Taxes

  14. Paying the Liability for Payroll Taxes • When you pay depends on amount owed • Usually monthly • By 15th of following month • File with Form 8109 at local Financial Institution (Bank)

  15. Journalizing Payment of Liability • Paying Taxes: • Debit Payables • Credit Cash

  16. Paying Federal Unemp. Tax • Paid by the end of month following ¼ • Fill out form and file like other taxes at bank • Debit Unemp. Payables • Credit Cash

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