Recording A Payroll
2 Different Forms of Payroll Information Payroll information for each pay period is recorded in a payroll register Each pay period the payroll information for each employee is also recorded on each employee earnings record Separate payroll accounts for each employee are not kept in the general journal ledger Instead, accounts are kept in the general ledger to summarize total earnings and deductions for all employees
3 Chapter 13: The payroll register and employee earnings records provide all the payroll information needed to prepare payroll and payroll tax reports Journal entries are made to record the payment of the payroll and the employer payroll taxes In addition, various quarterly and annual payroll tax reports are required to report the payment of payroll taxes Now we will learn how to record the payroll in the necessary accounts It is extremely important the payroll be journalized!
4 PAYROLL REGISTER page 369 Similar to a special journal, the column totals of a payroll register provide the debit and credit amounts needed to journalize a payroll The payroll journal entry is based on the totals of Earnings Total Account column, each deduction column, and the Net Pay column only
5 ANALYZING PAYMENT OF A PAYROLL page 370 Total Earnings column total (Debit) Deductions (Credit) Check amount written for payroll (net pay) (Credit)
JOURNALIZING PAYMENT OF A PAYROLL 6 page 371 December 15. Paid cash for payroll, $4,609.46. Check No. 335. 1 2 3 4 5 6 1. Write the date. 2. Write the title of the account debited. 3. Write the check number. 7 5. Write the total amount paid to employees (net pay) (posted at end of month to ledger account) 6. Write the titles of accounts credited (posted individually to ledger accounts). 4. Write the account debited. 7. Write the amounts credited.
LESSON 13-2 Recording Employer Payroll Taxes
8 Payroll Taxes Employers must pay to the government the taxes withheld from employee earnings Federal Income Tax Social Security Tax Medicare Tax The amounts withheld are liabilities to the business until they are actually paid to the government
9 Payroll Taxes In addition, employers must pay several of their own payroll taxes Employer payroll taxes are business expenses Most employers pay four (4) separate payroll taxes: Employer Social Security Tax Medicare Tax Federal Unemployment Tax State Unemployment Tax Employer payroll taxes expense is based on a percentage of employee earnings
10 Employer Social Security and Medicare Taxes Social Security and Medicare Taxes are the only payroll taxes paid by both the employees and the employer Hobby Shack owes the same amount of Social Security and Medicare taxes as the amount withheld from employees Congress sets the Social Security and Medicare tax rate for employees and employers Social Security 6.2% (.062) up to $87,000 Medicare 1.45% (.0145)
11 Unemployment Tax (Federal) Federal Unemployment Tax a federal tax used for state and federal administrative expenses of the unemployment program The federal unemployment tax is 6.2% (.062) of the first $7,000 earned by an employee An employer generally can deduct from federal unemployment payments the amounts paid to state unemployment funds The deduction cannot be more than 5.4% of taxable earnings The effective federal unemployment tax rate in more states is, therefore, 0.8% on the first $7,000 earn by each employee Federal, 6.2% - deductible for state, 5.4% = 0.8% (.008) Unemployment Taxable Earnings Federal Unemployment Rate Federal Unemployment Tax $790.00 x 0.8% (.008) = $6.32
12 Unemployment Tax (State) State Unemployment Tax a state tax used to pay benefits to unemployed workers The Social Security Act specifies certain standards for unemployment compensation laws However, details of state unemployment laws do differ Many states require that employers pay unemployment tax of 5.4% (.054) on the first $7,000 earned by each employee Unemployment Taxable Earnings State Unemployment Rate State Unemployment Tax $790.00 x 5.4% (.054) = $42.66
13 UNEMPLOYMENT TAXABLE EARNINGS page 374 2 3 1 1. Enter accumulated earnings and total earnings for each employee. 2. Enter unemployment taxable earnings. 3. Total the Unemployment Taxable Earnings column.
14 UNEMPLOYMENT TAXES page 375 Unemployment Taxable Earnings Federal Unemployment Tax Rate = Federal Unemployment Tax $790.00 0.8% (.008) = $6.32 Unemployment Taxable Earnings State Unemployment Tax Rate = State Unemployment Tax $790.00 5.4% (.054) = $42.66
JOURNALIZING EMPLOYER PAYROLL TAXES page 376 (continued on next slide) 15 December 15. Recorded employer payroll taxes expense, $485.92, for the semimonthly pay period ended December 15. Taxes owed are: social security tax, $354.11; Medicare tax, $82.83; federal unemployment tax, $6.32; state employment tax, $42.66. Memorandum No. 63.
JOURNALIZING EMPLOYER PAYROLL TAXES (continued from previous slide) 16 page 376 1 2 3 4 5 6 1. Write the date. 2. Write the title of 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.
LESSON 13-3 Reporting Withholding And Payroll Taxes
18 W-2 Wage and Tax Statement Each employer who withholds income tax, social security tax, and Medicare from employee earnings must furnish each employer with an annual report of these withholdings The report shows total year s earnings and the amounts withheld for taxes for an employee The report is prepared on the Internal Revenue Service Form W-2, Wage and Tax Statement Employers are required to furnish Form W2 to each employee by January 31 of the next year
19 W-2 Wage and Tax Statement Four (4) copies (A-D) of Form W-2 are prepared for each employee: Copy A Social Security Administration copy Copy B Employee attaches it to a personal federal income tax return Copy C Employee keeps for a personal record Copy D Kept for the business records Businesses in states with state income tax must prepare additional copies of Form W-2 to attach to the state income tax return
EMPLOYER ANNUAL REPORT TO EMPLOYEES OF TAXES WITHHELD page 378 20
EMPLOYER S QUARTERLY FEDERAL TAX RETURN 21 Each employer is required by law to periodically report the payroll taxes withheld from employee salaries and the employer payroll taxes due the government (some reports are submitted quarterly and others annually) Each employer must file a quarterly federal tax return showing the federal income tax, social security tax, and Medicare due the government One reason for this report is so that the IRS can monitor a company s deposits of withheld taxes The information is submitted every three months on Form 941, Employer s Quarterly Federal Tax Return Form 941 is filed before the last day of the month following the end of a calendar quarter The information needed to prepare Form 941 is obtained from employee earnings records
EMPLOYER S QUARTERLY FEDERAL TAX RETURN pages 379-380 (continued on next slide) 22 1 2 1. Heading 2. Number of employees
EMPLOYER S QUARTERLY FEDERAL TAX RETURN page 379 (continued on next slide) 23 3 4 6 5 7 3. Total quarterly earnings 4. Income tax withheld 5. Employee and employer social security and Medicare taxes 6. Social security plus Medicare taxes 7. Total taxes
EMPLOYER S QUARTERLY FEDERAL TAX RETURN page 379 (continued from previous slide) 24 8 8 8 9 8. Total taxes for each month 9. Total taxes
EMPLOYER ANNUAL REPORTING OF PAYROLL TAXES page 381 25
LESSON 13-4 Paying Withholding and Payroll Taxes
27 PAYING THE LIABILITY FOR EMPLOYEE INCOME TAX, SOCIAL SECURITY TAX, AND MEDICARE TAX Employers must pay to the federal, state, and local governments all payroll taxes withheld from employee earnings as well as the employer payroll taxes The payment of payroll taxes with the government is referred to as a deposit Two (2) amounts determine how often deposits are made to the federal government: 1. The amount of payroll taxes collected during the current deposit period 2. The amount of payroll taxes owed during a prior 12-month period 3. The 12-month period that ends on June 30 th of the prior year is called the lookback period
28 PAYING THE LIABILITY FOR EMPLOYEE INCOME TAX, SOCIAL SECURITY TAX, AND MEDICARE TAX page 383 The IRS gives businesses this flowchart to determine when to make tax deposits.
29 PAYING THE LIABILITY FOR EMPLOYEE INCOME TAX, SOCIAL SECURITY TAX, AND MEDICARE TAX Hobby Shack is classified as a monthly depositor The payroll taxes are deposited with a local authorized financial institution by the 15 th day of the following month accompanied by Form 8109 (Federal Deposit Form) (page 384) The type of tax (federal income, social security, and Medicare taxes) is indentified by marking the 941 circle The calendar quarter is identified on the right side of the form
FORM 8109, FEDERAL DEPOSIT COUPON page 384 30
JOURNALIZING PAYMENT OF LIABILITY FOR EMPLOYEE INCOME TAX, SOCIAL SECURITY TAX, AND MEDICARE TAX 31 page 385 January 15. Paid cash for liability for employee income tax, $757.00; social security tax, $1,451.38; and Medicare tax, $339.42; total, $2,547.80 (the balances of the liability accounts are reduced (debit) by this transaction). Check No. 347 (credit) 1 2 1. Write the date. 2. Write the titles of the three accounts debited. 3 4 3. Write the check number. 4. Write the debit amounts. 5. Write the amount of the cash credit. 5
PAYING THE LIABILITY FOR FEDERAL UNEMPLOYMENT TAX 32 Federal unemployment insurance is paid by the end of the month following each quarter if the liability amount is $100. However, ALL unemployment tax liabilities outstanding at the end of a calendar year should be paid Federal unemployment tax is paid to the federal government by making a tax deposit with an authorized bank The deposit for federal unemployment is similar to the deposit required for income tax, social security tax, and Medicare tax Form 8190, Federal Tax Deposit Coupon accompanies the employment tax deposit The total of federal unemployment taxes paid during a calendar year is reported on 940 circle on the 8109 form (page 386)
PAYING THE LIABILITY FOR FEDERAL UNEMPLOYMENT TAX page 386 33
JOURNALIZING PAYMENT OF LIABILITY FOR FEDERAL UNEMPLOYMENT TAX 34 page 387 January 31. Paid cash for federal unemployment tax liability for quarter ended December 31, $34.60 (the balances of the liability accounts are reduced (debit) by this transaction). Check No. 367 (credit). 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 page 387 35 January 31. Paid cash for state unemployment tax liability for quarter ended December 31, $233.55. Check No. 368. 1 2 3 4 5 1. Date 2. Account debited 3. Check number 4. Debit amount 5. Credit amount