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Chapter 14

Chapter 14. Payroll Accounting, Taxes, and Reports. OBJECTIVES:. Define accounting terms related to payroll accounting, taxes, and reports. Identify accounting concepts and practices related to payroll accounting, taxes, and reports. Analyze payroll transactions and record a payroll.

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Chapter 14

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  1. Chapter 14 Payroll Accounting, Taxes, and Reports

  2. OBJECTIVES: • Define accounting terms related to payroll accounting, taxes, and reports. • Identify accounting concepts and practices related to payroll accounting, taxes, and reports. • Analyze payroll transactions and record a payroll. • Record employer payroll taxes. • Prepare a selected payroll tax reports. • Pay and record withholding and payroll taxes.

  3. Different Forms of Payroll Information • Payroll for each period is recorded in onepayroll register and several individualemployee earnings record • Separate payroll accounts for each employee are NOT kept in general ledger • TOTAL Payroll and Deductions Summarized and recorded in Cash Payments Journal/posted to the General Ledger • Source Document is a check stub • You need the payrollregister to make out the check stub (made out to Payroll Account).

  4. Ch 14-1: Recording a Payroll

  5. PAYROLL REGISTER • Journal entries are based on TOTALS of: • Total Earnings column • EACH Individual Deduction column • Net Pay column Lesson 14-1, page 340

  6. Recording Entry for Payroll – Cash Payments Journal • Debit Salary Expense (Gross Earnings) • Credit Cash (Net Earnings) • Credit FICA Taxes Payable (Soc. Sec. and Medicare) • Credit State Income Taxes Payable • Credit Federal Income Taxes Payable • Credit Health Insurance Payable • Credit all OTHER deductions • T-accounts will look like this…. 

  7. ANALYZING PAYMENT OF PAYROLL Lesson 14-1, page 341

  8. JOURNALIZING PAYMENT OF A PAYROLL December 15. Paid cash for semimonthly payroll, $2989.02 (total payroll, $3,803.75, less deductions: employee income tax, $273.00; social security tax, $247.26; Medicare tax, $57.07; health insurance premiums, $182.40; U.S. Savings Bonds, $35.00; United Way donations, $20.00). Check No. 312. Entered Debit side Credit side Credit side Credit side Credit side Credit side Credit side Credit side Accounts Affected Salary Expense Employee Income Tax Payable Social Security Tax Payable Medicare Tax Payable Health Insurance Premiums Payable U.S. Savings Bond Payable United Way Donations Payable Cash Classification Expense Liability Liability Liability Liability Liability Liability Asset Change Increased Increased Increased Increased Increased Increased Increased Decreased

  9. 4 6 7 JOURNALIZING PAYMENT OF A PAYROLL 2 5 3 1 1. Write the date. 2. Write the title of the account debited. 3. Write the check number. 4. Write the amount debited to Salary Expense. 5. Write the amount credited to Cash. 6. Write the titles of the accounts credited. 7. Write the credit amounts.

  10. TO DO: • Work Together, pg 343 • On your own, pg 343

  11. CHAPTER 14-2: Recording Employer Payroll Taxes Employer Payroll Taxes: • FICA – (paid by both employee and employer) • Employer Social Security - 6.5% (base-$65,400) • Medicare - 1.5% (no base) • Total 8% • Federal Unemployment Tax – 0.8% (TOTAL is 6.2%, but 5.4% is deductible for the state tax) = .008 • State Unemployment Tax - 5.4% = .054 • Unemployment is applied to first $7000 earned by EACH employee • TAXES are based on percentage of employee TOTAL earnings • ALL are Liabilities until paid to the Fed and state agency

  12. 1 1 UNEMPLOYMENT TAXABLE EARNINGS – first $7000 earned by each employee for each year 2 3 1. Enter accumulated earnings and total earnings for each employee. 2. Enter unemployment taxable earnings. 3. Total the unemployment taxable earnings column.

  13. Calculate Unemployment Taxes—Federal Calculate Unemployment Taxes—State         UNEMPLOYMENT TAXES Unemployment Federal Federal Taxable Unemployment Unemployment Earnings  Tax Rate = Tax $183.75  0.8% (.008) = $1.47 Unemployment State State Taxable Unemployment Unemployment Earnings  Tax Rate = Tax $183.75  5.4% (.054) = $9.92

  14. Recording Employer’s Payroll Taxes • Recorded in the GENERAL JOURNAL • Source Document is a MEMO • BOTH Salary Expense and Payroll Tax Expense are recorded on the same date • Debit Payroll Taxes Expense (Total of taxes) • Credit FICA Taxes Payable • Credit Unemployment Taxes Payable - Fed. • Credit Unemployment Taxes Payable – State • The FICA Taxes Payable account will show both the employer’s and employees tax. • Both are liabilities of the employers.

  15. Payroll Taxes Expense Social Security Tax Payable Medicare Tax Payable 315.72 57.07 Unemployment Tax Payable—Federal Unemployment Tax Payable—State JOURNALIZING EMPLOYER PAYROLL TAXES December 15. Recorded employer payroll taxes expense, $315.72, for the semimonthly pay period ended Dec. 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. Entered Debit side Credit side Credit side Credit side Credit side Accounts Affected Payroll Taxes Expense Soc. Security Tax Pay. Medicare Tax Payable Unemp. Tax Pay.—Fed. Unemp. Tax Pay.—State Classification Expense Liability Liability Liability Liability Change Increased Increased Increased Increased Increased normal balance normal balance normal balance    247.26 normal balance normal balance   1.47 9.92

  16. JOURNALIZING EMPLOYER PAYROLL TAXES 2 1 3 4 5 6 1. Write the date. 2. Write 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.

  17. TERMS REVIEW federal unemployment tax state unemployment tax TO DO: Work Together, pg 348 On your own, pg 348 Application problem 14-1, 14-2, pg 361 READ chapter 14

  18. Chapter 14-3: Reporting Withholding and Payroll Taxes

  19. W-2 - Employer’s Report to Employees • IRS Form W-2, Wage and Tax Statement • Employer must give 4 copies to employee by January 31 of each year. • 4 copies: • *Copy A is for Employer sends to Soc Sec Admin • *Copies B and C go to the employee • B gets mailed in to IRS when filing taxes • C is employee’s record • *Copy D is for the employer’s records • Copies are sent by employer to federal, state, and local governments. • Amounts are obtained from employee earnings records.

  20. EMPLOYER ANNUAL REPORT TO EMPLOYEES OF TAXES WITHHELD

  21. Employer Quarterly Federal Tax Return - Form 941 • Must be filed quarterly- required by law • It reports the following that are due to the gov.: • Total deductions for Soc. Sec. and Medicare • Federal Income Taxes • Payments made by employer • Info obtained from Payroll Register and Employee Earnings Record

  22. 3 3 8 EMPLOYER’S QUARTERLY FEDERAL TAX RETURN 1. Heading 2. Number of Employees (1) 1 3. Total Quarterly Earnings (2) 4. Income Tax Withheld (3-5) 5. Employee and Employer Social Security and Medicare Taxes (6-7) 2 4 6. Social Security plus Medicare Taxes (8) 5 6 7. Total Taxes (11) 7 8. Total Taxes for Each Month (17) 9. Total Taxes (17d) 9

  23. Calculate Social Security and Medicare Taxes Calculate Social Security and Medicare Taxes         PREPARING EMPLOYER’S QUARTERLY FEDERAL TAX RETURN Total Earnings  Tax Rate = Tax Social Security $22,575.00  13% = $2,934.75 Medicare $22,575.00 3% = $ 677.25 Employee Employer Social Social Federal Income Security and Security and Federal Tax Tax Withheld + Medicare Tax + Medicare Tax = Liability Dec. 1-15 $273.00 + $304.33 + $304.33 = 881.66 Dec. 16-31 $269.00 + 302.08 + $302.08 = $873.16 Totals $542.00 + 606.41 + 606.41 = $1,754.82

  24. EMPLOYER ANNUAL REPORTING OF PAYROLL TAXES: W-3 Transmittal of Income and Tax Statements • The employer must send this report with all the W-2’s prepared to the Social Security Administration by February 28. Reports previous year’s earnings and all payroll taxes withheld

  25. TO DO: • Work Together, pg 353 • On your own, pg 353

  26. CHAPTER 14-4 • Paying Withholding and Payroll Taxes

  27. Payment of Withholding and Payroll Taxes • Omni – Monthly Schedule Depositor – payroll taxes are deposited with local authorized financial institution by the 15th of the following month after the quarter ends • Quarters end on the last days of March, June, Sept., and Dec. • Use Deposit Form 8109 • READ PAGE 354 FOR TEST!

  28. FORM 8109, FEDERAL DEPOSIT COUPON • Federal Deposit Coupon – 8109 • Reports Federal income tax and FICA taxes that are being paid by employer. • Deposited with check at the bank.

  29. Payment of any Payroll Liability • Entry recorded in Cash Payments Journal: • Source Document  Check stub. • Debit Employee Income Tax Payable • Debit Social Security Tax Payable • Debit Medicare Tax Payable • Credit Cash

  30. Cash Employee Inc. Tax Payable Social Security Tax Payable Medicare Tax Payable 542.00 227.42 985.40 1,754.82 JOURNALIZING PAYMENT OF LIABILITY FOR EMPLOYEE INCOME TAX, SOCIAL SECURITY TAX, AND MEDICARE TAX 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. Entered Debit side Debit side Debit side Credit side Accounts Affected Employee Inc. Tax Pay. Social Security Tax Pay. Medicare Tax Payable Cash Classification Liability Liability Liability Asset Change Decreased Decreased Decreased Decreased normal balance normal balance normal balance    normal balance 

  31. JOURNALIZING PAYMENT OF LIABILITY FOR EMPLOYEE INCOME TAX, SOCIAL SECURITY TAX, AND MEDICARE TAX 1 3 4 5 2 1. Write the date. 2. Write the title of the three accounts debited. 3. Write the check number. 4. Write the three debit amounts. 5. Write the amount of the credit to Cash. Lesson 14-4, page 356

  32. PAYING THE LIABILITY FOR FEDERAL UNEMPLOYMENT TAX – Form 8109 *Paid at end of month following each quarter to authorized bank *ALL outstanding liabilities should be paid at end of Calendar year *Form 8109 sent with unemployment tax pymt

  33. Unemployment Tax Payable—Federal Cash 8.40 8.40 JOURNALIZING PAYMENT OF LIABILITY FOR FEDERAL UNEMPLOYMENT TAX January 31. Paid cash for federal unemployment tax liability for quarter ended December 31, $8.40. Check No. 343. Entered Debit side Credit side Accounts Affected Unemployment Tax Payable—Federal Cash Classification Liability Asset Change Decreased Decreased normal balance normal balance  

  34. JOURNALIZING PAYMENT OF LIABILITY FOR FEDERAL UNEMPLOYMENT TAX 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.

  35. JOURNALIZING PAYMENT OF LIABILITY FOR STATE UNEMPLOYMENT TAX 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. **Methods for payment vary by state

  36. TO DO: • Work Together, pg 359 • On your own, pg 359 • Application problem 14-3, 14-4

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