Chapter 10 Payroll Accounting

1. Chapter 10Payroll Accounting Accounting and Finance for Entrepreneurs FINANCE 292

2. Payroll Accounting • If you have employees – you have payroll responsibilities • IRS regulations are quite specific when it comes to payroll taxes and their timely remission • The need to maintain absolutely accurate records is essential

3. Payroll Accounting • Bookkeeping Requirements • Journal Accounts • Wage and Salary Expense (when paid) • Accrued Wages and Salaries Payable (when owed but not yet paid) • Payroll taxes Payable (when taxes have not been remitted) • Income Taxes Payable (Federal, State, Local)

4. Payroll Accounting • Payroll withholdings • Employee portion of Social Security tax • Employee portion of Medicare tax • Federal income tax • State income tax • Court-ordered withholdings • Other withholdings

5. Payroll Cost Accounts

6. Mandated Taxes on Income • Social Security FICA Tax (employer match) • 2013: 6.2% of first $113,700 • Medicare Tax (employer match) • 2013: 1.45% on all income • Plus 0.9% surtax on certain incomes) • Federal Income Tax (importance of W-4 form) • Rate of taxation a function of status • State and Local Taxes • Typically a flat rate

7. Other Withholdings • Court Ordered Judgments • Garnishment of wages to pay fines, etc. • Miscellaneous Withholdings • Union dues • Insurance premiums • Retirement fund contributions • Charitable contributions

8. Employer Payroll Related Expense • Employer portion of Social Security tax • Employer portion of Medicare tax • State unemployment tax • Federal unemployment tax • Worker compensation insurance • Employer portion of insurance (health, dental, vision, life, disability) • Employer paid holidays, vacations, and sick days • Employer contributions toward 401(k), savings plans, & profit-sharing plans • Post-retirement health insurance

9. State Unemployment Tax • 100% of Federal and State Unemployment taxes are paid by employers • Rates and amounts are based on amounts earned by each employee and historic experience

10. Worker compensation insurance • Worker compensation insurance provides coverage for employees who are injured on the job. • State law usually requires that employers carry this insurance. • Worker compensation insurance rates are a function of at least three variables: • the type of business or industry, • the type of job being performed, and • the employer's history of claims.

11. Employer Portion of Benefits • Insurance • Term Life • Health • Dental • Vision • Disability • Vacation and Holiday Pay, Sick Days • 10 Federal Holidays • Amounts due based on length of service

12. Contributions to Retirement Plans • Defined Benefit Plans • Typically Insurance annuities fully funded by employer • Defined Contribution Plans 401(k), 403(b) • Employer and Employee bot contribute • Employer typically matches some portion of employee’s contribution

13. Sample Journal Entries

14. Sample Journal Entries

15. Sample Journal Entries

16. Self-employed Person’s FICA Tax Rate for 2013 • The self-employed person’s FICA tax rate for 2013 is 15.3% on the first $113,700 of net income and then 2.9% on the net income that is in excess of $113,700. • Social Security: 12.4% of first $113,700 • Medicare Tax: 2.90% of every dollar of income • 0.9% surtax on income above $200,000 (single) or $250,000 (joint)