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The Employer’s Tax Responsibilities

The Employer’s Tax Responsibilities. Chapter 8. Calculating and journalizing employer payroll tax expenses. Learning Objective 1. Learning Unit 8-1 (The Employer’s Payroll Tax Expense). The employer must calculate and record payroll tax expenses as a journal entry.

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The Employer’s Tax Responsibilities

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  1. The Employer’s TaxResponsibilities Chapter 8

  2. Calculating and journalizing employer payroll tax expenses. Learning Objective 1

  3. Learning Unit 8-1 (The Employer’s Payroll Tax Expense) The employer must calculate and record payroll tax expenses as a journal entry. An EIN (employer identification number) is necessary. Payroll reports must be submitted on specialized government forms. Tax payments must be paid on due dates or penalties will be incurred.

  4. Learning Unit 8-1 (The Employer’s Payroll Tax Expense) FICA – Social Security Payable FICA – Medicare Payable (employee) (employer) (employee) (employer) FICA (Federal Insurance Contributions Act): Employers must match the amount deducted from employees’ checks for Social Security and Medicare.

  5. induces states to create their own unemployment programs 1 allows the federal government to monitor state programs 2 Learning Unit 8-1 (The Employer’s Payroll Tax Expense) Federal Unemplyment Tax Act

  6. Learning Unit 8-1 (The Employer’s Payroll Tax Expense) FUTA (Federal Unemployment Tax Act) The wage base limit is $7,000 per year for each employee. 6.2% FUTA tax – 5.4% normal FUTA tax credit .8% net FUTA tax for federal purposes

  7. Learning Unit 8-1 (The Employer’s Payroll Tax Expense) SUTA (State Unemployment Tax Act) State rates vary and are merit based. Rates are higher for seasonal employers. Each state’s wage base limit is different. The lowest limit in any state is $7,000 per year for each employee.

  8. Accounts Affected Category Rules Payroll Tax Expense Expense Dr. FICA – Social Security Liability Cr. FICA – Medicare Liability Cr. SUTA Liability Cr. FUTA Liability Cr. Learning Unit 8-1 (The Employer’s Payroll Tax Expense)

  9. Payroll Tax Expense 479.79 FICA SS Tax Payable 290.36 FICA Medicare Tax Payable 67.91 SUTA Tax Payable 105.84 FUTA Tax Payable 15.68 To record the August 25 employer’s payroll tax expense Learning Unit 8-1 (The Employer’s Payroll Tax Expense)

  10. Learning Unit 8-1 (The Employer’s Payroll Tax Expense) The following are not deducted from the employees’ pay: – Matching amounts for FICA – Workers’ Compensation Insurance – Federal and State Unemployment Insurance (FUTA) & (SUTA)

  11. Completing the Employer’s Quarterly Federal Tax Return and Deposit Coupon (Forms 941 and 8109) and paying tax obligations for FICA tax (Social Security and Medicare) and federal income tax. Learning Objective 2

  12. Learning Unit 8-2(Form 941) Form 941 is the Employer’s Quarterly Federal Tax Return.

  13. Learning Unit 8-2(Form 941) FICA information is separated into Social Security and Medicare. Total gross pay for the quarter is listed. It also lists cumulative total tax.

  14. Monthly Semiweekly Learning Unit 8-2(Form 941) Types of Payroll Depositors

  15. Learning Unit 8-2(Form 941) The payroll taxes must be deposited in an authorized Federal Reserve Bank. Form 941 must be accompanied by IRS Form 8109, Federal Deposit Coupon. The look-back period rule views the total amount of payroll taxes paid the previous year to determine the frequency of the deposits.

  16. July 1, 2002 June 30, 2003 2002 2003 2004 The total time period spans three years. Learning Unit 8-2(Form 941) This is the look-back period for 2004.

  17. Preparing Forms W–2, W–3, and 940-EZ, and estimates of workers’ compensation insurance premiums. Learning Objective 3

  18. W-2 W-3 Learning Unit 8-3 (FormsW-2, W-3, and 940-EZ) Employers prepare a W–2 form for each employee for the year. January 31 is the deadline for issuance to employees. The original copy is mailed to the Social Security Administration.

  19. Learning Unit 8-3 (FormsW-2, W-3, and 940-EZ) Form W-3 (Transmittal of Income and Tax Statements) is mailed with the original copy of the W-2s. Form 940-EZ: Employer’s Annual Unemployment Tax Return is used to report FUTA for one state. Employers with employees in more than one state must use Form 940.

  20. Learning Unit 8-3 (FormsW-2, W-3, and 940-EZ) Workers’ compensation insurance provides insurance against losses due to accidental injury on the job. The premium is based on the total estimated gross payroll.

  21. Accounts Affected Category Rules Prepaid Insurance Asset Dr. Cash Asset Cr. Workers’ Compensation: Insurance Expense Expense Dr. Insurance Payable Liability Cr. Learning Unit 8-3 (Workers’)Compensation Insurance)

  22. End of Chapter 8

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