Chapter Eight

1. Chapter Eight Employee Earnings and Deductions

2. Performance Objectives • Calculate total earnings based on an hourly, piece-rate, or commission basis • Determine deductions: • FICA • Social Security • Medicare • Tables of employees’ income tax withholding • Complete a payroll register • Journalize the payroll entry from a payroll register Accounting Is Fun!

3. Calculate Hourly Wages and Overtime Overtime by Day Method Regular Hour Worked 40 Hours x Hourly Rate $913.60 Overtime Hours Worked 0 Monday - Wednesday 0 Hours x Hourly Rate x Multiple = Thursday 2 Hours x Hourly Rate x Multiple = $ 68.52 Friday 1 Hours x Hourly Rate x Multiple = 34.26 Saturday 3 Hours x Hourly Rate x Multiple = 102.78 Total Gross Earnings $1,119.16 Overtime Premium Method Regular Pay 46 Total Hours x Hourly Rate $1,050.64 Overtime Premium 6 Overtime Hours x (Multiple - 100%) x Hourly Rate 68.52 Total Gross Earnings $1,119.16 Accounting Is Fun!

4. Calculate Hourly Overtime for Salary Assumptions Monthly Salary $2,250.00 Overtime Multiple 1.5 Hours Worked in One Week 40 Overtime Hours 4 (1) Calculate Hourly Rate First Calculate Yearly Pay Monthly Salary x 12 $27,000.00 Calculate Weekly Pay Yearly Salary / 52 $519.23 Calculate Hourly Pay Weekly Salary / 40 $12.98 (2) Then Calculate Overtime Regular Pay Hours x Hourly Rate $ 519.20 Overtime Pay Hours x Hourly Rate x Multiple $ 77.88 Total Gross earnings $ 597.08 Accounting Is Fun!

5. Piece Rate Accounting Is Fun!

6. Commission Accounting Is Fun!

7. Deductions from Total Earnings • Federal income tax withholding • State income tax withholding • FICA tax (Social Security and Medicare), employee’s share • Purchase of U.S. savings bonds • Union dues • Insurance deductions (medical or life) • Charitable contributions • Pension contributions • Credit union • Automatic savings • Automatic loan repayment • Other deductions possible Accounting Is Fun!

8. Accounting Is Fun!

9. Using the Tables to Determine Deductions • Step 1: Select correct table for payment period and marital status • Step 2: Locate gross pay in first two columns • Step 3: Find column for number of withholding allowances • Intersection shows amount of federal income tax to withhold from paycheck • Be careful of: • “At least” • “But less than” Accounting Is Fun!

10. State Income Tax Withholding • State tablesor • Percentage of federal income tax deduction • Textbook assumes that employee’s state income tax deduction is 20% of the federal income tax deduction Accounting Is Fun!

11. FICA Taxes Social Security Taxes Federal taxes levied on employees and employers Proceeds used for Pension payments after a worker has reached 62 years Disability benefits for disabled worker and dependents Medicare Taxes Federal taxes levied on employees and employers Proceeds used for medical insurance for eligible people age 65 or over Accounting Is Fun!

12. FICA Taxes • Social Security rate = 6.2%(number equivalent = .062) • Only the first $84,900 of earnings are taxed • Medicare rate = 1.45%(number equivalent = .0145) • All earnings are taxed • Applied to gross earnings during a calendar year • Calculated separately because of the different upper limits for two types of taxes Accounting Is Fun!

13. Calculating FICA Taxes Accounting Is Fun!

14. Calculating FICA Taxes Accounting Is Fun!

15. Calculating FICA Taxes Accounting Is Fun!

16. Calculating FICA Taxes Accounting Is Fun!

17. Calculating FICA Taxes Accounting Is Fun!

18. Calculating FICA Taxes Accounting Is Fun!

19. Payroll Register for Week Ended: October 7, 2005 Let’s look at the different sections of the payroll register Accounting Is Fun!

20. Chapter Nine Employer Taxes, Payments, and Reports

21. Performance Objectives • Calculate the amount of payroll tax expense and journalize the related entry • Journalize the entry for the deposit of employees’ federal income taxes withheld and FICA taxes (both employees’ withheld and employer’s matching share) and prepare the deposit coupon • Journalize the entries for the payment of employer’s state and federal unemployment taxes • Journalize the entry for the deposit of employees’ state income taxes withheld Accounting Is Fun!

22. Payroll Tax Components • FICA tax (employer’s share) • Calculate Social Security amount (using 6.2%, $84,9000 ceiling) • Calculate Medicare amount (using 1.45%) • State unemployment tax (SUTA) • Levied only on the employer in most states • Rate varies by state (book assumes 5.4%, $7,000 ceiling) • Pays subsistence benefits to unemployed workers • Federal unemployment tax (FUTA) • Levied only on the employer • Rate varies (book assumes 0.80%, $7,000 ceiling) • Used to administer federal unemployment fund Accounting Is Fun!

23. Calculate Payroll Tax Expense Do not use calculated amounts from employee’s deductions. You must take totals and recalculate amounts. (As a result there may be rounding differences.) Accounting Is Fun!

24. Journalize Payroll Tax Expense Entry • Payroll taxes are an expense of doing business • Debit Payroll Tax Expense • Credit associated payable account Accounting Is Fun!

25. To Summarize Accounting Is Fun!

26. 1. Record Current Period Payroll in Payroll Register Accounting Is Fun!

27. 2. Based on Payroll Register, Make Journal Entry for Employee Salary/Wages Expense Accounting Is Fun!

28. 3. From Taxable Earnings Columns of Payroll Register, Calculate and Journalize Payroll Tax Expense Accounting Is Fun!

29. 4. Journalize Cash Payments to Employees Accounting Is Fun!

30. Journal Entry for Payments of FICA and Federal Income Tax Withholdings Reduces payables (liabilities) Reduces Cash Leaves payable accounts with zero balances after posting FICA Tax Payable DR CR - + 4,824.96 4,824.96 0.00 Employees' Federal Income Tax Payable DR CR - + 6,478.00 6,478.00 0.00 Accounting Is Fun!

31. Payments of State Unemployment Tax (SUTA) Usually paid quarterly Due by the end of the month following the end of the quarter (same as Form 941) After posting, the payable account has a zero balance Journal entry looks like this: Accounting Is Fun!

32. Payments of Federal Unemployment Tax (FUTA) Calculated quarterly (due dates same as form 941) If liability > $100, funds are submitted with deposit card After posting, the payable account has a zero balance Journal entry looks like this: Accounting Is Fun!

33. In Class Example: Make Journal Entry from Register Payables Expense Accounting Is Fun!

34. Journalize Cash Payments to Employees Accounting Is Fun!