Payroll Accounting 2018 CH 6
Which of the following is an employer only tax?
California employment Training Tax
Reporting Period: Semi-Weekly
$50,000 or more in payroll tax liability during the lookback period Payroll on Wednesday through Friday: Due Wednesday Payroll on Saturday through Tuesday: Due Friday
The FUTA tax base (Maximum wage) is:
$7,000
Which of the following are true about worker's compensation Programs?
- Premiums are based on employee job classifications -They are expressed as amounts of $100 of employee salary - Annual Premiums are based on payroll estimates
The amount the employer generally remits to the federal government for FUTA Taxes is ______ percent
0.6%
Payroll tax liability is found on line
10 on form 941
the W-3 should be submitted with
Copy A of the W-2
the employee will file _______ ________ of the W-2 with his or her tax return
Copy B
Some states have employer-only taxes unique to the area
Delaware, Colorado, Hawaii, and several other states have additional taxes that are remitted under different names. Georgia employers pay an administrative assessment of 0.08 percent on employee gross wages. Maine has an employer-paid Competitive Skills Scholarship Program tax of 0.06 percent. In California, employers pay an Employment Training Tax (ETT) of 0.1 percent on all wages up to the first $7,000 of wage
Labor Distribution Report
Departmental classification of employees affects the distribution of expenses in the company Without classification, all labor expenses are evenly distributed among departments Potential for misclassification of expenses and incorrect data for decision making, which could lead to poor decisions
fringe benefits specifically exempt from FUTA tax and reported on line 4 include:
Dependent care (up to $2,500 per employee or $5,000 per married couple). Employer contributions to group term life insurance. Certain other noncash payments, as outlined in the Instructions for Form 940
Electronic tax deposits are required to be processed through:
EFTPS
What may cause Social Security Wages to be different than the MEDICARE wages?
Earnings over $127,200
EFTPS
Electronic Federal Tax Payment System
The Lookback period is:
12 months prior to 6/30
FICA Taxes: Employer Responsibility
Employer matches the amount of the employee deduction Social Security Employee has a 6.2% deduction, so employer must also pay the same amount Wage base (2017): $127,200 Medicare Employee has a 1.45% deduction, so employer must also pay the same amount Employee is only responsible for the 0.9% surcharge if they earn over $200,000
Employer's payroll tax responsibility continues after the paychecks are written
Employer must reconcile tax amounts on governmental forms Employer often must continue payroll tax responsibility after an employee's termination
requency of depositing federal income tax and FICA taxes depends on the size of the company's payroll. The IRS stipulates five different schedules for an employer's deposit of payroll taxes
Annually Quarterly Monthly Semiweekly Next business day
FUTA Credit Reduction
As we noted, the nominal FUTA tax is 6.0 percent, of which the employer remits 0.6 percent to the federal government. A caveat to this 0.6 percent employer rate involves Title XII advances issued from the federal government to assist with payments of unemployment liabilities. This can occur when a high period of unemployment happens due to layoffs or economic downturns. In the event that a state defaults on its repayment of these federal loans, the credit taken against the 6.0 percent FUTA rate may be reduced. Each year, states have until November 10 to repay the prior year's loan. If the loan remains unpaid for more than one year, the FUTA credit will continue to be reduced in the third and fifth year after the loan is due.
Lookback period
Based on payroll taxes during the 12-month period prior to June 30 of the previous year The lookback period for 2017 taxes was July 1, 2015, through June 30, 2016. The amount of payroll taxes- employee and employer share - determines the reporting period The time frame the IRS uses to determine the payroll tax deposit for a firm
The Federal Tax designed to assist employees who have lost their jobs is:
FUTA
FUTA and SUTA Rates
FUTA rate is 6.0% on first $7,000 of each employee's wages (2017 rate) FUTA taxable income is reduced by employee contributions to Section 125 plans Employer is subject to a 5.4% rate reduction if They make all SUTA deposits in full and on time They are not in a credit-reduction state SUTA rates vary among states and companies Tied to employee turnover and layoff
Federal and State Unemployment Taxes
Federal Unemployment Tax Act (FUTA) Pays for the administrative expenses of the unemployment fund State Unemployment Tax Act (SUTA) Provides localized unemployment fund sources for employers FUTA is restricted to United States' citizens and U.S. companies
Quarterly reporting / Deposits
For any amounts not deposited during the quarter that may be due to rounding errors or other undeposited amounts, on the 15th of the month following the end of the quarter.
Unemployment Tax Reporting
Form 940, Employer's Annual Federal Unemployment (FUTA) Tax Return Used to compute FUTA wages and tax liability Due by January 31 of the following year
The total tax liability on schedule B must equal line 10 on ______________ ______________
Form 941
Mid-Year and Year-End Employer Tax Reporting and Deposits
Form 941: Employer's Quarterly Federal Tax Return Used by most employers Due by the last day of the month following the end of the quarter 1st Quarter: Due on April 30 2nd Quarter: Due on July 31 3rd Quarter: Due on October 31 4th Quarter: Due on January 31
Tax Reporting: Form 944 and State Reports
Form 944 is for employers who have less than $2,500 in annual tax liability IRS will notify employer in writing if they should following Form 944 Due date is January 31 of the following year When state taxes apply, firm must following state tax return State rules tend to mirror Federal rules as to due dates
Matching Final Annual Pay to Form W-2
Form W-2 reports all employee pay during the year. May not match the totals for the last pay of the year, depending on when the pay was issued Taxable income and Social Security wages on the W-2 will not match Some pre-tax deductions may reduce taxable income Tips and other items will be reported on the W-2
Employer-paid taxes are called statutory deductions
Government statutes make the tax mandatory
Which of the following would reduce gross wages?
Health Insurance / Contributions to 401K
What employees must earn less than $1000 to be exempt from FUTA Provisions?
Household employee
Who would determine when form 944 should be used?
IRS Notification
Employers Typically match which of the following taxes?
Medicare and social security
LAbor Distribution Reports should show:
Number of employees and time worked, among others
Relate Labor Expenses to Company Profitability
Other expenses comprise up to 50% of the employee's pay Other expenses include tax payments, retirement plan contributions, paid time off, and other employer-paid benefits Employers need to consider the distribution of costs The number of employees per department is called labor distribution, which influences each department's profitability
Payroll Within the Context of Business Expenses
Payroll is part of the cost of employing people Other employee costs include recruiting, hiring, and training New employee costs average $4,000 Tools and uniforms are another cost Payroll data informs a company's profitability
Annual Total Compensation Report
Presents the complete picture of each employee's compensation Includes employer's share of taxes and benefits Payroll accountant is important in determining the employee's annual compensation Generates the employee earnings reports and verifies year-to-date totals
The purpose of form 941 is to:
Reconcile tax deposits and liabilities
The company may be charged a 15% additional penalty for failure to deposit the appropriate amount of payroll taxes to the IRS if:
Remitted more than 10 days after the first notice
Tax Reporting: Schedule B
Report of Tax Liability for Semiweekly Schedule Depositors Accompanies Form 941, but breaks down tax liability by payroll date Also used by Next Business Day depositors
Boxes 10,11,and 12 on the W-2 are used for which of the following situations?
Retirement plan contributions Dependent care benefits
What are the components of FICA Tax?
Social Security and Medicare
What are identified as statutory deductions?
Social security Taxes Federal Income Taxes
The majority of workers' compensation insurance claims occur in five main categories of injuries:
Sprains and strains. Punctures or cuts. Bruises or other contusions. Inflammation. Fractured bones.
What contributes to the SUTA rate deduction?
State unemployment rates Company Experience Rating
departmental classification
The division of payroll related costs by employee function or organizational department
Reporting Periods and Requirements for Employer Tax Deposits
Three common reporting periods exist: Monthly Semi-weekly Next Business Day The size of a company's payroll dictates the frequency of the company's reporting and deposits IRS uses the "Lookback Period" to determine how often a company must deposit payroll taxes
Form W-3
Transmittal form that accompanies all the firm's W-2s Each box on the W-3 contains the total of each box on the attached W-2s Must match the annual wages reported on Forms 940 and 941
State tax remittances occur on what schedule?
Varies by state
Typical Costs of having employees include:
Wages, Training, Recruitment
26 IRC Section 3306
certain fringe benefits are not subject to federal unemployment taxes because they represent noncash compensation that is not intended to be used as disposable income Fringe benefits that may be exempt from FUTA taxes are those excluded from cafeteria plans
Form 941
instructions pg 249
prepare the information for the benefit analysis and total compensation reports
the payroll accountant will gather information from many sources: payroll registers, accounts payable invoices, payroll tax reports, and contributions to retirement programs (when employer matching is involved) and more (pg271)
Workers' compensation insurance is another type of employer payroll responsibility
Because workers' compensation is an insurance policy maintained by employers, premiums vary based on employees' job classifications and the risk of injury they typically encounter in the normal course of work. Premium amounts are expressed as amounts per $100 of payroll for each job classification. Premium amounts are estimated based on expected payroll amounts for the coming year and then adjusted at the end of the year once the actual payroll amounts are finalized
Benefit Analysis as a Function of Payroll
Benefits are the second largest expense for employers Paid time off and holiday pay involve paying employees for not working Bonuses and raises lead to increased payroll expenses Rising costs of insurance mean increased expenses for employers
Reporting Period: Next Business Day
$100,000 or more in payroll tax liability for any payroll period Due: Next business day
What is the maximum wage Social Security Taxes are withheld from?
$127,200
Annual reporting / Deposits
$2,500 or less, uses form 944, Jan 31 of the following year
Reporting Period: Monthly
$50,000 or less in payroll tax liability during the lookback period. All new businesses are monthly schedule depositors unless they accrue in excess of $100,000 in payroll taxes for any pay period Due: 15th of the following month
Penalties fall into two classifications: (1) Failure to deposit and (2) Failure to file. The following penalties apply when a failure to deposit occurs:
2% - Deposits made 1 to 5 days late. 5% - Deposits made 6 to 15 days late. 10% - Deposits made 16 or more days late. Also applies to amounts paid within 10 days of the date of the first notice the IRS sent asking for the tax due. 10% - Amounts (that should have been deposited) paid directly to the IRS, or paid with your tax return. But see Payment with return, earlier in this section, for an exception. 15% - Amounts still unpaid more than 10 days after the date of the first notice the IRS sent asking for the tax due or the day on which you received notice and demand for immediate payment, whichever is earlier.
What is the UNADJUSTED FUTA rate?
6%
