ACC 105 Final Exam

The basis for the unemployment compensation tax?

he wages that have actually been paid by the employer to the employee.

Sales Tax?

n Arizona, a Transaction Privilege Tax is commonly referred to as sales tax; however, the tax is imposed upon the sellers for doing business in the state, and, therefore, is not a true sales tax. (However, the terms are often used interchangeably throughout Arizona.) Generally, the seller passes the burden of the tax onto the purchaser, but it is actually a tax on the seller. Most companies have at least one accounting position dedicated to state and local taxes. This may be a career you want to consider! If you are a business in the State of Arizona and will be selling a product or providing a service subject to this tax, you will need to obtain the state transaction privilege tax license from the Arizona Department of Revenue (ADOR) and a license from the cities in which you operate. Generally, businesses will file an "Arizona Joint Tax Application" that will be used for transaction privilege tax, withholding/unemployment tax, use tax (discussed later in this lesson), and city tax. This is called a joint application as both ADOR and the Arizona Department of Economic Security use it. You must submit a $40 fee when you complete this form. The Arizona Administrative Code, Title 15, area on the Arizona Secretary of State Web site contains specific information on the types of business activities that are subject to the tax. In general, the types of transactions that are subject to the tax include (but are not limited to) the following: Advertising, Construction Contracting, Printing/Publishing, Air/Railroad, Hotel/Motel (Lodging), Restaurant/Bars, Amusements, Manufactured Buildings, Retail Sales, Commercial Leasing, Mining/Timbering (Severance), Transportation, Communication, Personal Property Rentals, and Utilities. Some special rules for certain transactions include the following: Sales for resale are generally exempt from the tax (however, the burden of proof that the sale was for resale is on the seller, unless the seller has a valid exemption certificate). Subcontracting income is generally not subject to the transaction privilege tax if the job was under control of the prime contractor, and that contractor is liable for the tax. Retail sales of personal property to non-residents are exempt if the seller ships or delivers the personal property out of Arizona. Sales to nonprofit organizations are generally subject to the transaction privilege tax. Arizona counties and cities also impose a transaction privilege tax on sellers. The Arizona Department of Revenue generally collects these taxes on behalf of the county or city. However, some larger cities may collect their tax independently (these cities are referred to as "non-program" cities). These taxes may vary by county/city and may depend on the type of type of business conducted. Sometimes an activity may not be subject to the state transaction privilege tax, but the city does impose the tax. For more information on various rates, see the Transaction Privilege Rates table.

Recording the Deposit/Payment of Payroll Taxes?

n previous entries, you saw how to record the monies withheld for various taxes. Initially, a payable (which is a liability) is created by crediting the applicable accounts. When it comes time to remit these monies (via a deposit or electronic transfer), the employer debits the payable account. If the full amount is paid, the debits will equal the credits, resulting in a $0 account balance (and thus, no future liability). When the monies are actually paid, the employer needs to credit cash (which is needed to decrease the cash account).

Federal-Form 8109?

Federal Tax Deposit Coupon.

Journal Entry-Employer Payroll Tax?

First, you need to record an expense entry for the employer's portions of the payroll taxes. Debit Payroll Taxes Expense Credit FICA Tax Payable Credit FUTA Tax Payable. To record the payroll taxes and liabilities to the employer. You can consider these payroll taxes as business expenses in determining the business net income for the year.

Methods of Paying Wages and Salaries?

1) cash, 2) check, and 3) electronic transfer. Cash - Probably the least common method used by employers today. A supplementary payroll sheet may be used to show the denominations of bills used to pay each individual. A company may take a check to the bank to get the cash needed to pay employees. Check - Most people have received a payroll check at one time or another. The check may be prepared manually or generated via a computer. When paying by check, employers need to make sure the amount is correct (net pay). Often, employers provide employees with a check stub or earnings statement that outlines the withholdings and/or deductions for the pay period and for the year-to-date. Employers may use payroll clearing bank accounts, which are used strictly for payroll checks. For each pay period, employers must make sure they have a sufficient balance in the account to cover the period's payroll. What are some of the benefits to maintaining a separate account for payroll? Disadvantages? Electronic Transfer - Under this method, employees do not receive cash or live checks. Rather, the company deposits monies directly into an employee's bank account. Employees receive a pay stub showing the details of the pay information. For many companies, pay stubs are only available electronically via a secured Web site or other system.

Transaction Privilege, Use, and Severance Tax Return (TPT-1)?

All businesses with income subject to transaction privilege tax, county excise tax, and use or severance taxes must file the Form TPT-1. You can file this form online at the AZTaxes Web site. When filling out the form, businesses must report gross income (however, you may deduct tax-exempt sales, such as sales for re-sale). In addition, it is important to file Form TPT-1 whether or not you have any sales.

Form TPT-1 Late Filing Penalties?

All returns not filed in a timely manner are subject to a late filing penalty. Currently, a late filing penalty is computed against the total amount of the tax reported on the return. Penalties and interest are based on the statutory due date of the 20th day of the month. By law, the penalty is 4.5% per month up to a maximum of 25% of the amount of tax reported on the return, without any deduction for tax paid on or before the due date.

Employees that are included for FUTA purposes include the following?

An agent-driver or a commission-driver who distributes food or beverages (other than milk) or laundry or dry-cleaning services A traveling or a city salesperson engaged in full-time soliciting and transmitting to the principal orders for merchandise for resale or supplies for use in business operations. Also, all work performed by an employee is covered regardless of the citizenship or residence of the employee, if the work is performed in the United States.

When Is the Form TPT-1 Due?

Arizona Revised Statute §42-5014 requires that the Form TPT-1 is due on the 20th day of the month following the month in which the tax is collected or accrued. However, the statute also allows that a return is on time if it is postmarked on or before the 25th day of the month and received by the Department of Revenue on or before the second to last business day of the month. For those filing the reports in person, you must file them by the second to last business day of the month, as well. If your business has an estimated tax liability between $500 and $1,250, you may be permitted to report on a quarterly basis; those with an annual liability of less than $500 may be permitted to file annually.

End-of-Period Adjustments?

As you may know, a company's year-end, or quarter-end, generally does not coincide with the payroll period. You may have experienced this by receiving two paychecks at the end of the year - one for the last few days of the previous year and another for the current year. Another way to handle this (rather than processing separate payroll cycles) is by making an adjusting journal entry. This entry is made to record the correct amount of wage expense in the correct fiscal year. Since no withholdings are actually made, no credits are made to withholding accounts. Rather, a single liability (wages payable) account is used. Debit Wages Expense Credit Wages Payable To record wages incurred but unpaid as of the end of the fiscal year. For ease, the amount of this entry is sometimes estimated, using a percentage of days in the period versus the number of days that are normally included in the period (i.e., if there are only 2 of 10 days' worth of wages to record, 20% could be used as the amount recorded in the adjusting entry). You can handle vacation pay in much the same way. Many companies provide employees with payment for future absences. Given that the employer is liable for the payments that were really earned in the current fiscal year, the company must record this expense and liability in its accounting records. Similar to above, the company would debit the Vacation Benefits Expense and credit Vacation Benefits Payable. When the employees actually use their vacation (or receive payment for the hours earned), the company would debit the payable and credit cash.

Employees' Earning Records?

Companies keep a separate payroll record for each employee. These individual records provide data for preparing the payroll register, preparing state and federal reports, determining when limits have been reached for FICA, FUTA, and SUTA taxes, analyzing payroll data, and probably most importantly, completing W-2 forms.

Reserve Ratio?

Contributions minus Benefits Paid. Then divided by Average Payroll.

Recording Gross Payroll and Withholdings?

Debit Salary Expense (Gross Pay) and Credit Cash and Payroll Liabilities.To record the payment of salaries and the liabilities for the taxes withheld.

Federal-Form 940?

Employer's Annual Federal Unemployment (FUTA) Tax Return. Prepared annually, although payments of unemployment taxes are generally made quarterly. Those employers who may pay SUTA taxes in more than one state will have to complete Schedule A along with Form 940. An employer must sign and remit the completed form to the IRS by January 31 following the close of the calendar year (may be done electronically through a third party). If the employer has made timely deposits that pay the FUTA liability in full, the employer may file the report as late as February 10. Additional extensions may be granted for a period of no more than 90 days. As with individual tax returns, once an employer has filed a Form 940, the IRS will send them a preaddressed form near the close of each calendar year. Employers are required to compute the FUTA tax on a quarterly basis and deposit monies with an authorized depository if the liability exceeds $500. If a payment is not required, employers should take into account this liability amount when determining if payment is required for the following quarter. Most businesses are required to make their federal tax deposits electronically unless they have $2,500 or less in quarterly tax liabilities and pay their liability when they file their returns.

Credits Against FUTA Tax?

Employers are entitled to a credit of up to 5.4% (of the 6.0% total) against their FUTA tax liability for contributions made under state unemployment compensation plan. This is for 2012. With the maximum credit being 5.4%, the actual FUTA tax paid is usually only 0.8% (6.2% minus 5.4%). In cases where the state rate exceeds 5.4%, the FUTA credit is still limited to 5.4% (no additional credit is available)

Journal Entry-Employee Payroll Taxes?

Employers must also make a journal entry to record the total wages paid by the employer along with the amounts withheld from employees' pay for FICA, federal income taxes, etc. Debit Wages Expense Credit FICA Tax Payable OASDI Credit FUTA Tax Payable-HI Credit Federal Income Tax Payable Credit Cash To record the wages paid and the employees' taxes withheld. Wage expense is the total, gross earnings paid to the employee for the pay period. This entry splits this amount into pieces - between taxes paid by the employee (as withheld by the employer) and the remaining amount that the employer will actually pay to the employee (the Cash amount). Normally in a company's general ledger, you would see GL account numbers associated with these account descriptions. Since the employer actually withholds the amounts, they are a liability since the money does not belong to the employer, but rather, the employer is holding it before remitting it to the federal government.

State Informational Reports?

Employers must become familiar with the required state unemployment reports. These reports may help to determine an employer's liability, amount of contributions due, or amount of benefits paid to employees if they become unemployed.

Employees excluded from FUTA taxes include?

Home workers and full-time insurance agents are exempt under FUTA. Some others that are exempt include casual workers, directors of corporations/members of partnerships, independent contractors, foreign students/exchange visitors, student nurses/interns, and federal, state, or local governments.

Interstate Reciprocal Coverage Agreement (FUTA)?

In situations where an employee's coverage cannot be determined using these factors, states may enter into reciprocal agreements. Under which the employer may elect coverage on one state.

Experience Rating?

In some cases, employers pay into their state unemployment fund at a rater lower than 5.4% due to an experience or merit rating, which is for those employers with favorable employment rates (steady employment histories). This concept of experience rating is based on the concept that if an employer has a lower employee turnover rate, then the unemployment tax will be lower for that employer. One common formula used to determine this experience rating is the "reserve-ratio formula."

Form TPT-1 Late Payment Penalties?

Monies not remitted in a timely manner are subject to a .5% per month penalty, up to a maximum of 10%. The maximum of late filing and late payment penalties cannot exceed 25% of the tax due.

Personal Property Tax?

Personal property is defined as all types of property except real estate (which is usually referred to as "real property"), and includes items used for commercial, industrial, and agricultural purposes (generally including mobile homes). Normally, personal property is considered moveable and not permanently attached to real estate. A person can typically remove these items without causing damage to the real estate or the item itself. These personal property items are subject to property tax, except for certain, specifically exempted items, such as certain goods and materials considered inventory and ultimately held for resale, as well as specified animals and personal household goods. Personal property used by the owner for private, domestic purposes is not subject to personal property taxation. In addition, governmental or charitable organizations may be exempted from property taxes with the approval of the County Assessor. You can find specific guidance on Arizona Property Tax at the Department of Revenue Web site. Examples of Taxable Personal Property Items - The Arizona Department of Revenue's Publication 545 summarizes the types of property that are taxable. When reviewing this list, think of items that may or may not be considered taxable. In what situations would they be taxable? Not taxable? As noted earlier, unless an item is exempt, it is generally taxable. Valuation of Personal Property Items - The County Assessor will value all personal property. Based on the original cost and age of the property, the County Assessor will calculate the current replacement cost new, less depreciation to arrive at the full cash value. The Assessed Value is based on the full cash value after applying a $50,000 exemption and the assessment ratio for the class of the property. Property is divided into classes, either Class 1, Class 2, or Class 6. Assessment ratios for each property class dictate the tax rate for the item (i.e., 5% of the full cash value). Miscellaneous Property Tax Items When Are Taxes Due? The County Treasurer bills for personal property taxes. Half of the total taxes is due on both October 1 and the following March 1. If the total tax due is $100 or less, the entire amount is due October 1. Taxes are considered delinquent after November 1 and May 1, respectively. Can a Person Appeal the Personal Property Valuation? - Although tax rates and amounts of tax are not subject to appeal, a business owner may appeal the Assessor's valuation by filing a Personal Property Petition for Review of Valuation (DOR Form 82530) with the Assessor within 20 days of receiving a notice of valuation. Business Property Statement - DOR Form 82520 All business and agricultural property owners must file either an Arizona Business Property Statement (DOR Form 82520) or an Arizona Agricultural Business Property Statement (DOR Form 82520A). Business owners must list property that they have acquired or disposed of during the year, as well as confirm the property items that remain in their possession. A form must be filed annually by April 1, if the business owner receives a form, notice, or demand from the County Assessor. The instructions for filing the 2012 form can be found here. In Maricopa County, Arizona, the County Assessor allows for e-filing of the Business Property Statement Form. The report is due April 1. For more information on e-filing, please visit the Maricopa County Assessor's Web site.

Under FUTA, in helping to determine the correct state to cover the employee, the employer must consider the following factors?

Place where the work is localized (where most work is performed - work in another state may be temporary) Location of base of operations (generally, the state where the employee generally starts from and returns to) Location of place from which operations are directed or controlled (place where the person is located who is providing directions/instructions to the employee) Location of employee's residence (to be used if no determination can be made from the previous three tests)

Basic Instructions for Completing the Form TPT-1?

Section I - Taxpayer Information Ensure that the business name is correct and that the appropriate box is selected indicating the type of return (amended, one-time, final, or multi-page). You will also need to include the state license and taxpayer identification numbers in this section. Incorrect numbers will cause a delay in processing and may result in a penalty. Section II - Transaction Detail This section reports your business classification (retail, restaurant, etc.) as well as the region of the state in which you conduct the business. You will find the needed codes in Table 1 of the Tax Rate Tables. As noted above, use taxes are assigned codes to be used on the TPT-1 Form. This is the section where businesses must report their gross sales (which should include the tax amount collected) and deductions (that portion of gross sales that is deductible or exempt income). Combined state and county taxes are recorded on one line in this section, but city taxes are reported on a separate line (this is covered in an example in the TPT-1 Instructions). Businesses must also record the tax rate in this section. It may already be preprinted on the form you are using. Accounting Credits - The State of Arizona provides a credit to those taxpayers who file and pay their TPT timely and in full. The credit is equal to 1% of the amount of state transaction privilege tax due, up to $10,000 for the year. The amount of this credit is also reported in Section II of Form TPT-1. Section III - Tax Computation This section is where taxpayers determine the total amount of transaction privilege tax due for the period. Deductions are reported (as shown on Schedule A - see below) for those items that are not subject to the TPT. Taxpayers should also report any excess taxes collected, such as city or county taxes. Section III is also where penalties and interest amounts are recorded as well as any estimated tax payments that were made (and reported on Arizona Form TPT-ES). Once these sections are complete, the taxpayer (or taxpayer's agent) must sign the form. Schedule A - Deduction Detail Information This schedule provides the details for the deductions reported in Section II of the form. You must itemize deductions by category for each region and business class reported. The totals on this schedule must equal the amount reported on Section II. Deduction codes are included on the right-hand side of the Schedule for reference. As you will see, many types of these deductions may apply to sellers. An example in the TPT-1 Instruction booklet illustrates how to complete Section II and Schedule A of the TPT-1. You should review this example closely to ensure you understand how these sections are to be completed.

This act is the basis for the unemployment programs currently in place?

Social Security Act of 1935

State Unemployment Tax Authority (SUTA)?

State unemployment taxes collected to pay weekly benefits to unemployed workers. The monies collected are pooled into one fund (rather than individual funds for each employer) for the entire state; therefore, the cost of the benefits paid is spread among all employers.

To be considered an employee under SUTA an individual must meet the following requirements?

The employee must be free from control or direction. Services performed must be outside the usual course of business. The individual must be customarily engaged in an independent trade or business.

Liabilities?

The liabilities represent the amounts owed by the employer because the employer withheld the monies from the employee and will ultimately remit them to another party. Examples include FICA Taxes Payable (OASDI and HI), Employee Federal Income Taxes Payable, State Income Taxes Payable, and SUTA Taxes Payable. A separate account should be maintained for each type of withholding. Money that an employer deducts from wages as a contribution to a 401(k) deferred savings (retirement) plan would be another example of a liability to the employer. Remember that gross wages paid are always an expense (debit). Liabilities of an employer are always a credit. A credit to these accounts also increases the account balance. As you will see later, when these amounts are remitted to the applicable party, the liability account will be debited, which will reduce the account (the company no longer has to pay those amounts).

Journal Entries?

The payroll register is the source document for the journal entries. Journal entries record both the payroll (wages earned, deductions, net pay) and the employer's payroll taxes into the company's accounting records.

SUTA Payable?

These taxes are for the state unemployment compensation funds. If payments are required to more than one state, it is advisable to establish separate accounts for each state.

FICA Payable (OASDI or HI)?

These two FICA accounts will include both the employee and employer portions of the taxes to remit. The employee portion of the tax must be recorded as a liability immediately. Although the company does not have to record the employer's portion immediately, it is common for it to be recorded at the same time the employee amounts are withheld.

Other Payroll Deductions include?

They may have a separate column in the payroll register for each one, or the deductions may be lumped into an "other deductions" column if there are too many. Voluntary deductions for group life and health insurance, dental, vision, etc., as well as deductions for government savings bonds, union dues, and United Way contributions are the most common. Other involuntary deductions, such as garnishments, may have to be withheld and tracked. With these deductions, it is important to recognize that the monies withheld are not the employer's monies. Therefore, employers must establish liability accounts to properly record these. Examples include Group Insurance Payments Withheld, or Health Insurance Premiums Collected, or Union Dues Payable.

Federal Unemployment Tax Act (FUTA)?

This act imposes a tax on employers to pay for the cost of administering the federal and state programs.

Salary Expense?

This is the gross pay amount, usually titled Salary or Wages Expense. It includes the gross pay for the entire pay period, including regular and overtime earnings. When this account is debited, the balance is increased.

Cash/Salaries Payable?

This is the net pay amount paid to employees. It will be a payable if the payment will be made later (thus, a liability).

State (AZ)-Form UC-018?

Unemployment Tax and Wage Report (quarterly). Arizona businesses that must provide unemployment insurance coverage for their workers are required to submit Form UC-018 for each quarter they are covered (even for quarters during which no wages are paid). The Department of Economic Security (DES) will automatically mail the UC-018 forms to the business during the last month of each quarter. Failure to receive this form does not relieve you from your responsibility to file this report. A business may complete and submit this form online. In addition, businesses may use the online payment system to remit taxes due. The penalty for a late report is 0.1% of total wages paid in the quarter, with a minimum penalty of $35 and maximum of $200. Interest on unpaid balances accrues at 1% per month, or portion of a month. Note: You can avoid the late report penalty by filing your report on time, even if you cannot pay the tax at that time.

In general, the federal law considers a person or business to be an employer if either of the following applies?

Wages of $1,500 or more were paid during a calendar quarter in the current or preceding calendar year, or One or more persons were employed at least a portion of one day in each of the 20 (do not have to be consecutive) or more calendar weeks during the preceding or current taxable year. As soon as the employer meets either test, the employer becomes liable for the FUTA tax for the entire year, even if they meet the test during the last week of the calendar year.

FUTA Tax Rate?

With the expiration of the .2% surtax in 2011, the gross FUTA rate was reduced to 6.0%.For 2013, the employer's tax rate is 6.0% of the first $7,000 in wages for each employee (thus, the employer is liable for these taxes for each employee until the employee's wages reach $7,000). However, proposals are currently being made to reinstate this surtax for 2013. At the time of this writing (April 2013), this issue is still ongoing.

A worker is considered an employee if?

a business tells, or has the right to tell, a worker how, when, and where to work.

Under SUTA, employers doing business in Arizona must complete what type of tax application to register with the Department of Economic Security?

an Arizona Joint Tax Application.

Under FUTA, and employer may be considered?

an individual, corporation, partnership, company, association, trust, or estate.

Use Tax?

imposed upon the purchaser of tangible personal property that is used, stored, or consumed in the State of Arizona, when the sale is not subject to the transaction privilege tax. An out-of-state business that sells to Arizona customers must register with the Arizona Department of Revenue and collect the use tax. However, if the out-of-state business does not collect and remit the use tax, then the purchaser is required to remit the applicable use tax (remember, the use tax is imposed on the purchaser, not the seller). Example: An individual purchases a car for $5,000 while on a trip out-of-state. The dealer does not charge the individual any sales tax (nor does the dealer charge any AZ use tax). The person (buyer) must pay use tax on the purchase price when he/she returns to Arizona. If sales or use tax was collected by the dealer, the purchaser will have to provide proof to the Arizona Department of Transportation when the vehicle is registered that tax was paid on the original purchase. Use taxes apply at the Transaction Privilege Tax (TPT) rate, as only one of the taxes can apply to a given transaction. (The current State of Arizona use tax rate is 6.6%.) Like the TPT, some cities may impose an additional use tax, and larger cities may collect the tax independently. In general, counties do not impose a separate use tax. In addition, some cities exempt use taxes on purchases of less than $1,000 for individuals that are not in business. Example: You own a retail store and frequently purchase equipment, tools, and supplies from a mail-order catalog that does not charge sales tax (assume these items are not exempt from taxes). In this case, this purchase is subject to use tax. If a purchase from an out-of-state retailer is subject to another state's sales tax, then the purchaser may take a credit against the Arizona use tax equal to the amount of sales tax paid in the state of purchase. In the example above, if the dealer charged the individual 5.0% sales tax, then the individual would have to pay a 2% state/city use tax, assuming a combined Arizona use tax rate of 7%. Purchasers must be aware of what taxes they are being charged, as the out-of-state vendor may be charging you state sales tax, but not a city sales tax, leaving you with an obligation to pay a city use tax. Like the transaction privilege tax, certain purchases/items are exempt from taxation. One type of exemption is for tangible personal property purchased for resale. Example: You own a cleaning supply business. The supply items you purchase to resell are exempt from use tax. However, if you take these items out of your inventory and begin using them to clean your offices, warehouse, etc., then they become subject to use tax. Other common items that are exempt from use tax include the following: Tangible personal property on which TPT has already been paid. Items purchased as part of a casual sale (person not engaged in business). Tangible personal property that becomes an ingredient or component of a manufactured or processed item as part of the business. A more detailed list of exemptions is provided in Publication 610 from the Arizona Department of Revenue. As you review this list, can you think of items that fall into each category? Of what items are you unsure? Does it depend on how the items will be used? What factors come into play when determining if they are subject to use tax? Use tax is reported on the Transaction Privilege, Use and Severance Tax Return, Form TPT-1, using the following business classification codes (which will be discussed more in the section below): 026 - Use Tax Utilities: Applicable for purchases from an out-of-state utility business 029 - Use Tax Purchases: Applicable for purchases made from unregistered out-of-state vendors and use tax collections by registered out-of-state vendors 030 - Use Tax From Inventory: Applicable for purchases of tangible personal property for resale that is instead used or consumed by the purchaser

Employer Payroll Tax Accounts?

liability accounts as the amounts represent what the employer owes. FICA Taxes Payable - OASDI FICA Taxes Payable - HI FUTA Taxes Payable SUTA Taxes Payable

FUTA taxable Wages include?

only the first $7,000 (hourly, commission, piece-meal, etc.) paid by an employer to an employee during the calendar year.

The Payroll Register?

provides detailed information for each payroll period. Think of it as the one document that brings all detailed, individual employee data into one location. It is the main report used to begin the payroll process (journal entries). It is also used to assist in preparing reports required by the federal and state government. The register includes information such as time/hours worked, hourly rates, regular and overtime earnings, deductions, and net pay for each employee. Typically, these reports are computer-generated (especially in large organizations), but they may also be prepared manually. By seeing the detailed information included in these reports, it is easy to see why it is best to have these computerized. This is a very important step in the payroll process, as you need to start with correct data. As you will see later, if this register does not balance, then you will be unable to make the correct journal entries when recording payroll information in your company's accounting records.

Garnishment of Wages?

refers to "the legal or equitable procedure by which a portion of the wages of any person must be withheld for payment of a debt". Employers may be required to withhold a portion of an employee's wages and pay that amount to another party. The Consumer Credit Protections Act limits the amount of wages that may be subject to garnishment. Child support and federal tax levies are the most common forms of wage garnishment. A key component of the garnishment action relates to disposable earnings, which are those earnings that remain after all withholdings of income tax, FICA, SUTA, and state retirement contributions (if applicable) are made.

Social Security Act of 1935?

required every state to establish an unemployment compensation program to provide payments to workers who are temporarily unemployed. This act is the basis for the unemployment programs currently in place. Both federal (FUTA) and state (SUTA) payroll taxes fund this unemployment insurance program.

FUTA Payable?

the net FUTA tax is usually 0.8%, due to a maximum 5.4% credit for contributions to the state compensation fund. Although employers don't actually claim the credit until they file form 940 with the IRS, employers are allowed to record the FUTA tax due at the 0.8% amount.

Under FUTA, Federal monies are not used to pay...?

to pay the weekly benefits for unemployed workers. Those weekly benefits are paid by the state in accordance with their unemployment tax laws (which makes the payments based upon collections of state unemployment tax withholdings). All states must comply with FUTA standards to help ensure consistency in the unemployment provisions between states.

Purpose of FUTA taxes?

to provide funds that the states can use to administer unemployment benefits.

Workers Compensation Insurance Expense Account?

used to record premiums paid for this insurance coverage. The amount of the premiums is usually based on a percent of total gross payroll and may be higher or lower depending on the nature of the work being performed by the employees. Debit Payroll Taxes Expense Credit Cash (or a Payable)