Chapter 11 - Payroll Taxes, Deposits, and Reports
5) Prepare Wage and Tax Statement (Form W-2) and Annual Transmittal of Wage and Tax Statements (Form W-3).
By the end of January, each employee must be given a Wage and Tax Statement, Form W-2, showing the previous year's earnings and withholdings for social security, Medicare, and employee income tax. The employer files a Transmittal of Wage and Tax Statements, Form W-3, with copies of employees' Forms W-2. Form W-3 is due by the last day of February following the end of the calendar year.
7) Prepare an Employer's Federal Unemployment Tax Return, Form 940.
An Employer's Annual Federal Unemployment Tax Return, Form 940, must be filed in January for the preceding calendar year. The form shows the total wages paid, the amount of wages subject to unemployment tax, and the federal unemployment tax owed for the year. A credit is allowed against gross federal tax for unemployment tax charged under state plans, up to 5.4 percent of wages subject to the federal tax.
3) Record deposit of social security, Medicare, and employee income taxes.
As taxes are paid to the government, the accounting records should be updated to reflect the payment, thereby reducing tax liability accounts.
1) Explain how and when payroll taxes are paid to the government.
Employers act as collection agents for social security, Medicare, and federal income taxes withheld from employee earnings. Employers must remit these sums, with their own share of social security and Medicare taxes, to the government. The taxes must be deposited in an authorized depository, usually a commercial bank. The methods and schedules for deposits vary according to the sums involved.
2) Compute and record the employer's social security and Medicare taxes.
Employers should multiply the social security and Medicare tax rates by taxable wages to compute the employer's portion of taxes due.
Form W-3: Transmittal of Wage and Tax Statements
Preprinted form submitted with forms W-2 to the SS admin
Form W-2: Wage and Tax Statement
Preprinted form that contains info about an employee's earning and tax withholdings for the year
Form 941: Employer's Quarterly Federal Tax Return
Preprinted form used by the employer to report payroll tax info relating to social security, medicare, and employee income tax withholding to the IRS.
Form 940: Employer's Annual Federal Unemployment Tax Return
Preprinted form used by the employer to report unemployment taxes for the calendar year
4) Prepare an Employer's Quarterly Federal Tax Return, Form 941.
The Form 941 reports wages paid, federal employee income tax withheld, and applicable social security and Medicare taxes.
6) Compute and record liability for federal and state unemployment taxes and record payment of the taxes.
Unemployment insurance taxes are paid by the employer to both state and federal governments. State unemployment tax returns differ from state to state but usually require a list of employees, their social security numbers, and taxable wages paid. The rate of state unemployment tax depends on the employer's experience rating. The net federal unemployment tax rate can be as low as 0.8 percent.
8) Compute and record workers' compensation insurance premiums.
By state law, employers might be required to carry workers' compensation insurance. For companies with a few employees, an estimated premium is paid at the start of the year. A final settlement is made with the insurance company on the basis of an audit of the payroll after the end of the year. Premiums vary according to the type of work performed by each employee. Other premium payment plans can be used for larger employers.
Unemployment Insurance Program
A program that provides unemployment compensation through a tax levied on employers.
Experience Rating System
A system that rewards an employer for maintaining steady employment conditions by reducing the firm's state unemployment tax rate