Payroll

Hallmarks of fringe benefits:

-All employees have access due to their working relationship w the employer -Employees enjoy improved living conditions as a result of the benefit -the ability to receive the benefit is not related to employee performance -Fringe benefits supplement the employees cash compensation -These benefits may be either deducted pre- or post-tax -Fringe benefits promote the welfare of all employees -Legislative treatment of fringe benefits involves certain mandatory tax deductions from employee pay Adds to morale and enticement of employee engagement and benefits of employee productivity, creativity, and revenue productions have been found to outweigh the high costs to businesses

What are some hallmarks of FSAs?

-Any employer contributions to an FSA in excess of $2700 annually are treated as taxable income. -Purpose of the FSA is to reduce the financial burden on health care costs., not to defer taxable income or avoid paying taxes -Cafeteria plan based FSAs generally are "use it or lose it" , any unused funds at end of plan year may not be accessed afterwards, however IRS permits employers to roll over up to $500 annually per employee at employers discretion. -Benefit of cafeteria plans is that employees may choose 2 or more benefits that consist of cash and noncash elements. ex. They may elect to have health ins. premiums and a flexible spending arrangement deducted on a pretax basis

Personal Use of Company vehicle benefit:

-Common for employees who drive regularly as part of their job. -Business use is considered a nontaxable due to use for company and if benefiting company. -Taxable portion occurs when employee uses for personal use and employers often request the employees document the personal use to facilitate proper identification of taxable income for the company car.

Gym membership benefit:

-Common fringe benefit to promote wellness. -If on premises and restricted to use by employees and dependents, then gym is non taxable -If Off-site club and no added cost to employees on qualified plan, then value of membership is taxable

Some Examples of De minimis benefits are?

-Employee use of company copier (as long as not > than 15% of employees total usage of that equipment for business use) -noncash, low value holiday or birthday gifts -similar gifts for family illness or birth celebration -Group-term life insurance for the death of a dependent if the life ins. face value does not exceed $2000 -Certain meals, occasional picnics, and parties for employees and their guests -Occasional tickets to sporting or theater events -Personal use of an employer-provided cell phone provided primarily for non-compensatory business purposes

Insurance

-Employers may provide subsidized health ins coverage for employees. -Many pay a portion and employee pays the difference. For health ins plan to qualify for pre-tax status, they must meet IRS code guidelines: -health plans offered through the states small or large group market -employers self-insured health plan -department of defenses non-appropriated fund health benefits program -government plan -COBRA health coverage -retiree health coverage

Prizes and Awards:

-Given for morale and incentive. Are for improvements to safety programs and for levity of service Cash value limit on achievement awards is $1600 annually for those given in accordance with a qualified plan --any amount over $1600 will be taxed (qualified plan is one that considers all employees equally and not favoring highly paid employees) - limit for nonqualified awards is $400

Employer - Provided Snacks and Meals benefit:

-If employer occasionally provides food or beverage, cash value is considered de minimis and not taxable -If routinely provides food or beverages for employee consumption at no added charge to employees, then cash value of those items must be reported as compensation. -Important for payroll acct to be aware of the perks offered to employees as well as Publication 15-b to identify additions to employees compensation and to provide accurate reports to employees and governmental authorities **For fringe to be excluded, business must be prepared to prove that providing the benefit substantially improves conditions of the business, above what it would cost employers to add amount to employee pay

Hallmarks of HSA:

-If single marital status, can contribute up to $3500 tax free -Married can contribute up to $7000 -employees 55 and older may contribute an additional $1000 /yr as a catchup contribution. -Some plans allow participants to invest money into mutual funds or other investments and HSAs do not have the same restrictions for spending as FSAs -Employers may make tax exempt contributions to their employees HSAs as long as they make comparable contributions to all company employee accts according to the cetegory or coverage and the employment category (full/part time) . -Employer contributions to HSAs are tax exempt as far as fed inc tax, FICA, and FUTA because sums contributed are not considered employee wages.

What are common errors in Payroll?

-Incorrectly defined compensation -Delays in the remittance of employees contributions for benefits -Improper definition of employee eligibility and enrollment in benefit plans -Incorrect employee vesting in plans -Benefit forfeitures -Improper use of loans made to participants -Incorrect use of hardship distributions -Incorrectly recorded plan expenses *Best way to avoid errors is for the payroll and human resources work together to ensure proper implementation and classification of benefit related monies

2010 Affordable Care Act (ACA)

-Provides small businesses a tax credit for providing health ins coverage for its employees that are at low and moderate income levels. -Also extended coverage for children until age 26 on pretax basis if under a qualifying cafeteria plan IRS Code 6056 changed the reporting requirements for health ins programs. If more than 50 employees, required to file an information return with the IRS and provide a detailed summary of coverage to employees Value of ins coverage contributed by the employer must be reported on W-2 within box 12 using code DD and should reflect the amounts contributed by both employee/er. *Must remember that the amounts reported do not add to taxable wages of the employee

Discussions have been made about what is able to be garnished. Specific examples of lump-sum distributions that are subject to garnishment:

-Sign on bonuses -Any performance or productivity bonus -Commissions -Holiday Pay -Retroactive pay -Termination pay -Any other bonuses or incentive payments

What is a Health Savings Account (HSA)?

-Type of cafeteria plan -Can be used to pay for qualified medical expenses. *Note, HSAs may only be used in conjunction with cafeteria plan by employees who have a high deductible health plan (HDHP) 2019 definition of HDHP: $1350 Annual deductible (self coverage) $2700 annual deductible (family) $6750 out of pocket expenses max (self coverage) $13500 out of pocket expenses max (family)

What is a Premium Only Plan (POP)?

-Type of cafeteria plan that allows employees to deduct premiums for employer-sponsored group insurance on a pre-tax basis, allowing for the employee to have a lower tax liability. A list of POPs that employers may provide and are subject to section 125 pre-tax provisions: Health, Prescription, Accident, Dental, Cancer, Disability, Vision, Medicare Supplement, Hospital Indemnity, and Employee Group Term Life -since premiums deducted on a pre-tax basis, employers FICA tax liabilities are reduced also. Participation in health plans has been correlated with reductions in sick time and related health case costs. And also allows employees to offset the cost of rising health care premiums by allowing employees to deduct on pre-tax basis.

Does money roll-over to next year with an HSA?

-amounts that employees contribute to an HSA may remain in the account for use later in life as long as employee is part of an HDHP -These funds may be reserved for medical costs and long-term care and are not taxable when used for medical expenses -Anyone with HDHP may establish an HSA with a trustee, even if their employer does not offer the benefit. ~However, not all HSA's can be considered tax exempt~ ONLY HSAs part of the company's qualifying section 125 cafeteria plan are deemed exempt for SS, Medicare, and Fed Inc Tax.

Certain resident aliens and professions are exempt from FUTA provisions, as stipulated by Income Tax Regulation 3.3301-1, such as:

-compensation paid to agricultural workers -compensation paid to household employees unless the compensation exceeds $1000 during any calendar quarter of the current or prior year -Compensation paid to employees of religious, charitable, educational, or certain other tax exempt organizations -compensation paid to employees of the US government or any of its agencies -Compensation paid to employees of the government of any state of the US or any of it's political subdivisions -Compensation paid to employees of the government of the District of Columbia, or any of its political subdivisions

Valuation of taxable fringe benefits:

-employers may choose to add the periodic value of the fringe benefit to period pay and tax it at the employers regular tax rate. -Alternatively, employer may report the total value and withhold federal income tax at the 22% rate *ex. Of this would involve the valuation of personal company car use, if reported annually. In that case, the employer may add the full amount of the benefit valuation to a single pay period and deduct the taxes at that time See section 7 of Pub. 15 for the flat rate (37%) when supplemental wage payments to an individual exceed $1 million during the year.

FUTA pertains to US citizens and worker employed by American companies. Must fit these criteria, those that do not fit, are not subject to FUTA provisions, such as:

-resident of the US -partnership, if 2/3rds or more of the partners are residents of the US -trust, if all of the trustees are residents of the US -corporation organized under the laws of the US, of any state or DC

How would you help employee understand total value of annual compensations?

Annual Total compensation report Similar to benefit analysis, but intended for the employee, not internal business. Payroll will gather info from payroll registers, AP invoices, payroll tax reports, contributions to retirement plans if employer matching is involved. Start by printing the annual earnings report for the employee in question (if report covers more than one yr, make sure of SS and medicare tax rates) Will request copies of invoices for health ins, life ins, and any other benefits employer provides, such as onsite meals and gym facilities/memberships from A/P acct. Other items could be awards, meals, clothing, or special facilities Many times done by HR dept, but in smaller companies, can fall to payroll dept.. Also common to work together to complete.

What is the FUTA rate?

As of 2019 : 6% of the first $7,000 -reduced up to 5.4% if: Employers make SUTA deposits on time and in full As long as the state is not a credit reduction state With credit: Minimum FUTA is .6% Always reported for prior year, meaning FUTA liability will increase with first payroll in 2020 if 940 has not been filed yet. If you make quarterly deposits then full 2019 would be paid and not part of 2020 FUTA tax payable.

Post Tax Deductions:

Charitable Contributions individual is to report donation on their itemized tax return Court ordered Garnishments (Child support, alimony, student loans) Applied to disposable income -Credit : No more than 25% or the amount by which DE are > 30 times the fed min wage -child support: up to 60% + 5% for any amount > 12 wks in arrears -Non tax debts owed to federal agencies: no more than 15% Union Dues Dues are used to fund activities such as negotiations and activism. Some employers pay dues as part of noncash compensation

How do you decide what company vehicle rule to use?

Choice of valuation determines the company's policy and actual use of the vehicle in terms of: total miles driven for business value of the asset primary user of the vehicle.

What are the 2 basic types of retirement plans?

Defined Benefit - employer guarantees the employee a specific level of income once retirement has been reached (ex. Employer could offer 10% of average of last 5 yrs pay) Defined Contribution - individual places money from his/her payroll, pre-tax, into a retirement plan and the company may or may not match to a percentage. (ex 401(k), SIMPLE 401(k), 403(b), 457, IRA, SIMPLE, SEP, ESOP, and profit sharing)

What does using Cryptocurrency as pay method offer?

Emerging wage payment method. ex. Bitcoin, and Blockchain technology. Cryptocurrency uses internet technology to transmit money securely from one wallet to "recipient". Bitcoin is not itself a physical currency, exists only in electronic form. Transmission of wages is thought to be secure because blockchain technology makes it very difficult for wages to be diverted from the intended recipient because the blockchain involves the transmission of packets of data through a very large number of computers, making a single transaction difficult to isolate. Advantages: -not subject to international exchange rates and is transferred nearly instantaneously. Disadvantages: -no central authority oversees the value of the currency. Making it extremely volatile in value. Could lead to underpayment of employees if the currency loses value. **Has become more accepted as a payroll form, additional governmental guidance will likely emerge

Federal and State Unemployment Taxes

Employer paid, mandated by Federal Unemployment tax and and State Unemployment Tax Act (FUTA and SUTA) FUTA pays for administrative expenses of the unemployment insurance fund SUTA provides a localized and individual focus for employer taxes. Pays for half of extended unemployment benefits and provides a fund of additional benefits against which states may borrow as necessary to cover unemployment claims. *** Employer only tax for all but Alaska, New Jersey, and Pennsylvania

Workers' Compensation Insurance

Employer payroll responsibility - Not a tax, but enforced obligation. For protection of workers injured or killed in performance of their duties Premiums vary, based on employees job classification, safety record, and risks involved. Amounts are expressed as amounts per $100 of payroll estimated based on expected payroll amounts for coming year and then adjusted at the end of the yr on actual payroll amounts are finalized. Follow OSHA guidelines to control cost of worker comp ins.

What should you do if you need to correct any filed tax forms?

Employer should use the X version of the form (940X and 941X) Note: any additional tax amounts owed that are discovered during the correction process should be remitted as soon as the employer completes the correction form. Also, if withheld too much, use for IRS Form 843 to recover overages.

Form 940, Employer's Annual Federal Unemployment Tax Return

Form 940 is employers annual report of federal Unemployment taxes due - Due by Jan 31st of following year. Certain fringe benefits are not subject to fed unemployment taxes because they represent noncash compensation that is not intended to be used as disposable income. Employer contributed 401(k), 403(b) and section 125 -dependent care 2500-5000 -employer contributions to group term life insurance -certain other noncash payments -must either deduct these exempt items from line 3 or report on line 4

Social Security Tax

Formerly known as OASDI, designed to cover people for illness, retirement, disabilities, and old age. A social insurance for people unable to work. Has evolved into a tax that is levied upon all employees until their annual income reaches a certain level. Maximum income, known as wage base, changes annually. In 2019 wage base is $132,900. Only the first $132,900 are subject to the 6.2% tax. Eligible wages can be different from gross pay because of pre-tax deductions and the wage base maximum

What does using paycard as pay method offer?

Growing in popularity. Debit cards where employer transmits the employees pay. Started in 90s as convenient way to pay over the road truckers. Does not requre employee to have a bank account to access pay. Disadvantages: can be lost or stolen. Withdrawal limits or cash back at point of sale purchases. Paycards may be subject to state escheatment laws for unclaimed funds Issue at beginning: Regulation E of the federal Deposti Insurance Corporation (FDIC) did not cover them, but 12CFR Part 205 extended coverage to paycard transferred funds **Must keeps employees paycard number securely filed. Quickbooks offers encryption abilities. Card issuer is responsible for remaining Regulation E compliant, but employer is responsible to ensure that extra step is done.

What is grossed up pay?

Happens when employer wants to pay specific net amount. Employer will pay extra equaling tax liabilities to achieve net pay desired

Where can you go for important info about filing requirements, due dates, guidelines, and penalties?

IRS and state employment departments have websites that contain needed information See (Appendix E for state employment contact)

What is a cafeteria plan (Section 125 Plan)?

IRS code special program to assist workers with health care expenses. Permits employers to offer a choice between two or more cash and qualified benefits, but must explicitly describe the plan benefit, rules governing the benefit, and ways that employee may both pay for and obtain these benefits. Employee elected deductions for qualified cafeteria plan benefits are withheld on pre-tax basis May include dependent care and other expenses, not just health plans. Can potentially save employees upwards of 7.65% (FICA taxes) or more depending on tax bracket. Note if employee chooses to receive benefits under the cafeteria plan this does not convert a fringe benefit into a taxable one

Personal Use of a Company Vehicle: Cents per mile Rule

IRS standard mileage rate. (updated ever year, 2019 is at $.58 (Pub 15b)) # of personal miles driven multiplied by the standard mileage rate purpose is to consider costs of maintenance and ins for vehicle,

Personal Use of Company Vehicle : Lease Value Rule

IRS uses method involving key info, Pub 15b provides an annual lease amount for vehicles. After annual amount has been determined, multiply by % of personal use. This amount is taxable. Employer paid fuel calculated at FMV or 5.5 cents/mile of personal use.

Supplemental Health and Disability Insurance

If the income derived will be estimated to be tax-free, the the cost associated will also be tax-exempt. (Note: Supplemental health and disability plan premiums are not tax-exempt for Social Security and Medicare taxes.)

Form 941

Is the employers quarterly report of taxes deposited and taxes due. Used to reconcile firms deposits with the liabilities derived through mathematical computations on form. Common to encounter minor adjustments owing to rounding differences incurred during monthly tax deposits.

How is climate change affecting Construction labor costs?

Issue facing construction industry is weather extremes and need to ensure employees have specialized equipment that can handle extreme temps. Possibly rotate more workers to deal with heat. Weather related destruction could also give need to have more worker for rebuilding efforts. Employers insurance costs are also increasing due to potential....

IRS stipulates that the value of all noncash benefits must be determined no later than ______?

Jan 31 of the following year

What are some Labor reports you could use?

Labor Usage: designates where labor is used within the company. Determines overhead allocation by department and need for increased/decreased staff in said departments Billable vs. nonbillable: tracks the time employees have spent specifically on projects for which customers are paying. Determines if time allocated to project in costing process is accurate and the company is operating efficiently. Or is employee taking too long Overtime : Allows managers to determine how much overtime paid to employees during time period and schedule adhering to budget Trend: Reports of income of the period of the year or 2 can reveal seasonal increases or decreases in business. Helps analyze need of hiring or laying off, reducing hours, or restructuring company operations.

What are the major duties of a payroll clerk?

Labor planning involving thinking about other responsibilities like: -maintain workers comp -forwarding amounts withheld through voluntary and mandatory deductions -determining labor expenses and employee benefits, and insurance

Medicare Tax

Levied on employers and employees to help provide basic health coverage for all individuals qualified to enroll in Medicare benefits. 1.45% an all wages earned, no wage base. ACA act of 2010 added .9% on any who earn more than $200,000***. (no employer match for additional 0.9%) *200,000 - singe *250,000 - married filing jointly *125,000 - married filing separately

What does using direct deposit as pay method offer?

Like checks, is traceable through employer back and optional paper pay advice issued to the employee. *Employees mostly prefer due to immediate availability and convenience., but must have a bank account. Prevents paper waste, and saving per employee per pay period is approximately $1.35 , from lower waste collection, paper usage, and recycling costs. Saves times needed for payroll processing also Best Practices: grant employees access to a website or online portal by which they can securely view their pay advice and pay history. Could be linked with human resources data so that employee can self maintain in payroll records. Pitfall: could be vulnerability to computer hacking. Must take steps to prevent hacking through data encryption, identity verification, and site security

How is your frequency for tax deposit determined?

Lookback Period amount of payroll taxes an employer has reported in the 12-month period prior to June 30th of previous year. Lookback period for 2019 would be July 1, 2017 through June 30, 2018

What is the General Valuation Rule (GVR)?

Most common way to determine the value of fringe benefits. Uses fair market value (FMV) as cornerstone. FMV- price a person would need to pay to obtain a good or service from a third party in an arms length transaction.

Describe Payroll within the Context of Business Expenses

Must understand payroll expenses because of the wide range of mandatory activities and lesser known expenses associated with maintaining employees. employers average hourly cost for employees was $36.63, of which wages were $25.03 and benefits totaled $11.60 private sector - avg. $34.53 government employers - avg. $50.03

Deposit Frequency differences

Note: tax deposit due date is based on payroll disbursement date, not pay period ending date. Annually - totals amount $2500 or less Quarterly - For any amounts not deposited during the quarter that may be due to rounding errors or other undeposited amounts Monthly - total amount less than $50,000, it is classified as monthly Semiweekly - total amount less than $100,000, it is classified as semiweekly Next Business Day - total amount exceeded $100,000 for payroll period, it is due next business day

What is the problem with paying payroll in cash?

One of most difficult forms because of difficulty to track and control. Most common use is for day laborers, temporary helper, and odd jobs. Should involve a written receipt signed by the employee. Cash must be kept on hand and payroll taxes withheld, requiring prior preparation to ensure proper payroll-related Must have a pay advice- receipt that contains info about gross pay, deductions, and net pay, Have employee sign copy of pay advice to ensure no future issues with perceived problems

Tax remittance penalties

Penalties for missing filings, activities, and inaccuracy in accounting system. 2 classifications 1. Failure to deposit -2% (1-5 days late) -5% (6-15 days late) -10% (16+ days late. Also applies to amounts paid within 10 days of 1st notice of IRS) -10% (amounts that should have been deposited) -15% (amounts still unpaid >10 days after the date of 1st IRS notice or day of demand for immediate payment, whichever earlier) -maximum penalty 15% 2. Failure to file -applies to amounts on form 941 and is 5% of unpaid tax due with return. -penalty accrues for each month or partial month that the tax remains unpaid -maximum penalty 25% **All penalties may be subject to interest charges There is no statute of limitations for unpaid taxes, and will still be liable for late or unremitted payroll taxes if company outsources payroll processing *IRS will waive under 2 conditions: -amount of the shortfall does not exceed the greater of $100 or 2% of the required deposit -amount of the shortfall is deposited either (a) by the due date of the period return (monthly and semiweekly depositors) or (b) the first Wednesday or Friday that falls after the 15th of the month (semiweekly depositors only)

Benefits of an Employee Earnings Record?

Period totals are also included on earnings record, facilitating the prep of quarterly and annual reports. Should be retained and destroyed at the same interval as other accounting records. Typically included as supporting documents for internal copies of quarterly filings of Form 941 as well as state and local tax returns. Provides verification during an audit. Also, in event of computer data failure, documents attached could be used to re-create files. Payroll records that contain evidence of fraud or other illegal activities must be retained indefinitely

Differentiate between Pre-tax and Post-tax Deductions

Pre-tax deductions are Voluntary deductions that have been legislated by the federal government as eligible, like certain types of insurance, retirement plans, and cafeteria plans Post-tax deductions are deducted after fed, state, and local income taxes and FICA taxes have been deducted. Includes voluntary and court-mandated deductions, like gym memberships, charity, company loan payments, optional insurance, and union dues. Along with mandated like child support, tax liens, and other legally directed items.

What is the special accounting rule defined by IRS for noncash benefits?

Provided only in the last two months of the calendar yr. , noncash benefits may be treated as paid during the following calendar yr. But only the value of the benefits may be treated as such. Although employers may opt to use the special accounting period for specific benefits, all employees who receive that benefit must also have it reported in accordance with the special accounting rule

Schedule B (Form 941)

Report of Tax Liability for Semiweekly Schedule Depositors Semiweekly depositors must file Schedule B in addition to Form 941. Allows firms to enter details of payroll tax liabilities that occur multiple times during a month. Payroll tax liability is entered on days of the month on with payroll occurred, total is entered in right column. Total tax liability for quarter must equal line 10 on Form 941

Fringe benefits for S corporations

S corporations should not include 2% shareholders as an employee of the corporation for the purpose of fringe benefits. Instead, treat 2% shareholders as a partner in a partnership for fringe benefit purposes. And, do not treat the benefit as a reduction in distributions to the shareholder.

State Unemployement Tax Act (SUTA)

SUTA - limited to wages collected and the 5.4% rate is a guideline. States vary based on employee retention and other factors. States will examine employee turnover and determine if employers qualify for a credit against the nominal SUTA rate. SUTA rate is determined by a mix of state unemployment rates and company experience ratings. Similar sized businesses might have different rates, depending on risk, turnover, seasonal, associated with industry. *States issue letters on annual basis with the determined rate. in the event that a state defaults on its repayment of these federal loans, the credit taken against the 6% FUTA rate may be reduced. Each year states have until Nov 10th to repay prior yrs loan, or FUTA credit will continue to be reduced in the third and fifth yr after the loan is due

What is the Unsafe Conditions rule?

Special rule applies if vehicle is provided only in unsafe conditions like sudden snow storm. In this case, IRS rule is to charge $1.50 for a one way commute 45000/45. This charge should be either added to wages or reimbursed to the company by the employer The employee would ordinarily walk or use public transportation for commuting. You have a written policy under which you don't provide the transportation for personal purposes other than commuting because of unsafe conditions. The employee doesn't use the transportation for personal purposes other than commuting because of unsafe conditions.

What will happen if injury happens in the workplace?

There will be an OSHA inspection to ensure that the working environment was not cause of the injury -Workers compensation insurance will provide for the coverage of wage compensation for the employee and covered medical expenses if employers work environment and not employee error is at fault -May be protected under FMLA, meaning if employee has to take unpaid leave, they will have employment and medical benefits guaranteed

W-3

Transmittal from that accompanies the submission of Copy A of W-2 to the Social Security Administration Contains the aggregate data for all W-2s issued by employer. Due Jan 31 of following yr. Must match the annual wages reported on Forms 941 and 940

What ACA mandate was removed in the 2018 Job and Tax Cuts Act?

removed the 2.5% for individuals who did not meet "minimum essential coverage".

Companies need info generated by payroll records to...

ensure profitability, competitiveness, and cost analysis

Who has the responsibility to remit payroll tax withheld from employees?

-Any signer on the firms checking account -Anyone designated in the firms by-laws -Anyone w/ the authority to hire/fire employees -any corporate officer -anyone who has authority to sign tax returns Any responsible person within the company who willfully does not remit the withheld employee taxes, is subject to a 100% penalty for non remitted funds from federal income tax and FICA taxes. Not the employers share of FICA or FUTA tax

What accounts does the credit side of a T account increase?

-Liabilities -Equity (Capital) -Revenue

What are certain accounting conventions present in the journal entry?

-The date of transaction is noted -debit part of transaction is on first line and is flush left in the column -credit part of transaction is on second line and indented slightly -brief description of the transaction is on line 3 -Account numbers are annotated in the post reference column -The post reference in the general journal is the general ledger account number

What are Statutory Deductions?

-taxes that an employer must pay due to government statutes -employers must file mandatory reconciliation reports detailing the amounts withheld, tracking, and maintaining the personnel files for both current and terminated employees in line with regulations FICA taxes are statutory

What are the pay computation steps?

1. Start w the employees gross pay 2. Subtract the pre-tax deductions to get the total taxable earnings 3. Compute the taxes to be withheld from the total taxable earnings 4. Deduct the taxes 5. Deduct any other voluntary or mandated deductions 6. The result is the employees net pay

What is form 945 for?

Annual Return of Withheld Federal Income Tax Use this form to report withheld federal income tax from nonpayroll payments. Nonpayroll payments include: Pensions (including distributions from tax-favored retirement plans, for example, section 401(k), section 403(b), and governmental section 457(b) plans), and annuities; Military retirement; Gambling winnings; Indian gaming profits; Voluntary withholding on certain government payments; Backup withholding

What order should account be in a trial balance?

Assets: Short and long term Liabilities: Short then long term Equity Revenues Expenses Should always balance

What does using check as pay method offer?

Benefits --- -offers traceability and simplicity of accounting records. -security for employee and employer. Programs such as quickbooks and Sage 100 allow employers to print paychecks directly from the program on specifically designed preprinted forms. Disadvantages --- bank account reconciliation. -Employee may not deposit right away, lose or destroy, requiring voiding and issuing a new one. -If employee does not have a checking account, can make cashing it challenging and potentially costly. -Getting phased out as option

union dues

CCPA disposable income limits do not pertain to union dues because they are not court mandated. Note: employees deduction for union dues is considered voluntary

Assets

Cash or other items that are used in the operation of the business and amounts owed to the business by customers

Left side of the T account

Debit (Dr)

Rules for Depositing Amounts Related to Benefits

Diverse rules- deposit frequency depends on the timing of deductions from employee pay and recipient requirements. General rule for taxes withheld is that the deposit of these amounts must follow employer deposit rules, employer should estimate the amount of the benefit transmitted on a specific date, remit taxes, & transmit any other monies as necessary Depositing taxes for noncash benefits will occasionally require an estimate of the taxes due. *Ex, when such an estimate may occur would be employee meals. Employer would estimate the value of the meals and deposit the appropriate amount of tax because it would be a taxable fringe benefits. Note: the estimate needs to be accurate as possible and the underpayment of taxes will result in IRS penalties

State tax remittance

Each state has its own form for tax remittance. Similar to federal forms. Note: Each state has it's own unique taxes, such as: CA -- employee only state disability insurance (SDI) tax of 1% on earnings up to $118,371 CA - employer only Employment Training Tax (ETT) of 1% o first $7000 -These additional taxes are included on states payroll tax return

What is form 943 for?

Employer's Annual Federal Tax Return for Agricultural Employees File this form if you paid wages to one or more farmworkers and the wages were subject to social security and Medicare taxes or federal income tax withholding.

Personal Use of a Company Vehicle: Commuting Rule

For employees who are strictly forbidden from using the vehicle outside of work hours and for personal purposes. Only available for transport to and from work and during the workday. Compute number of miles driven for commuting to work and multiply that by $1.5 to determine valuation

When is FUTA Tax Paid ?

If accumulated FUTA liability is more the $500 for the quarter, a deposit must be made by the last day of the month following the end of the quarter. If the balance is less the $500 roll over to the next quarter and subsequent quarters until the end of the year. If less then $ 500 at the end of year the employer may pay its FUTA with Form 940 by Jan 31 of following year.

Assets = Liabilities + Owner's Equity

In Financial accounting, the fundamental equation accounting equation must remain balanced at all times.

Payroll General Journal Entry with issuance of check

Journal entry to record the employees portion of the payroll and the issuance of the checks to employees is in 2 parts.

How would you allocate costs accurately among departments?

Labor Distribution Report Departmental classification allows correct analysis of business and cost allocation. A payroll accounting system allows accurate allocation based on the precise amounts paid to each employee per payroll period. These reports are among the tools that managers use to determine the productivity and costs specifically associated with their department

What are the due dates for Monthly and Semi-weekly deposits for estimated taxes?

Monthly - Due by the 15th day of the following month Semi-weekly: Payments made on Wed, Thu, Fri ~ due by following Wednesday Payments made on Sat, Sun, Mon, Tue ~ due by following Friday

What are the states With Flat Tax Rates?

North Carolina 5.25% Massachusetts 5% Kentucky 5% New Hampshire 5% (interest and dividend income only) Illinois 4.95% Utah 4.95% Colorado 4.55% Michigan 4.25% Indiana 3.23% Pennsylvania 3.07%

What are certain accounting conventions present in the general ledger?

Note: Columns in General Ledger are similar, these differ to those in the the General Journal * Each line has a date * Description is usually left blank, except for adjusting, closing, and reversing entries The post reference number is combination of letters and numbers, with letter being with journal the entry correlates. ex. 'J' = General journal, Number being the exact page of the journal entry.

Other Payroll-related Journal Entries

Other deductions would be held and remitted to appropriate entity.

IRS states most 401(k) are subject to Social Security and Medicare taxes T/F

True - But, Some qualified 401(K) plans may be considered as cafeteria plans and can be excluded from FICA tax liability Excluded fringe benefits are not generally a taxable part of employee pay and not reported on W-2

Federal Unemployment Tax is the sole employer-only tax T/F

True - Some state require employees to contribute for the state unemployment tax, where others are employer-only tax

No matter how employee receives specific benefits, the employer must treat the benefit as thought it was paid annually T/F

True - to guarantee that taxable benefits are reflected appropriately on W-2s. Employer may change timing of any amounts withheld for benefits as necessary for the entire company and for individual employees. Exception: unless involves the transfer of property associated with benefits. ex. If the benefit involved is an investment, any amount withheld from the employee must coincide w the transfer of ownership of the investment.

What are the 2 commonly used methods to calculate Federal Income?

Wage Bracket and Percentage Methods

What tax rate should be used for Fringe Benefits for federal income tax withholding?

You can add the value of the fringe benefits to the employee's regular wages. -Or- You can withhold at the fringe benefit tax rate of 22% (the same rate for supplemental pay).

Can you offer fringe benefits for non-employees?

You can offer fringe benefits to independent contractors Business partners can also receive fringe benefits. Fringe benefits given to independent contractors and partners are not taxed. But, you should report the benefit: Independent contractor: Use Form 1099-NEC, Nonemployee Compensation Partner: Use Schedule K-1 (Form 1065), Partner's Share of Income, Deductions, Credits, etc.

What happens if you accumulate $100,000 or more in taxes on any day during a monthly or semi weekly deposit period?

You must deposit the tax by the next business day

What is benchmarking?

a process by which a company compares its performance with that of high-performing organizations Benchmarking provides necessary insights to help you understand how your organization compares with similar organizations, even if they are in a different business

What is a Head Tax?

a uniform tax imposed on each person. Denver has "head tax" for those working within city and county. Mountain View, CA has similar tax because of Googles presence in city.

Net pay

amount of cash an employee receives in a physical check, cash, direct deposit or paycard. Once employer has computed gross pay, the next step is deducting mandatory, voluntary, and mandated amounts. May be subject to state income tax, city or county income taxes and regional taxes.

What is disposable income?

amount of employee pay after legally required deductions like income taxes have been withheld

What is a Flow Through?

an option many offer is a flow through ( company does not cover any costs) Most popular of this type is AFLAC with variety of policies with separate treatment of whether pre or post tax Code 104(a)(3) and 105(a) deal with exclusion of short and long term disability Long term ins is excluded from taxable income - if employer pays, can be excluded or included in gross pay

What is a Flexible Spending Arrangement (FSA)?

benefit available to assist in the payment of medical expenses, including certain co-payment, prescriptions, transportation, and certain child care expenses. Can be included in cafeteria plan and full list of included medical expenses can be found in Publication 502

What do you say when employee asks "Why doesn't my W-2 match my final paycheck?"

it should... if you know how to calculate the income that belongs in each block of the W2 Usual issue will be: Social Security and Medicare wages are not reduced by contributions by the employee to qualified pension accts (401k, 403b, etc) so may be higher than box 1. Box 12 will show amount of difference

Fringe benefits

monetary or nonmonetary compensation given to employees in return for their service to the company any monetary value benefit an employer offers in exchange for an employee's services that does not include their salary is a fringe benefit. According to Bureau of Labor Statistics, 25-33% of additional compensation is commonly offered as fringe benefits

Publication 15 (and all supplemental materials) :

provides a list of employee taxes, employer responsibilities, and guidance for special situations.

What are further expenses of payroll?

recruiting hiring training tools uniforms specific equipment Cost to hire and train new employees averages 15-25% of employees salary.

Total Compensation Report

report given to the employee from the company that details all benefits in monetary terms. Allows employees to have an accurate statement of the cash and noncash value of tier service to the employer.

What accounts does the debit side of a T account increase?

-Expenses -Assets -Dividends

Most common and popular benefit is?

401(k) - defined as benefit plan characterized by employee contribution and some level of matched contribution by employer. Helps employee set aside for retirement on a non-taxed basis (a deferred compensation plan) A ruling in 2018 allowed employers to connect their employees student loans with 401(k) contributions. Employers will contribute extra amounts of money toward retirement if they are making a certain level of payments to reduce their student loan debt

Employment tax revenue remittances represent what percentage of federal revenue?

70%

Local Taxes

Additionally, employers are responsible for any other local or regional taxes. (purpose can include the provision of social services and infrastructure costs) ex. Denver Head Tax

What states do not have an Income Tax?

Alaska Florida Nevada South Dakota Tennessee Texas Washington state Wyoming New Hampshire falls into a gray area. It doesn't levy a tax on earned income, but it does tax interest and dividends at a flat 5%.

Liabilities

Amounts owed by the business to other people or companies

What are the options for tax deposit frequency?

Annually Quarterly Monthly Semiweekly Next Business Day Most common are monthly and semiweekly. Electronic tax deposits are usually processed through the Electronic Federal Tax Payment System (EFTPS) although IRS allows to transmit payments through certain financial institutions via Automated Clearing House (ACH) or wire transfer. When using the EFTPS, employer must register with IRS to access the site, used for both Form 941 (fed, SS, medicare taxes) and the quarterly/annual form 940 FUTA tax deposit www.eftps.gov

Right side of the T account

Credit (Cr)

FICA (Federal Insurance Contributions Act)

Social Security Act of 1935 mandated the withholding of certain taxes in addition to fed inc tax. This covers both social tax and medicare tax SS and Medicare apply to gross pay if an employee elects to have a 401(k) deductions, but qualified section 125 (cafeteria) plans are exempt from FICA taxes. Contains contributions from both employer and employee. Deposits are usually done online, but may be made by standard mail in certain circumstances. IRS does not provide a breakdown of tax amounts for individual employees, specific questions about SS or medicare tax situations should be directed to social security administration ssa.gov or 800-772-1213

If payroll is split between 2 months, how can you accurately represent the expenses and liabilities incurred in the period?

Some companies will use adjusting entries and then reverse at start of next period to prevent confusion Note: Not all companies use reversing entries. - use is at company's discretion + simplifies payroll process by avoiding partial payroll periods that occur due to period end. - becomes additional entries that the accountant has to journalize and post

What does an arm's length transaction mean?

Some fringe benefits may increase employee pay and be taxable, like employer provided vehicles, mileage, leasing, and commuting. The items to be included in gross pay are valued at the level as if they were purchased through a third party (referred to as an arm's length transaction)

State Tax Rates 2022

Some states dependent on wage bracket

Other State an Local Employer Only Payroll taxes

Some states have employer only taxes unique to area Delaware, Colorado, Hawaii, and several other states have added taxes under different names including: -Georgia employees pay admin assessment of .06% on gross wages w base of $9500 -Maine has employer paid competitive skills scholarship program tax of .06% -California, employers pay employment training tax ETT of .1% on gross w $7000 base Payroll accountant must keep aware of state, county and city tax, forms, and due dates

Who is always responsible for accuracy of deductions and maintenance of associated records?

The business is always responsible

What is a major issue with cafeteria plans?

The exclusion of sole proprietors, partners, shareholders in an S-Corp who have greater than a 2% share in the company and members of LLCs who elect to be taxed as partnerships. According to Section 125, these individuals may not participate in a cafeteria plan. 73% of business owner fall into one of the exclusions - barring many people from tax privileges that they offer their employees

Form 944, Employer's Annual Federal Tax Return

The form used by employers to report FICA (OASDI and Medicare) for firms with a total annual tax liability of less than $1000. Like 941, enter details of wages paid and computes taxes due. Enter annual liability instead of quarterly. IRS must notify a company in writing of the requirement to file Form 944 prior to its use

Owner's Equity

The net investment that the owner has in the business, including earnings kept in the business

Why should your statements be done in accordance with GAAP?

To facilitate the presentation of wide variety of businesses that exist. Use to make decisions about labor and benefits planning, also stakeholders can make informed decisions about the business

How could you show employer full costs of employee?

You would compile a benefit analysis report. Important tool in maintaining balance between employee retention and profitability. Considers all of the variables that comprise their compensation. -helps employers benchmark their employees compensation to other companies with similar profiles or in certain locations -helps employers with labor distribution and budgeting tasks by providing data for decision making -facilitates managerial understanding of departmental impacts prior to hiring or dismissing employees

What do unpaid payroll obligations represent?

a liability. Not only to employees, but for voluntary and mandatory deductions Federal income tax FICA taxes Health Ins Premiums Retirement plan contributions Child support garnishments Union Dues Employers have a fiduciary responsibility to remit all amounts withheld from employee pay. Employers are subject to provisions of ERISA to protect all amounts due to employees and other recipients

What is an Employee's Earning Record?

master document used to track employees marital status, deductions, and YTD earnings. Forms link between accounting and human resources. Info in each row of register is transferred to employee earnings records, then also used to complete payroll entries in the general journal. Accountant will update during each pay period to track all pay and tax deductions. Any employee changes, including pay rate, marital status, and change in withholding allowances, should be annotated in earnings records as soon as possible

Percentage Method

method of calculating employee withholding - tiered, with each layer building upon the previous layer. It is important to select the withholding allowance amount that corresponds to the correct pay frequency. If employee has more than one allowance, the amount in the table should be multiplied by the number of withholding allowances claimed on W-4 The deduction for each withholding allowance is subtracted prior to computing the taxes. *Note the wage-bracket and percentage methods will yield similar results as to income tax withholding: percentage method allows more flexibility for calculations involving high wage earners or uncommon pay periods

W-2

serves as report of all wages and associated taxes for calendar yr. Has all taxable benefits reported. Ensures that the employer calculates the correct amount of income taxes and return reflects proper amount of income

What are the foundation of financial reports?

the General Ledger accounts

Federal Income Taxes are determined by what 4 factors?

- Gross Pay - Pay Frequency - Marital Status - # of withholding allowances Highest taxed fed income tax bracket is single with zero dependents. Employees w/ more than one job or additional income for which no income is held can request additional amounts as either percentage or dollar amount to be withheld on W4 form when individual files the income tax return, the amount withheld from pay during yr reduces amount owed with return.

What are best practices of using a check for pay?

1. use payroll only checking account - prevents issues if cash issues in business main acct. 2. procedure for handling the checks themselves--- keep detail record of all disbursed, voided, lost or never cashed.. Once a check is issued, it must be maintained in an unclaimed property if employee never claims check. Called Escheatment of payroll check. Subject to state laws in regards of how to handle and distribute such money. Mandatory but largely UN-enforced. Note: numerical amount of check must be represented in specific words for bank to accept, banks accept based on amount written on the check.

How many copies should there be made of W-2 and where do they go?

6 copies Copy A - Social security administrations Copy 1 - State, City or Local tax dept. Copy B - Filing w the Employee's Federal Tax return Copy C - Employee's records Copy 2 - State, City or Local tax dept. Copy D - Employer

Wage Bracket Method

A method of determining the amount to withhold from an employee's gross pay for a specific time period. Wage-bracket tables are provided by the Internal Revenue Service. payroll clerk identifies individuals marital status, # of exemptions, and taxable income level, then follows the chart located in PUBLICATION 15 for amount to be withheld. Wage-Bracket method may be programmed into an automated system, but clerk should make sure year end updates are done to ensure accuracy (Many wage amounts are the same number as the beginning and the end of a range. If the number is exact number of the range, then the next column should be used.)

Without a lookback period, what should a new company use as their deposit frequency?

All new companies are monthly schedule unless they have a total payroll liability in excess of $100,000 during any period. IRS will inform business in writing of deposit frequency once established

What is de minimis?

An exception of fringe benefit reporting obligations. De minimis benefits, items with a value so minimal that accounting would be unnecessary. Generally classified as occasional use benefits, but if item becomes regular, the value can aggregate to sum that could be treated as income.

Gift card benefit:

Cash value of gift cards must be added as compensation to W-2, none would be excluded under de minimis

When should money be withheld for benefits from pay?

when the benefit is made available. It is up to employer whether held during pay period, monthly, annually and so forth. Therefore any employee contributions to cafeteria plans, FSAs, HSA, or other benefits should be deducted from regular pay. Best practice is to document the amounts involved in voluntary deductions in writing for the employee to acknowledge and sign