accounting chapters 10 and 11
if the total accumulated tax liability reaches 100,000 or more on any day,
a deposit is due on the next banking day. even if the employer is on a monthly or semiweekly deposit schedule
social security act
a federal act providing certain benefits for employees and their families; officially the federal insurance contribution act
Employee's Withholding Allowance certificate, Form W-4
a form used to claim exemption (withholding) allowances
what is the look back period?
a four quarter period ending on June 30 of the preceding year
commission basis
a method of paying employees according to a percentage of net sales
hourly rate basis
a method of paying employees according to a stated rate per hour
salary basis
a method of paying employees according to an agreed-upon amount for each week or month
Piece-rate basis
a method of paying employees according to the number of units produced
employee
a person who is hired by and works under the control and direction of the employer
unemployment insurance program
a program that provides unemployment compensation through a tax levied on employers
Payroll register
a record of payroll information for each employee for the pay period
Wage-bracket table method
a simple method to determine the amount of federal income tax to be withheld using a table provided by the government.
experience rating system
a system that rewards an employer for maintaining steady employment conditions by reducing the firm's state unemployment tax rate.
social security (FICA or OASDI) tax
a tax imposed by the federal insurance contributions act and collected on employee earnings to provide retirement and disability benefits.
medicare tax
a tax levied on employees and employers to provide medical care for the employee and the employee's spouse after each has reached age 65
in order to avoid penalties, it is essential that a business prepares its payroll tax retures....
accurately and files the returns and required forms promptly
the federal insurance contributions act (FICA)
aka sociall security act
managers need to be familiar with
all payroll taxes and how they impact operating expenses
it is management's responsibility to ensure that the payroll procedures and records....
comply with federal, state, and local laws.
The first step in preparing payroll is to
compute the gross wages or salary for each employee.
management must ensure that payroll taxes are
computed properly and paid on time
managers must be knowledgable about unemployment tax reguations in their state because
favorable experience ratings can reduce unemployment tax expense.
to prevent errors an faud management periodically should
have payroll records audited and payroll procedures evaluated.
monthly deposit schedule rule
monthly payments are due on the 15th day of the following month
where are paychecks deducted?
on the firm's regular checking account or on a payroll bank account.
recording payroll involves two separate entries:
one to record the payroll expense and another to pay the employees.
independent contractor
one who is paid by a company to carry out a specific task or job but is not under the direct supervison or control of the company.
semiweekly
refers to the fact that deposits are due on either wednesdays or fridays depending on the employer's payday.
exempt employees
salaried employees who hold supervisory or managerial positions who are not subject to the maximum hour and overtime pay provisions of the wage and hour law.
merit rating system
see experience rating system
compensation record
see individual earnings record
withholding statement
see wage and tax statement, form w-2
if the amount owed is 2,500 or more,
the schedule is determined from the total taxes reported on Form 941 during the lookback period
the amounts on form w-3 must equal
the sums of the amounts on the attached forms w-2
what happens if an employer does not use the EFTPS when required?
they can be subject to a 10% penalty
garnishment
things such as child support that the court orders employers to withhold and remit to the proper authorities.
when are the earning records totaled?
monthly and at the end of each calendar quarter
the employees endorsement serves as a
reciept
what is the rate for social security tax?
6.2% or the first 132,900 of salary or wages paid to each employee
The amount of federal income tax to withhold from an employee's earnings depend on the:
-earnings during the pay period -length of the pay period -marital status -number of withholding allowances
withholdings not required by law
-group life insurance -group medical insurance -company retirement plans -bank or credit union savings plans or loan repayments -U.S. saving bonds purchase plans -stocks and other investment purchase plans -employer loan repayments -union dues
there are several ways to compute earnings:
-hourly rate basis -salary basis -commission basis -Piece rate basis
social security's old age, survivors, and disability insurance (OASDI) program provides the following benefits:
-retirement benefits when a worker reaches the eligible retirement age -benefits for the dependents of the retired worker -benefits for the worker and the worker's dependents when the worker is disabled
what are the three deductions required by federal law from employees gross pay?
-social security tax -medicare tax, -federal income tax
Federal laws require that certain payroll records be maintained. For each employee the employer must keep a record of:
-the employee's name, address, social security number, and date of birth -hours worked each day and week, and wages paid at the regular and overtime rates (certain exceptions exist for employees who earn salaries) -cumulative wages paid throughout the year -amount of income tax, social security tax, and medicare tax withheld for each pay period -proof that the employee is aU.S. citizen or has a valid work permit -cost of employer-sponsored health insurance coverage if provided by the employer.
two pieces of data are needed to copute gross pay for hourly rate basis employees
-the number of hours worked during the payroll period, -the rate of pay
the earning record shows
-the payroll period, -the date paid -the regular and overtime hours -the regular and overtime earnings, -the deductions -the net pay
In the simplest corcumstances, a taxpayer claims a withholding allowance for:
-the taxpayer -a spuse who does not also claim an allowance -each dependent for whom the taxpayer provides more than half the support during the year.
Use the following steps to determine the amount to withhold when using the wage bracket table method
1. choose the table for the pay perid and the employee's marital status 2.Find the row in the table that matches the wages earned. Find the column that matches the number of with holding allowances claimed on form w-4. the income tax to withhold is the intersection of the row and the column.
why are at least four copies of each of form w-2 prepared?
1. one copy for emplyer to send to the social security administration, which shares the information with the irs 2. one copy for the employee to attach to the federal income tax return 3. one copy for the employees records 4. one copy ofr the employees records
if there is a state income tax, two more copies of form w-2 are prepared. why?
1. one copy for the employer to send to the state tax department 2. one copy for the employee to attach to the state income tax return
what is the rate for medicare tax?
1.45%
the employer's share of medicare tax is
1.45% of earnings
what are the two steps to writing payroll checks from a separate payroll bank account?
1.a check is drawn on the regular bank account for the total amount of net pay and deposited in the payroll bank account 2. individual payroll checks are issued from the payroll bank accounts.
what is the SUTA tax rate?
5.4% in many states
what is the federal unemployment tax rate?
6.0%
what is the FUTA tax rate?
6.0% but can by reduced by the state unemployment tax rate
the employer's share of the social security tax is
6.2% UP TO THE EARNINGS MAX SUBJECT TO THIS TAX
individual earnings record
An employee record that contains information needed to compute earnings and complete tax reports.
who pays the state unemployment taxes (SUTA)
Employers
Employer's quarterly federal tax return, form 941
Preprinted government form used by the employer to report payroll tax information relating to social security, medicare, and employee income tax withholding to the internal revenue service.
Employer's Annual Federal unemployment Tax Return, Form 940
Preprinted government form used by the employer to report unemployment taxes for the calendar year.
Time and a half
Rate of pay for an employee's work in excess of 40 hours a week.
Federal unemployement taxes (FUTA)
Taxes levied by the federal government against employers to benefit unemployed workers.
who pays social security tax?
both the employer and the employee pay an equal amount of social security tax.
when is form w-3 due?
by the last day of february following the end of the calendar year.
tax exempt wages
earnings in excess of the base amount set by the social security act
who pays for the federal unemployment taxes (FUTA)
employers pay the entire amount of these taxes
the payroll register provides details that are
entered on the employee's individual earnings record for each pay period.
for new employers with no lookback period
if the amount owned is 2,500 or more, payments are due under the monthly deposit schedule rule
when are employers required to use the EFTPS?
if the annual federal tax deposits are more than $200,000
Workers' compensation insurance
insurance that protects employees against losses from job related injuries or illnesses, or compensates their families if death occurs in the course of the employment.
payroll records help management to
keep track of an control expenses.
the fair labor standards act of 1938
only applies to firms engaged directly or indirectly in interstate commerce. sets minimum and maximum hours of work per weeks to be performed at the regular rate of pay. aka: Wage and Hour Law or FLSA
what type of expense is workers comp?
operating expense
wages and salaries are a large par of
operating expenses
management should investigatelarge or frequent
overtime expenditures.
the payroll system should ensure that
payroll reports are prepared in an efficient manner
when an employer did not deduct enough taxes from an emplyee and is forced to pay the difference, where is the deficiency debited?
payroll taxes expense
Wage and tax statement, form w-2
preprinted govenment form that contains information about an employee's earnings and tax withholdings for the year.
Transmittal of wage and tax statements, form w-3
preprinted government form submitted with forms w-2 to the social security administration.
state unemployment taxes (SUTA)
taxes levied by a state government against employers to benefit unemployed workers
If a business makes their tax deposit electronically,
the Electronic Federal Tax Payment System (EFTPS) is used
if the employer did not deduct enough taxes from an employee's earnings,
the business pays the difference
what provides a record of the payment for a paycheck?
the cancled check
if payday is a wednesday thursday or friday
the deposit is due on the following friday
if payday is saturday sunday monday or tuesday
the deposit is due on the following friday
if the taxes for the quarter were deposited when due,
the due date is extended by 10 days
if the amount reported in the look back period was 50,000 or less
the employer is subject to the montly deposit schedule rule
if the amount reported in the look back period was more than $50,000,
the employer is subject to the semi weekly deposit schedule rule
the filing of form w-3 marks
the end of the routine procedures needed to account for payrolls and for payroll tax withholdings.
when is the due date for form 941?
the last day of the month following the end of each calendar quarter.
in most states, the due date for the state unemployment tax return is
the last day of the month following the end of the quarter
two common payroll frauds are
the overstatement of hours worked and the issuance of checks to nonexistent employees.