Chapter 9 Payroll Accounting: Employer Taxes and Reports

FUTA Tax Payable

-Credited when taxes imposed on employer -Debited when paid

SUTA Tax Payable

-Credited when taxes imposed on employer -Debited when paid

SUTA Taxes

-Deposits usually required on a quarterly basis-Forms required vary by state

Wage and Tax Statement (W-2)

-Given to each employee by January 31 -Shows the total amount of wage paid and taxes withheld during the preceding taxable year -Prepared from the employee earnings record

Three important aspects of employer reporting and payment responsibilities:

1. Determining when payments are due 2. Use of electronic funds transfer(EFT) to make federal tax deposits. 3. Use of Form 941, Employer's Quarterly Federal Tax Return.

Payroll Taxes Expense

1. Social Security, Medicare, FUTA, SUTA taxes imposed on the employer are expenses of doing business. 2. S.S. and Medicare Taxes Payable 3. Credited when taxes imposed on employer or withheld from employees 4. Debited when tax is paid

Journalizing Payroll Taxes

A journal entry is needed to record the expense and liabilities for payroll taxes.1. Usually debit all expense to one account.2. Credit separate accounts for each type of tax liability.

Employer FICA Taxes

Both the employee and employer pay FICA taxes. Each pays equal share Social Security = 6.2% on maximum earnings of $128,400. Medicare= 1.45% on ALL earnings. THE AMOUNT OF EARNINGS SUBJECT TO SOCIAL SECURITY TAX IS OBTAINED FROM THE PAYROLL REGISTER.

FUTA Taxes (form 940)

Calculated Quarterly -Deposit is due at the end of the month following the close of the quarter -Liabilities is $500 or less, amount is added to amount to be deposited for next quarter.

FUTA Taxes are deposited using form 940

EFTPS Must be filed by January 31 Annual Report of federal unemployment tax

W-2 Tax Form Copy B

Employee files with federal income tax return.

W-2 Tax Form Copy 2

Employee files with state, city, or local income tax return

W-2 Tax Form Copy C

Employee retains for his or her own records.

W-2 Tax Form Copy D

Employer retains for business records

W-2 Tax Form Copy 1

Employer sends to state, city, or local tax department

Form 941

Employer's Quarterly Federal Tax Return; form used to report accumulated amounts of FICA and federal income tax withheld from employees' earnings for the quarter, as well as FICA tax owed by the employer. Must be filed with the IRS at the end of the month following each calendar quarter. Due April 30, July 31, October 31 and January 31.

Employment Eligibility Verification (Form I-9)

Every employee hired after November 6,1986 must be completed Form I-9 -To document that each employee is authorize to work in the US. -Not filed with any government agency -Must be retained by the employer and made available for inspection if requested by the Department of Homeland Security or the Department of Labor.

Employer FUTA Tax

FUTA(Federal Unemployment Tax Act) tax 1. Levied only on employers 2. Not deducted from employees' earnings 3. Current rate is 6.0% applied to maximum earnings of $7,000 for each employee 4. Employers are allowed a credit of up to 5.4% for participation in the state unemployment programs 5. Effective rate is .6% 6. FUTA taxes also calculate from information in the Payroll Register.

The FUTA tax is levied only on the employees

False- FUTA tax is levied on the employers.

The W-4, which shows total annual earnings and deductions for federal and state income taxes, must be completed by the employer and given to the employee by January 31.

False- This form is the W-2

True/False Employer payroll taxes are deducted from the employee's pay

False- taxes are paid by the employer

Employer payroll taxes

In addition to the gross pay for each employee, the employer must pay payroll taxes: FICA Federal Insurance Contributions Act FUTA Federal Unemployment Tax Act SUTA State Unemployment Tax Act These taxes add substantially to the cost of living.

Steps 4

Compute the amount of FUTA tax by multiplying the Unemployment taxable earnings by 0.6%

Step 5

Compute the amount of SUTA tax by multiplying the Unemployment Taxable earning by 5.4%.

Steps 3

Compute the amount of employer Medicare tax by multiplying total earnings by 1.45%

Step 2

Compute the amount of employer Social Security tax by multiplying the Social Security taxable earnings by 6.2%

Steps Needed to Prepare Journal Entry: Step 1

Obtain the total earnings and taxable earnings amounts from the Earning Total and Taxable Earnings columns of the payroll register.

Steps 6

Prepare the appropriate journal entry using the amount computed in steps 2-5

Transmittal of Wage and Tax Statements, Form W-3

Preprinted government form submitted with Forms W-2 to the Social Security Administration. -Due by February 28 following the end of each taxable year -Summarize employee earnings and tax information presented on Forms w-2 for the year.

Worker compensation insurance

Insurance which covers workers' job-related injuries, usually required by law. -Provides insurance for employees who suffer a work-related injury -Required by most states -Employer usually pays the entire cost -Cost depends on the number of employees, riskiness of the job, and the company's accident history. -Rate is higher for commercial fisherman compared to office workers. -Employer usually pays premium at beginning of year, based on estimated payroll -A year-end adjustment is made when the actual amount of payroll is known.

Employer SUTA Tax

SUTA(State Unemployment Tax Act) tax 1. Levied only on employers 2. Tax funds used to pay unemployment benefits 3. Tax rates and unemployment benefits vary among states 4. In this text, the SUTA rate is 5.4% applied to maximum earnings of $7,000 for each employee 5. Most states have an experience-rating system to encourage employers to provide regular employment to workers 6. If an employer have very few former employees receiving unemployment compensation, the employer qualifies for a lower state unemployment tax rate 7. Full federal credit of 5.4% is still allowed even if employer pays a lower state rate for participation in the state unemployment programs

Lookback period

The 12-month period that ends on June 30 of the prior year that is used to determine how frequently a business must deposit payroll taxes

W-2 Tax Form Copy A

The employer sends to social Security Administration

Self-Employment Tax

The total Social Security and Medicare tax, including employer-matching contributions, paid by people who work for themselves. Contributed to the FICA program. Earn a net income of $400 or more

Self-Employment income is the net income of a trade or business owned and run by an individual

True

The payroll register is a key source of information for computing employer payroll taxes.

True