chapter nine employer taxes, payments, and reports

Chapter Nine

Employer Taxes, Payments, and

Reports

Accounting Is Fun! 9 - 2

Performance Objectives

1. Calculate the amount of payroll tax expense and journalize the related entry

2. Journalize the entry for the deposit of employees’ federal income taxes withheld and FICA taxes (both employees’ withheld and employer’s matching share) and prepare the deposit coupon

3. Journalize the entries for the payment of employer’s state and federal unemployment taxes

4. Journalize the entry for the deposit of employees’ state income taxes withheld


Performance Objectives

5. Complete Employer’s Quarterly Federal Tax Return, Form 941

6. Prepare W-2 and W-3 forms and Form 940

7. Calculate the premium for workers’ compensation insurance, and prepare the entry for payment in advance

8. Determine the amount of the end-of-the-year adjustments for (a) workers’ compensation insurance and (b) accrued salaries and wages, and record the adjustments


Chapters 8 and 9: Overview

• Chapter 8– Withhold employees’ taxes– Create liabilities (payables)

• Chapter 9– Pay off those liabilities– Calculate and pay employer taxes


Employer Identification Number

• The number assigned each employer by the Internal Revenue Service

• Used to submit reports and payments for FICA taxes and federal income tax withheld

• Listed on all deposit slips

• Individuals have Social Security numbers

• Employers have employer identification number

• IRS uses both numbers to track taxes


Employer’s Payroll Tax Expense

• A general expense account used for recording: – FICA tax (employer’s share)– State unemployment tax (varies by state)– Federal unemployment tax

• Paid by employer on behalf of employees


Performance Objective 1

Calculate the amount of payroll tax expense and journalize the related entry


Payroll Tax Components

• FICA tax (employer’s share)– Calculate Social Security amount (using 6.2%, $84,9000

ceiling)– Calculate Medicare amount (using 1.45%)

• State unemployment tax (SUTA)– Levied only on the employer in most states– Rate varies by state (book assumes 5.4%, $7,000 ceiling)– Pays subsistence benefits to unemployed workers

• Federal unemployment tax (FUTA)– Levied only on the employer– Rate varies (book assumes 0.80%, $7,000 ceiling)– Used to administer federal unemployment fund


Calculate Payroll Tax Expense• Take taxable amounts directly from

payroll register• FICA tax (employer’s share)• State unemployment tax (varies by state)• Federal unemployment tax

Regular Overtime Total Unemployment Social MedicareAsino, Matte E. 46 32,890.00 913.60 205.56 1,119.16 34,009.16 0.00 1,119.16 1,119.16Boritsky, Olga 45 6,192.00 619.20 116.10 735.30 6,927.30 735.30 735.30 735.30Dray, Greg G. 49 6,846.00 684.60 231.05 915.65 7,761.65 154.00 915.65 915.65Foulkes, Bob L. 40 38,637.00 1,073.25 0.00 1,073.25 39,710.25 0.00 1,073.25 1,073.25Groyer, Milli K. 40 68,000.00 1,888.89 0.00 1,888.89 69,888.89 0.00 1,888.89 1,888.89Kramer, Ada A. 40 68,100.00 1,891.67 0.00 1,891.67 69,991.67 0.00 1,891.67 1,891.67Minkowitz, John L. 55 36,840.00 1,023.33 575.63 1,598.96 38,438.96 0.00 1,598.96 1,598.96Orleons, Janet C. 40 45,783.00 1,271.75 0.00 1,271.75 47,054.75 0.00 1,271.75 1,271.75Pinkovich, Mark S. 44 46,970.00 1,304.72 195.71 1,500.43 48,470.43 0.00 1,500.43 1,500.43Romero, Sheila J. 45 54,978.00 1,527.17 286.34 1,813.51 56,791.51 0.00 1,813.51 1,813.51Tivoli, Jake T. 40 42,078.00 1,168.83 0.00 1,168.83 43,246.83 0.00 1,168.83 1,168.83Wilson, Sharlet D. 52 84,600.00 1,990.56 895.68 2,886.24 87,486.24 0.00 300.00 2,886.24Totals 531,914.00 15,357.57 2,506.07 17,863.64 549,777.64 889.30 15,277.40 17,863.64

Taxable EarningsEndingCumulative Name

TotalHours

BeginningCumulative

Earnings


Calculate Payroll Tax Expense

Do not use calculated amounts from

employee’s deductions. You must take totals

and recalculate amounts. (As a result

there may be rounding differences.)

PayrollTaxes

TaxableAmount x %

FICA Tax (Employer’s Share) Social Security Tax 15,277.40 x 6.20% = $947.20Medicare Tax 17,863.64 x 1.45% = $259.02

FICA Tax (Employer’s Share) $1,206.22State Unemployment Tax(Rates Vary) 889.30 x 5.40% = $48.02Federal Unemployment Tax(Rates Vary) 889.30 x 0.80% = $7.11

= Tax

Regular Overtime Total UnemploymentSocial

Security MedicareAsino, Matte E. 46 32,890.00 913.60 205.56 1,119.16 34,009.16 0.00 1,119.16 1,119.16Boritsky, Olga 45 6,192.00 619.20 116.10 735.30 6,927.30 735.30 735.30 735.30Dray, Greg G. 49 6,846.00 684.60 231.05 915.65 7,761.65 154.00 915.65 915.65Foulkes, Bob L. 40 38,637.00 1,073.25 0.00 1,073.25 39,710.25 0.00 1,073.25 1,073.25Groyer, Milli K. 40 68,000.00 1,888.89 0.00 1,888.89 69,888.89 0.00 1,888.89 1,888.89Kramer, Ada A. 40 68,100.00 1,891.67 0.00 1,891.67 69,991.67 0.00 1,891.67 1,891.67Minkowitz, John L. 55 36,840.00 1,023.33 575.63 1,598.96 38,438.96 0.00 1,598.96 1,598.96Orleons, Janet C. 40 45,783.00 1,271.75 0.00 1,271.75 47,054.75 0.00 1,271.75 1,271.75Pinkovich, Mark S. 44 46,970.00 1,304.72 195.71 1,500.43 48,470.43 0.00 1,500.43 1,500.43Romero, Sheila J. 45 54,978.00 1,527.17 286.34 1,813.51 56,791.51 0.00 1,813.51 1,813.51Tivoli, Jake T. 40 42,078.00 1,168.83 0.00 1,168.83 43,246.83 0.00 1,168.83 1,168.83Wilson, Sharlet D. 52 84,600.00 1,990.56 895.68 2,886.24 87,486.24 0.00 300.00 2,886.24Totals 531,914.00 15,357.57 2,506.07 17,863.64 549,777.64 889.30 15,277.40 17,863.64

Taxable EarningsEndingCumulative

EarningsNameTotalHours

BeginningCumulative

Earnings

Earnings


Journalize Payroll Tax Expense Entry

• Payroll taxes are an expense of doing business

• Debit Payroll Tax Expense

• Credit associated payable account

DescriptionPost.Ref. Debit Credit

2005Oct. 7 Payroll Tax Expense 1,261.35

FICA Tax Payable 1,206.22State Unemployment Tax Payable 48.02Federal Unemployment Tax Payable 7.11

To record employer's share of FICA tax andemployer's state and federal unemployment taxes.

General Journal Page 9

Date


T-Accounts: Beginning Balance

DR CR DR CR

+ - - +1,206.24

DR CR

- +

DR CR

- +

Payroll Tax Expense FICA Tax Payable

State Unemployment Tax Payable

Federal Unemployment Tax PayableBalance from employees’ deductions


T-Accounts: Employer’s FICA

DR CR DR CR

+ - - +1,206.22 1,206.24

1,206.22

DR CR

- +

DR CR

- +



Federal Unemployment Tax Payable


T-Accounts: Employer’s SUTA

DR CR DR CR

+ - - +1,206.22 1,206.24

48.02 1,206.22

DR CR

- +

48.02

DR CR

- +





T-Accounts: Employer’s FUTA

DR CR DR CR

+ - - +1,206.22 1,206.24

48.02 1,206.227.11

DR CR

- +

48.02

DR CR

- +

7.11





T-Accounts: Total Payroll Tax Expense

DR CR DR CR

+ - - +1,206.22 1,206.24

48.02 1,206.227.11

1,261.35

DR CR

- +

48.02

DR CR

- +

7.11



Federal Unemployment Tax PayableTotal Payroll Tax

Expense, journalized and posted


To Summarize


1. Record Current Period Payroll in Payroll Register

FederalIncome Tax

StateIncome Tax

SocialSecurity Tax Medicare Tax

MedicalInsurance

TotalDeductions

NetAmount

Ck. No.

150.00 30.00 69.39 16.23 11.19 276.81 842.35 93180.00 16.00 45.59 10.66 11.03 UW 12.00 175.28 560.02 932

107.00 21.40 56.77 13.28 13.73 UW 15.00 227.18 688.47 933123.00 24.60 66.54 15.56 16.10 245.80 827.45 934394.00 78.80 117.11 27.39 28.33 645.63 1,243.26 935395.00 79.00 117.28 27.43 28.38 UW 10.00 657.09 1,234.58 936312.00 62.40 99.14 23.18 23.98 UW 12.00 532.70 1,066.26 937193.00 38.60 78.85 18.44 19.08 UW 20.00 367.97 903.78 938284.00 56.80 93.03 21.76 22.51 478.10 1,022.33 939372.00 74.40 112.44 26.30 27.20 AR 50.00 662.34 1,151.17 940164.00 32.80 72.47 16.95 17.53 UW 25.00 328.75 840.08 941665.00 133.00 18.60 41.85 41.44 UW 30.00 929.89 1,956.35 942

3,239.00 647.80 947.21 259.03 260.50 174.00 5,527.54 12,336.10

Other

Deductions Payments

Regular Overtime Total UnemploymentSocial

Security MedicareAsino, Matte E. 46 32,890.00 913.60 205.56 1,119.16 34,009.16 0.00 1,119.16 1,119.16Boritsky, Olga 45 6,192.00 619.20 116.10 735.30 6,927.30 735.30 735.30 735.30Dray, Greg G. 49 6,846.00 684.60 231.05 915.65 7,761.65 154.00 915.65 915.65Foulkes, Bob L. 40 38,637.00 1,073.25 0.00 1,073.25 39,710.25 0.00 1,073.25 1,073.25Groyer, Milli K. 40 68,000.00 1,888.89 0.00 1,888.89 69,888.89 0.00 1,888.89 1,888.89Kramer, Ada A. 40 68,100.00 1,891.67 0.00 1,891.67 69,991.67 0.00 1,891.67 1,891.67Minkowitz, John L. 55 36,840.00 1,023.33 575.63 1,598.96 38,438.96 0.00 1,598.96 1,598.96Orleons, Janet C. 40 45,783.00 1,271.75 0.00 1,271.75 47,054.75 0.00 1,271.75 1,271.75Pinkovich, Mark S. 44 46,970.00 1,304.72 195.71 1,500.43 48,470.43 0.00 1,500.43 1,500.43Romero, Sheila J. 45 54,978.00 1,527.17 286.34 1,813.51 56,791.51 0.00 1,813.51 1,813.51Tivoli, Jake T. 40 42,078.00 1,168.83 0.00 1,168.83 43,246.83 0.00 1,168.83 1,168.83Wilson, Sharlet D. 52 84,600.00 1,990.56 895.68 2,886.24 87,486.24 0.00 300.00 2,886.24Totals 531,914.00 15,357.57 2,506.07 17,863.64 549,777.64 889.30 15,277.40 17,863.64

EndingCumulative

EarningsNameTotalHours

BeginningCumulative

Earnings

Earnings Taxable Earnings


2. Based on Payroll Register, Make Journal Entry for Employee Salary/Wages Expense


2005Oct. 7 Sales Wages Expense 13,626.97

Office Wages Expense 4,236.67Employees' Federal Income Tax Payable 3,239.00FICA Tax Payable 1,206.24Employees' State Income Tax Payable 647.80Employees' Medical Insurance Payable 260.50Employees' United Way Payable 124.00Accounts Receivable 50.00Wages Payable 12,336.10

Payroll Register, page 68, for week ended October 7.


Date


3. From Taxable Earnings Columns of Payroll Register, Calculate and Journalize Payroll Tax Expense

UnemploymentSocial

Security Medicare0.00 1,119.16 1,119.16

735.30 735.30 735.30154.00 915.65 915.65

0.00 1,073.25 1,073.250.00 1,888.89 1,888.890.00 1,891.67 1,891.670.00 1,598.96 1,598.960.00 1,271.75 1,271.750.00 1,500.43 1,500.430.00 1,813.51 1,813.510.00 1,168.83 1,168.830.00 300.00 2,886.24

889.30 15,277.40 17,863.64

Taxable EarningsPayrollTaxes

TaxableAmount x %


FICA Tax (Employer’s Share) $1,206.22State Unemployment Tax(Rates Vary) 889.30 x 5.40% = $48.02Federal Unemployment Tax(Rates Vary) 889.30 x 0.80% = $7.11

= Tax


2005Oct. 7 Payroll Tax Expense 1,261.35

FICA Tax Payable 1,206.22State Unemployment Tax Payable 48.02Federal Unemployment Tax Payable 7.11

To record employer's share of FICA tax andemployer's state and federal unemployment taxes.


Date


4. Journalize Cash Payments to Employees


2005Oct. 8 Wages Payable 12,336.10

Cash—Payroll Bank Account 12,336.10Paid wages for week ended October 7.


Date



Journalize the entry for the deposit of employees’ federal income taxes withheld and FICA taxes (both employees’ withheld and employer’s matching share) and prepare the deposit coupon


Federal Tax Deposits

• Include combined total of:– Employees’ federal income taxes withheld– Employees’ FICA taxes withheld– Employer’s share of FICA taxes

• Made to authorized commercial or Federal Reserve banks and forwarded to U.S. Treasury

• Timing depends on amounts owed (the more you owe, the more often you pay)


Prepare the Deposit Coupon


Journal Entry for Payments of FICA and Federal Income Tax Withholdings


2005Nov 15 Employees' Federal Income Tax Payable 6,478.00

FICA Tax Payable 4,824.96Cash 11,302.96

Issued Ck. No. 4693 for federal tax deposit, Bangor Bank.

Date


• Reduces payables (liabilities)

• Reduces Cash• Leaves payable accounts

with zero balances after posting

0.00

DR CR- +

4,824.96 4,824.960.00

DR CR- +

6,478.00 6,478.00

FICA Tax Payable

Employees' Federal Income Tax Payable



Journalize the entries for the payment of employer’s state and federal unemployment taxes


DR CR- +

3,263.54 3,263.540.00


Payments of State Unemployment Tax (SUTA)


2005April 30 State Unemployment Tax Payable 3,263.54

Cash 3,263.54Issued Ck. No. 4311 for payment of state unemployment tax.

Page 17

Date

General Journal

• Usually paid quarterly• Due by the end of the month

following the end of the quarter (same as Form 941)

• After posting, the payable account has a zero balance

• Journal entry looks like this:


DR CR- +

483.49 483.490.00


Payments of Federal Unemployment Tax (FUTA)


2005April 30 Federal Unemployment Tax Payable 483.49

Cash 483.49Issued Ck. No. 4312 for deposit offederal unemployment tax.

General Journal

Date

Page 17

• Calculated quarterly (due dates same as form 941)– If liability > $100, funds are

submitted with deposit card





Journalize the entry for the deposit of employees’ state income taxes withheld



2005April 30 State Income Tax Payable 1,526.08

Cash 1,526.08Issued Ck. No. 4313 for state income tax deposit.

General Journal

Date

Page 17

Deposits of Employees’ State Income Tax Withholding

• Deposited quarterly (due dates same as SUTA)



DR CR- +

1,526.08 1,526.080.00

State Income Tax Payable



Complete Employer’s Quarterly Federal Tax Return, Form 941


Form 941 (Employer’s Quarterly Federal Tax Return)

• A quarterly report showing the tax liability for withholdings of employees’ federal income tax and FICA taxes and the employer’s share of FICA taxes; total tax deposits made in the quarter are also listed on Form 941

• Due April 30, July 31, October 31, January 31

• See textbook for example


Quarters

• Three consecutive months– Also referred to as calendar quarters



Prepare W-2 and W-3 forms and Form 940


Form W-2 (Wage and Tax Statement)

• Form containing information about employee earnings and tax deductions for the year

• After last day of calendar year, employer must complete and furnish employee with at least two copies (before January 31)

• One copy to the Social Security Administration• One copy to state (if appropriate)• Two or more copies to employee for:

– Employee’s records– Employee to send to IRS– Employee to send to state and local tax agencies if those

taxes withheld• One copy for employer’s records


Form W-3 (Transmittal of Wage and Tax Statements)

• Annual report (due Feb. 28) sent to Social Security Administration listing:– Total wages and tips– Total federal income taxes withheld– Total Social Security and Medicare taxable

wages and taxes withheld

• Must attach Copy A of employees’ W-2 forms

• Total amounts must match grand total of W-2 and four quarterly 941 forms


Form 940 (Employer’s Annual Federal Unemployment Tax Return)

• Due Jan. 31, or Feb. 10 if payments made in full

• Lists:– Total wages paid to employees– Total wages subject to federal

unemployment tax– Total federal unemployment tax– Other information



Calculate the premium for workers’ compensation insurance, and prepare the entry for payment in advance


Workers’ Compensation Insurance

• Provides benefits for employees injured or killed on the job

• Rates vary according to the degree of risk inherent in the job

• Plans may be sponsored by states or by private firms

• Employer pays premium in advance, based on estimated payroll for the year

• Rates are adjusted after exact payroll is known


Calculate the Premium in Advance


Prepare the Entry for Payment in Advance


Calculate Exact Premium at End of Year


Performance Objective 8a

Determine the amount of the end-of-the-year adjustment for worker’s compensation insurance, and record the adjustment


Calculate Unpaid Premium and Make Adjusting Entry

$3,653.00 Total exact premium

$3,595.50 Less total estimated premium paid

$57.50 Additional premium owed


Performance Objective 8b

Determine the amount of the end-of-the-year adjustment for accrued salaries and wages, and record the adjustment


Year-end Adjustments for Accrued Salaries and Wages

• Are there adjusting entries for wages expense and wages payable?– Yes, salaries and wages accrue between

the last payday and the end of the year

• Are there adjusting entries for FICA, federal income tax withholdings, or payroll taxes?– No– These taxes are not legal obligations until

employees are paid


Demonstration Problem

Payroll Register for Week Ended Oct. 14, 2005—page 72Payroll Problem

Names Beg. Cum. Earn. Week's Earnings Unemployment FICA FICASmith, J. C. 6,750.00 550.00 UE Max SS Max Medicare MaxPham, H. L. 5,255.00 650.00 $7,000.00 $84,900.00Ho, Dennis 43,690.00 700.00 Fed Rate SS Rate M RateGirvin, M. A. 56,900.00 680.00 0.008 6.20% 1.45%Chin, Sue 84,500.00 1,430.00 State Rate 0 0Chueng, Vicky 86,000.00 2,050.00 0.054 0 0


Look to Beginning Earnings to Determine If There Are Taxable Earnings

Total UnemploymentSocial

Security MedicareSmith, J. C. 6,750.00 550.00Pham, H. L. 5,255.00 650.00Ho, Dennis 43,690.00 700.00Girvin, M. A. 56,900.00 680.00Chin, Sue 84,500.00 1,430.00Chueng, Vicky 86,000.00 2,050.00Totals 283,095.00 6,060.00 0.00 0.00 0.00 0.00

EndingCumulative

EarningsName

BeginningCumulative

Earnings

Taxable EarningsPayroll Register for Week Ended Oct. 14, 2005—page 72


Calculate Ending Cumulative Earnings


Security MedicareSmith, J. C. 6,750.00 550.00 7,300.00Pham, H. L. 5,255.00 650.00 5,905.00Ho, Dennis 43,690.00 700.00 44,390.00Girvin, M. A. 56,900.00 680.00 57,580.00Chin, Sue 84,500.00 1,430.00 85,930.00Chueng, Vicky 86,000.00 2,050.00 88,050.00Totals 283,095.00 6,060.00 289,155.00 0.00 0.00 0.00

Payroll Register for Week Ended Oct. 14, 2005—page 72Ending

Cumulative EarningsName

BeginningCumulative

Earnings

Taxable Earnings


Calculate Taxable Earnings


Security MedicareSmith, J. C. 6,750.00 550.00 7,300.00 250.00 550.00 550.00Pham, H. L. 5,255.00 650.00 5,905.00 650.00 650.00 650.00Ho, Dennis 43,690.00 700.00 44,390.00 0.00 700.00 700.00Girvin, M. A. 56,900.00 680.00 57,580.00 0.00 680.00 680.00Chin, Sue 84,500.00 1,430.00 85,930.00 0.00 400.00 1,430.00Chueng, Vicky 86,000.00 2,050.00 88,050.00 0.00 0.00 2,050.00Totals 283,095.00 6,060.00 289,155.00 900.00 2,980.00 6,060.00

EndingCumulative

EarningsName

BeginningCumulative

Earnings



Calculate Deductions



EndingCumulative

EarningsName

BeginningCumulative

Earnings


Salary ExpenseFederal

Income TaxState

Income TaxSocial

Security Tax Medicare TaxTotal

DeductionsNet

AmountCk.No. Salary Expense

46.00 5.52 34.10 7.98 93.6045.00 5.40 40.30 9.43 100.1385.00 10.20 43.40 10.15 148.7555.00 6.60 42.16 9.86 113.62

238.00 28.56 24.80 20.74 312.1064.00 7.68 0.00 29.73 101.41

533.00 63.96 184.76 87.89 869.61 0.00 0.00

Payroll Register for Week Ended Oct. 14, 2005—page 72PaymentsDeductions


Calculate Payments and Expense



EndingCumulative

EarningsName

BeginningCumulative

Earnings



Income TaxState

Income TaxSocial


DeductionsNet


46.00 5.52 34.10 7.98 93.60 456.40 714 550.0045.00 5.40 40.30 9.43 100.13 549.87 715 650.0085.00 10.20 43.40 10.15 148.75 551.25 716 700.0055.00 6.60 42.16 9.86 113.62 566.38 717 680.00

238.00 28.56 24.80 20.74 312.10 1,117.90 718 1,430.0064.00 7.68 0.00 29.73 101.41 1,948.59 719 2,050.00

533.00 63.96 184.76 87.89 869.61 5,190.39 6,060.00



Make Journal Entry from Register



EndingCumulative

EarningsName

BeginningCumulative

Earnings



Income TaxState

Income TaxSocial


DeductionsNet


46.00 5.52 34.10 7.98 93.60 456.40 714 550.0045.00 5.40 40.30 9.43 100.13 549.87 715 650.0085.00 10.20 43.40 10.15 148.75 551.25 716 700.0055.00 6.60 42.16 9.86 113.62 566.38 717 680.00

238.00 28.56 24.80 20.74 312.10 1,117.90 718 1,430.0064.00 7.68 0.00 29.73 101.41 1,948.59 719 2,050.00

533.00 63.96 184.76 87.89 869.61 5,190.39 6,060.00


ExpensePayables


Record Salary Expense


2005Oct. 14 Salary Expense 6,060.00


Date


Record Payables to Make DR = CR



Employees' Federal Income Tax Payable 533.00Employees' State Income Tax Payable 63.96FICA Tax Payable 272.65Salaries Payable 5,190.39

Payroll register, page 72, for week ended October 14.


Date


Calculate Payroll Taxes

PayrollTaxes

TaxableAmount x %


FICA Tax (Employer’s Share) $272.63State Unemployment Tax(Rates Vary) 900.00 x 5.40% = $48.60Federal Unemployment Tax(Rates Vary) 900.00 x 0.80% = $7.20

= Tax


Record Payroll Expense





14 Payroll Tax Expense 328.43FICA Tax Payable 272.63SUTA Payable 48.60FUTA Payable 7.20

To record employer's share of FICA tax and employer's state and federal unemployment taxes.


Date


Journalize Cash Payments to Employees





14 Payroll Tax Expense 328.43FICA Tax Payable 272.63SUTA Payable 48.60FUTA Payable 7.20

To record employer's share of FICA tax and employer's state and federal unemployment taxes.

14 Salaries Payable 5,190.39Cash—Payroll Bank Account 5,190.39

Paid wages for week ended Oct. 14, 2005.


Date

chapter nine employer taxes, payments, and reports

Documents

employers payroll tax

employer taxes slide

employers fica slide

federal tax return

state unemployment tax

federal unemployment

employees taxes

fica taxes