Chapter 13 Payroll Accounting Taxes and Reports Objectives

Chapter 13: Payroll Accounting, Taxes, and Reports Objectives: • Define accounting terms related to payroll accounting, taxes, and reports. • Identify accounting concepts and practices related to payroll accounting, taxes, and reports. • Analyze payroll transactions and record a payroll. • Record employer payroll taxes. • Prepare selected payroll tax reports. • Pay and record withholding and payroll taxes. CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning

LESSON 13 -1: Recording A Payroll Different forms of Payroll Information • Payroll information for each pay period is recorded in a payroll register. • Each pay period the payroll information for each employee is also recorded on each employee earnings record. • Accounts are kept in the general ledger to summarize total earnings and deductions for all employees. • Journal entries are made to record the payment of the payroll and the employer payroll taxes. CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning

3 PAYROLL REGISTER page 369 The payroll journal entry is based on the totals of the Earnings Total column, each deduction column, and the Net Pay column. The payroll register column totals are the source of information needed to prepare a journal entry for the payroll. CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning LESSON 13 -1

4 ANALYZING PAYMENT OF A PAYROLL page 370 The total earnings column of the payroll register is the debit amount for Salary Expense. This is the amount of money the employees actually earned, before deductions are subtracted. The Net Pay column is the credit amount for Cash. This is the amount of cash that was actually paid to the employees. All other columns provide the other credit parts of the entry. These credits become liabilities, so add “Payable” to the end of each column heading and you have your liability account. CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning LESSON 13 -1

5 ANALYZING PAYMENT OF A PAYROLL CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning

6 JOURNALIZING PAYMENT OF A PAYROLL page 371 December 15. Paid cash for payroll, $4, 609. 46. Check No. 335. 1 2 3 4 6 1. Write the date. 2. Write the title of the account debited. 3. Write the check number. 4. Write the amount debited. 5 7 5. Write the total amount paid to employees. 6. Write the titles of accounts credited. 7. Write the amounts credited. CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning LESSON 13 -1

7 Lesson 13 -1 Let’s do Work Together 13 -1 and On Your Own

LESSON 13 -2: Recording Employer Payroll Taxes Employer’s payroll taxes are business expenses—a payroll expense in addition to salaries paid. Employers must pay four separate payroll taxes: 1) Social Security Tax 2) Medicare Tax 3) Federal Unemployment Tax 4) State Unemployment Tax CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning

9 UNEMPLOYMENT TAXABLE EARNINGS 2 1 page 374 The unemployment tax is applied to the first $7, 000 earned by each employee for each calendar year. 3 1. Enter accumulated earnings and total earnings for each employee. 2. Enter unemployment taxable earnings. 3. Total the Unemployment Taxable Earnings column. CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning LESSON 13 -2

10 UNEMPLOYMENT TAXES page 375 Federal Unemployment Tax—a federal tax used for state and federal administrative expenses of the unemployment program • The effective federal unemployment tax rate in most states is 0. 8% on the first $7, 000 earned by each employee. • All of the unemployment tax on the first $7, 000 of salary is paid by the employer. Unemployment Federal × Unemployment = Unemployment Taxable Earnings Tax Rate Tax $790. 00 × 0. 8% = CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning $6. 32 LESSON 13 -2

11 UNEMPLOYMENT TAXES page 375 State unemployment tax—a state tax used to pay benefits to unemployed workers • The effective tax rate is 5. 4% for state unemployment tax. • State unemployment tax is paid by the employer. • Tax is applied only to the unemployment taxable earnings, not the total earnings. Unemployment × Taxable Earnings $790. 00 × State Unemployment Tax Rate 5. 4% State = Unemployment Tax = CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning $42. 66 LESSON 13 -2

12 JOURNALIZING EMPLOYER PAYROLL TAXES (continued on next slide) page 376 December 15. Recorded employer payroll taxes expense, $485. 92, for the semimonthly pay period ended December 15. Taxes owed are: social security tax, $354. 11; Medicare tax, $82. 83; federal unemployment tax, $6. 32; state unemployment tax, $42. 66. Memorandum No. 63. The total of all employer payroll taxes equals the payroll taxes expense to the business. CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning LESSON 13 -2

13 JOURNALIZING EMPLOYER PAYROLL TAXES (continued from previous slide) 2 1 4 3 5 1. Write the date. 2. Write the title of the expense account debited. 3. Write the memorandum number. page 376 6 4. Write the debit amount. 5. Write the titles of the liability accounts credited. 6. Write the credit amounts. CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning LESSON 13 -2

14 Lesson 13 -2 Let’s do Work Together 13 -2 and On Your Own

LESSON 13 -3: Reporting Withholding And Payroll Taxes • Employers must prepare a Form W-2, Wage and Tax Statement, for every employee. • The W-2 form reports total earnings and the taxes that have been withheld from the employee’s pay for the year. • The information on the W-2 is sent to the Internal Revenue Service (IRS) with copies sent to the employee. • A copy of the W-2 must be attached to an individual’s income tax return. • Employers are required to furnish Form W-2 to each employee by January 31 of the next year. CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning

16 EMPLOYER ANNUAL REPORT TO EMPLOYEES OF TAXES WITHHELD CENTURY 21 ACCOUNTING © 2009

17 EMPLOYER’S QUARTERLY FEDERAL TAX RETURN page 379 • The purpose of an Employer’s Quarterly Federal Tax Return, Form 941, is to report to the federal government the total earnings of all employees of the business. In addition, it reports the total income tax withheld and total social security and Medicare tax (both employees’ and employer’s tax) owed to the federal government for the quarter being reported. • One reason for this report is so that the IRS can monitor a company’s deposits of withheld taxes. CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning LESSON 13 -3

18 EMPLOYER’S QUARTERLY FEDERAL TAX RETURN (continued on next slide) page 379 1 2

19 EMPLOYER’S QUARTERLY FEDERAL TAX RETURN (continued on next slide) page 379 3 4 6 5 7 3. Total quarterly earnings 4. Income tax withheld 5. Employee and employer social security and Medicare taxes 6. Social security plus Medicare taxes 7. Total taxes CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning LESSON 13 -3

20 EMPLOYER’S QUARTERLY FEDERAL TAX RETURN (continued from previous slide) 8 8 8. Total taxes for each month 8 page 379 9 9. Total taxes CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning LESSON 13 -3

21 EMPLOYER ANNUAL REPORTING OF PAYROLL TAXES page 381 • Form W-3, Transmittal of Income and Tax Statements, is sent to the Social Security Administration each year with a copy of each employee’s Form W-2. • The W-3 reports total earnings of all employees for the year plus total federal income tax, social security tax, and Medicare tax withheld. • The Form W-3 serves as a summary to the IRS of the employee federal income tax, social security, and Medicare tax withholdings for the year. • Misrepresenting federal tax information can have serious legal consequences for a business. CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning LESSON 13 -3

22 EMPLOYER ANNUAL REPORTING OF PAYROLL TAXES CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage

23 Lesson 13 -3 Let’s do Work Together 13 -3 and On Your Own

LESSON 13 -4: Paying Withholding and Payroll Taxes • Lookback period—the 12 -month period that ends on June 30 th of the prior year • The frequency & method of payment of withheld employees’ federal income tax, social security tax, and Medicare tax plus employer’s social security tax and Medicare tax are determined by the total amount of tax paid each year. • A monthly depositor is one who paid $50, 000 or less in the previous four quarters. A monthly depositor must pay by the 15 th day of the following month. • Businesses with large amounts of payroll taxes must pay the amounts every few days. Businesses with lesser amounts pay once a month. Tax regulations are subject to change. CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning

25 PAYING THE LIABILITY FOR EMPLOYEE INCOME TAX, SOCIAL SECURITY TAX, AND MEDICARE page

26 FORM 8109, FEDERAL DEPOSIT COUPON page 384 • Employees’ withheld income taxes, social security taxes, and Medicare taxes are paid in one payment. • A deposit coupon, Form 8109, accompanies the payment. • Form 8109 is also used to accompany the payment of federal unemployment tax. However, this tax is usually paid at the end of each quarter. • Remember, social security tax and Medicare tax are the only payroll taxes paid by both the employer and employee. CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning LESSON 13 -4

27 FORM 8109, FEDERAL DEPOSIT COUPON CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning

28 JOURNALIZING PAYMENT OF LIABILITY FOR EMPLOYEE INCOME TAX, SOCIAL SECURITY TAX, AND MEDICARE TAX page 385 January 15. Paid cash for liability for employee income tax, $757. 00; social security tax, $1, 451. 38; and Medicare tax, $339. 42; total, $2, 547. 80. Check No. 347. 1 5 3 2 1. Write the date. 2. Write the titles of the three accounts debited. 4 3. Write the check number. 4. Write the debit amounts. 5. Write the amount of the credit. CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning LESSON 13 -4

JOURNALIZING PAYMENT OF LIABILITY FOR EMPLOYEE INCOME TAX, SOCIAL SECURITY TAX, AND MEDICARE TAX 29 page 385 • Paying the liabilities for employee federal income tax, social security tax, and Medicare tax reduces the liability accounts and the cash account; so the liability accounts are debited and Cash is credited. • The only account titles entered in the Account Title column are for those entries in the General Debit or General Credit columns. CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning LESSON 13 -4

30 PAYING THE LIABILITY FOR FEDERAL UNEMPLOYMENT TAX page 386 • Federal unemployment tax is paid by the end of the month following each quarter if the liability amount is more than $100. • The payment is paid to the federal government by sending the check to an authorized bank, accompanied by Form 8109. • This Form 8109 is the same form used to accompany payment of employees’ withheld income tax, social security taxes, and Medicare taxes. However, the type of tax is identified by marking the 940 block since the tax is reported to the government using Form 940. CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning LESSON 13 -4

31 PAYING THE LIABILITY FOR FEDERAL UNEMPLOYMENT TAX CENTURY 21 ACCOUNTING © 2009 South-Western,

32 JOURNALIZING PAYMENT OF LIABILITY FOR FEDERAL UNEMPLOYMENT TAX page 387 January 31. Paid cash for federal unemployment tax liability for quarter ended December 31, $34. 60. Check No. 367. 1 2 3 4 5 1. Write the date. 2. Write the title of the account debited. 3. Write the check number. 4. Write the debit amount. 5. Write the amount of the credit to Cash. CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning LESSON 13 -4

33 JOURNALIZING PAYMENT OF LIABILITY FOR FEDERAL UNEMPLOYMENT TAX page 387 • Paying the liability for federal unemployment tax is a reduction in the liability account and a reduction in the cash account. So the liability account, Unemployment Tax Payable-Federal is debited and Cash is credited. • Only account titles entered in the Account Title column are for those entries in the General Debit or General Credit columns. CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning LESSON 13 -4

34 JOURNALIZING PAYMENT OF LIABILITY FOR STATE UNEMPLOYMENT TAX page 387 January 31. Paid cash for state unemployment tax liability for quarter ended December 31, $233. 55. Check No. 368. 1 2 3 4 5 1. Date 2. Account debited 3. Check number 4. Debit amount 5. Credit amount CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning LESSON 13 -4

35 Lesson 13 -4 Let’s do Work Together 13 -4 and On Your Own

Chapter 13 Assignments • Study Guide • Application Problem 13 -1 • Application Problem 13 -2 • Application Problem 13 -3 • Application Problem 13 -4 • Mastery Problem 13 -5 • Challenge Problem 13 -6 CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning