Payroll Liabilities and Tax Records
Chapter 13
Analyzing and Journalizing the Payroll
• When a business has more than a couple employees, it typically handles
it’s payroll from a separate payroll account.
– A check is written from the general account and deposited into the payroll
account
– The amount transferred is equal to the total net pay for the pay period
• Salaries Expense is debited the amount of Gross Pay and Cash (the
amount of net pay) and payroll liability accounts are credited
• Deductions are liabilities to the company (money owed to someone else).
They are stored in separate accounts until paid to the proper place
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Employees’ Federal Income Tax Payable
Social Security Tax Payable
Medicare Tax Payable
Hospital Insurance Premium Payable
U.S. Savings Bonds Payable
Etc.
Pg 340-341
Journalizing and Posting Payroll
Pg 343
Employer’s Payroll Taxes
• For each employee a company has, it must
pay it’s own share of taxes.
– FICA
• Social Security
• Medicare
– Federal Unemployment Tax
– State Unemployment Tax
Pg 346
Computing Payroll Tax Expense
• FICA
– Employers pay the same percent of FICA as
employees. The percent is multiplied by the total
gross income amount.
• Federal and State Unemployment Taxes
– Employers pay Federal Unemployment Taxes on the
first $7,000 of annual earnings per employee
– State Unemployment Taxes are usually about .8%
• Federal Tax Rate – deduction of 5.4% max of state rate
• (6.2% - 5.4% = .8%) (state rate – maximum deductible
amount)
Pg 347
Journalizing the Employer Payroll Taxes
• Payroll Tax Expense is where all payroll taxes
are expensed from payables.
Pg 348
Pg 349
Paying Payroll Tax Liabilities
• FICA and Federal Income Taxes – A business
makes one payment combining Social Security,
Medicare, and Employee’s Federal Income Tax
– Most businesses do this monthly
– Taxes are due by the 15th day of the month following
the payroll month
– Many businesses pay their tax withholdings using
Form 8109 (Federal Tax Deposit Coupon)
• 941 means it is for the taxes listed above
• 2nd quarter indicates the quarter the pay period fell in
– Many larger businesses use the Electronic Federal Tax
Payment System (EFTPS)
Pg 351
Form 8109
Pg 351
Journalizing Employer’s Fed and State Inc
Tax Liability
Pg 352
Federal Unemployment Tax
Pg 354
State Unemployment Tax & Voluntary
Deductions
Pg 355
Posting
Payment of
Payroll
Liabilities
Pg 356
Preparing Payroll Tax Forms
• Employers must complete a variety of payrollrelated tax forms:
– W-2 – Wage and Tax Statement – Annually
– W-3 – Transmittal of Wage and Tax Statement –
Annually
– 941 – Employer’s Quarterly Federal Tax Return Quarterly
– Employer’s Annual Federal Unemployment (FUTA)
Tax Return - Annually
Pg 357
Pg 358
Pg 359