Payroll Information
Taxes paid by the EMPLOYEE (3): ***Chapter 12***
Employee Income Tax (Federal Income Tax)
- Based on
o Marital Status
o Withholding Allowances
o Amount earned that pay period
- Use the CHART
- Employer doesn’t keep the money – sent to the Federal Government
Social Security Tax (FICA)
- Based on earnings and percent (6.2%)
- Capped at $87,000 – no more taxes withheld after you earn that amount
- Formula
o Total Earnings x 6.2%
Medicare Tax
- Based on earnings and percent (1.45%)
- Capped at $87,000 – no more taxes withheld after you earn that amount
- Formula
o Total Earnings x 1.45%
Many businesses have other deductions from the EMPLOYEE paycheck
- Health Insurance
- United Way
- Savings Bonds
Payroll Register – List of all employees and contains salary information
Earnings Record – Individual record kept for each employee – W-2s
Taxes paid by the EMPLOYER (4): ***Chapter 13***
Social Security Tax (FICA)
- Based on earnings and percent (6.2%)
- Capped at $87,000 – no more taxes paid after employee earns that amount
- Formula
o Total Earnings for pay period x 6.2%
Medicare Tax
- Based on earnings and percent (1.45%)
- Capped at $87,000 – no more taxes paid after employee earns that amount
- Formula
o Total Earnings for pay period x 1.45%
Federal Unemployment Tax (UTP-Federal)
- Based on earnings and percent (0.8%)
- Capped at $7,000 – no more taxes paid after employee earns that amount
- Formula
o Total Earnings that meet criteria for pay period x 0.8%
State Unemployment Tax (UTP-State)
- Based on earnings and percent (5.4%)
- Capped at $7,000 – no more taxes paid after employee earns that amount
- Formula
o Total Earnings that meet criteria for pay period x 5.4%
All taxes must be paid to the government therefore; they are considered a liability to the business. All
taxes paid by the business are also en Expense.
Salary Expense is used for recording the Payroll
- Information is found in the Payroll Register
o CASH PAYMENTS JOURNAL
 DR = Salary Expense (Total Pay)
 CR = Cash (Net Pay)
 CR = Employee Income Tax Payable
 CR = Social Security Tax Payable
 CR = Medicare Tax Payable
 CR = Health Insurance Premiums Payable (If necessary)
 CR = US Savings Bonds Payable (If necessary)
 CR = United Way Donations Payable (If necessary)
Payroll Taxes Expense is used for recording the Employers Taxes
- Amounts are used from the payroll and use percents
o GENERAL JOURNAL
 DR = Payroll Taxes Expense (Total of the 4 taxes)
 CR = Social Security Tax Payable (Total pay x 6.2%)
 CR = Medicare Tax Payable (Total pay x 1.45%)
 CR = Unemployment Tax Payable – Federal (Taxable wages x 0.8%)
 CR = Unemployment Tax Payable – State (Taxable wages x 5.4%)