CHAPTER 9
PAYROLL ACCOUNTING:
EMPLOYER TAXES AND
REPORTS
Material CopyrightProtected: Barbara
Wagers and Janice
Stoudemire
THEY’RE BACK!
STAR WARS JOKES
Luke and Obi-Wan
are in a Chinese
restaurant having a
meal. Obi-Wan is
deftly manipulating
his chopsticks with
the ease you'd
expect from a Jedi
Master.
STAR WARS JOKES
But Luke is having a
hard time, using his
chop-sticks in both
hands, dropping his
food all over the table
and eventually
himself. Obi-Wan
looks at Luke
disapprovingly and
says,
STAR WARS JOKES
"Use the
forks,
Luke.“
Chapter 9
Payroll Accounting: Employer Taxes and Reports
Learning Objectives
1. Employer payroll taxes
2. Employer payroll tax journal
entries
3. Payroll tax reporting
4. Workers comp
DESCRIBE AND CALCULATE
EMPLOYER PAYROLL TAXES
EMPLOYER PAYROLL
TAXES
• FICA (Social Security
and Medicare)
• Self-employment
• Federal unemployment
• State unemployment
FICA
• Employer must match
employee’s contribution
• Employer pays same
amount withheld from
employee’s check
• Recent HIRE legislation
SELF EMPLOYMENT TAX
• Who pays it?
• What FICA do they pay?
– Both employee and
employer, so they pay
both portions
– 12.4% SS and 2.9%
Medicare
FEDERAL UNEMPLOYMENT
TAX (FUTA)
PAID BY EMPLOYER ONLY
• Effective rate .8% on
first $7,000 earned by
employee in calendar year
•Actual rate 6.2% (can be
reduced by credits to
.8%)
STATE UNEMPLOYMENT TAX
(SUTA)
•PAID BY EMPLOYER
ONLY IN MOST STATES
•Experience-rating system
•FUTA allows full 5.4%
credit for SUTA paid, even
if actual rate is less than
5.4%
ACCOUNT FOR EMPLOYER
PAYROLL TAX EXPENSE
JOURNAL ENTRY
Payroll taxes
become
liability when
we pay
payroll, so
make a
second payroll
journal entry!
JOURNAL ENTRY
Payroll Tax Expense ()
Social Sec. Tax Pay. ()
Medicare Tax Payable ()
SUTA Payable ()
FUTA Payable ()
Why debit expense?
Why credit payables?
STAR WARS JOKES
Which Star
Wars
character
works at a
restaurant?
Darth Waiter
STAR WARS JOKES
YOU MIGHT BE A REDNECK
JEDI IF......
• You have ever had an Xwing up on blocks in your
yard.
• You wonder why Luke and
Leia gave up on getting
married.
EXAMPLE
Total weekly earnings in Jedi
Masters Co. are $10,000
Because some employees have
exceeded the “caps”, only
$9,500 is subject to Social
Security and only $2,000 is
subject to FUTA and SUTA
EXAMPLE
What is the amount of Social
Security expense? (6.2%)
$9,500 * 6.2%
= $589
What is the amount of
Medicare expense? (1.45%)
$10,000 * 1.45%
= $145
EXAMPLE
What is amount of SUTA
expense (5.4%)
$2,000 * 5.4%
$108
What is amount of FUTA
expense (0.8%)
$2,000 * .8%
$16
EXAMPLE
Journal Entry
Payroll Tax Expense () 858
Social Security Tax Pay. ()
589
Medicare Tax Payable ()
145
SUTA Payable ()
16
FUTA Payable ()
108
IN CLASS:
EXERCISE 9-3A
HOMEWORK:
EXERCISE 9-3B
PROBLEM 9-7A
TOTAL COST OF AN EMPLOYEE
• Salary/wages
• Employer payroll taxes
• Other voluntary costs
paid on employee’s
behalf
TOTAL COST OF AN EMPLOYEE
• Social Security: 6.2% of
salary OR $106,800 cap,
whichever is less
• Medicare: 1.45% of
salary
TOTAL COST OF AN EMPLOYEE
• SUTA: 5.4% of salary
OR $7,000 cap,
whichever is less
• FUTA: .8% of salary OR
$7,000 cap, whichever
is less
STAR WARS JOKES
What's a
Jedi's
favorite
car?
ToyYoda
STAR WARS JOKES
YOU MIGHT BE A REDNECK
JEDI IF......
• Your Jedi robe is a
camouflage color.
• You think the best use of
your light saber is picking
your teeth.
EXAMPLE – TOTAL COST OF AN
EMPLOYEE
DARTH MAUL EARNS
$70,000 PER YEAR.
WHAT IS THE TOTAL
ANNUAL COST OF THIS
EMPLOYEE TO THE
EMPLOYER?
Salary
$70,000
EXAMPLE – TOTAL COST OF AN
EMPLOYEE
Social Security
$70,000 * 6.2%
= $4,340
Medicare
$70,000 * 1.45%
= $1,015
EXAMPLE – TOTAL COST OF AN
EMPLOYEE
SUTA
$7,000 * 5.4%
= $378
FUTA
$7,000 * .8%
= $56
EXAMPLE – TOTAL COST OF AN
EMPLOYEE
Salary
$70,000
Social Security
4,340
Medicare
1,015
SUTA
378
FUTA
56
Total Annual Cost $75,789
IN CLASS:
EXERCISE 9-4A
HOMEWORK:
EXERCISE 9-4B
DESCRIBE EMPLOYER
REPORTING AND PAYMENT
RESPONSIBILITIES
FEDERAL INCOME TAX W/H,
SOCIAL SECURITY, MEDICARE
• FREQUENCY WITH WHICH
DEPOSITS MUST BE MADE
DEPENDS ON THE AMOUNT
OWED
–Electronic Federal Tax
Payment System (EFTPS)
or bank deposit
FEDERAL INCOME TAX W/H,
SOCIAL SECURITY, MEDICARE
JOURNAL ENTRY TO RECORD
MAKING TAX DEPOSIT
Employee Income Tax Pay. ()
Social Security Tax Payable ()
Medicare Tax Payable ()
Cash ()
QUARTERLY REPORTING –
FORM 941
FEDERAL UNEMPLOYMENT
• IF QUARTERLY LIABILITY
> $500, DEPOSIT MUST BE
MADE FOR THE QUARTER
–Otherwise, balance is
added to amount to be
deposited next quarter
–Deposits made at bank
FEDERAL UNEMPLOYMENT
• JOURNAL ENTRY TO
RECORD MAKING DEPOSIT
FUTA Payable ()
Cash ()
• ANNUAL REPORTING –
FORM 940
STATE UNEMPLOYMENT
• GENERALLY PAID
QUARTERLY
• JOURNAL ENTRY TO
RECORD MAKING
PAYMENTS
SUTA Payable ()
Cash ()
OTHER PAYROLL FORMS
WAGE AND TAX STATEMENT
FORM W-2
• Provided to employees by
January 31
• Copy sent to SSA w/W-3
OTHER PAYROLL FORMS
OTHER PAYROLL FORMS
EMPLOYMENT ELIGIBILITY
VERIFICATION FORM 1-9
• To document that
employee is authorized to
work in US
• Retained by employer
IN CLASS:
PROBLEM 9-8A
HOMEWORK:
PROBLEM 9-8B
DESCRIBE AND ACCOUNT FOR
WORKERS’ COMPENSATION
INSURANCE
PURPOSE OF WORKERS
COMPENSATION INSURANCE
• Provide insurance for
employees who suffer
job-related injury
PAYMENT OF WORKERS
COMPENSATION INSURANCE
• Employer usually
pays full cost –
amount depends
on number of
employees and
riskiness of job
PAYMENT OF WORKERS
COMPENSATION INSURANCE
• Insurance premium paid in
advance at beginning of
the year
• Amount based on
estimated payroll
WCI Expense ()
Cash ()
PAYMENT OF WORKERS
COMPENSATION INSURANCE
• After year-end, an
adjustment is made
based on actual amount
of payroll
PAYMENT OF WORKERS
COMPENSATION INSURANCE
• Actual payroll > estimate?
Additional cost incurred
and additional premium
due
WCI Expense ()
WCI Payable ()
PAYMENT OF WORKERS
COMPENSATION INSURANCE
• Actual payroll < estimate?
Less cost has been incurred
than originally recorded
and a refund is due
WCI Refund Receivable ()
WCI Expense ()
STAR WARS JOKES
YOU MIGHT BE A REDNECK
JEDI IF......
• You can find no grammatical
errors in the way Yoda talks
• A Wookie has ever told you
that you need to shave.
• You ever heard the phrase,
"May the force be with y'all."
WORKERS COMPENSATION
INSURANCE - EXAMPLE
• Palpantine’s Beauty Cream
Co. has estimated payroll of
$500,000 and insurance
premium rate of .3%.
• Estimated expense for year
=
$500,000 * .3%
= $1,500
WORKERS COMPENSATION
INSURANCE - EXAMPLE
Journal entry
WCI Expense () 1,500
Cash () 1,500
WORKERS COMPENSATION
INSURANCE - EXAMPLE
Journal entry if actual payroll
is $450,000 (refund coming
next year)
• Actual expense for the year
$450,000 * .3%
= $1,350
• Balance to be refunded
$1,500 – 1,350
= $150
WORKERS COMPENSATION
INSURANCE - EXAMPLE
Journal entry
WCI Refund Receiv. () 150
WCI Expense () 150
WORKERS COMPENSATION
INSURANCE - EXAMPLE
Journal entry if actual payroll is
$520,000 (amount due will be
paid next year)
• Actual expense for the year
$520,000 * .3%
= $1,560
• Balance to be paid
$1,500 – 1,560
= $60
WORKERS COMPENSATION
INSURANCE - EXAMPLE
WCI Expense () 60
WCI Payable () 60
IN CLASS:
PROBLEM 9-9A
HOMEWORK:
PROBLEM 9-9B
Chapter 9
Payroll Accounting: Employer Taxes and Reports
Learning Objectives
1. Employer payroll taxes
2. Employer payroll tax journal
entries
3. Payroll tax reporting
4. Workers comp
MAY THE FORCE BE WITH YOU!