CENTURY 21 ACCOUNTING © Thomson/South-Western

Determining Payroll Tax Withholding
 Payroll taxes – taxes based on the payroll of a business
 Business is required by law to withhold certain payroll taxes from employee salaries
 Payroll taxes are based of employee total earnings
 ACCURATE and DETAILED payroll records must be maintained
 Payroll taxes are a liability to the employer until paid to the government
CENTURY 21 ACCOUNTING © Thomson/South-Western

Employee Income Tax
 Federal income tax must be withheld from employee earnings
 Some require state, city or county income taxes as well
 Taxes are forwarded to the government periodically
CENTURY 21 ACCOUNTING © Thomson/South-Western

 Read p. 346
 Withholding allowance : deduction from total earnings for each person legally supported by a taxpayer, including the employee
 Employers must have W-4 on file
 Tax withheld is based on the employee’s marital status and number of allowances

Read FYI p. 346
CENTURY 21 ACCOUNTING © Thomson/South-Western

EMPLOYEE’S WITHHOLDING ALLOWANCE
CERTIFICATE page 346
5
1
3 2
4
5
1.
Write the employee’s name and address
2.
Write the employee’s social security number.
3. Check the appropriate marital status block.
4. Write the total number of withholding allowances claimed.
5. The employee signs and dates the form.
CENTURY 21 ACCOUNTING © Thomson/South-Western LESSON 12-2

1
EMPLOYEE’S INCOME TAX WITHHOLDING
– MARRIED PERSONS page 348
6
2 3
1. Select the appropriate table.
2.
Locate the employee’s total earnings.
3. Intersection of wages and number of allowances column.
CENTURY 21 ACCOUNTING © Thomson/South-Western LESSON 12-2

Examples on Reading Charts
 Take out a piece of paper
1.
Single, paid semimonthly, TE=$1050.00
2.
Married, paid semimonthly, TE= $1050.00
CENTURY 21 ACCOUNTING © Thomson/South-Western

Employee Social Security and Medicare
 Read p. 349
 SS = federal tax for old age, survivors, and disability insurance
 Medicare- federal tax paid or hospital insurance
 Accounted for and reported separately
 Paid by both the Employee and Employer
 Employees withhold and deposit employee and contribution and then they match it
CENTURY 21 ACCOUNTING © Thomson/South-Western

Social Security
 Calculated on Employee earnings up to a maximum paid in a calendar year
 Tax base= maximum amount of earnings on which tax is calculated
 Congress sets tax rate and base for SS
 6.2% max $87,000 in a calendar year
CENTURY 21 ACCOUNTING © Thomson/South-Western

Medicare
 No tax base
 1.45%
 FYI p. 349
 Practice WT/ OYO
CENTURY 21 ACCOUNTING © Thomson/South-Western

11 page 350
TERMS REVIEW
 payroll taxes
 withholding allowance
 social security tax
 Medicare tax
 tax base
CENTURY 21 ACCOUNTING © Thomson/South-Western LESSON 12-2

Review Quiz
1.
What is payroll?
2.
How many hours were worked if employee arrived at 8:29 and departed at 12:02?
3.
How is overtime calculated in this text?
4.
What is the % for Social Security and
Medicare? Is there a tax base?
5.
Where does an employer get the information used to determine the amount of federal income tax withheld?
6.
Federal income tax withholdings are based on what two factors?
7.
Who pays SS tax and Medicare tax --
Employee or employer?
CENTURY 21 ACCOUNTING © Thomson/South-Western