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Chapter 11: Payroll Taxes, Deposits, and Reports
Chapter Opener: Thinking Critically
Payroll accountants are responsible for keeping accurate records of all employees so paychecks can be
processed properly and so that wage and tax statements can be prepared. A lower staff turnover rate means
fewer new employees to enter into the accounting system—a time saver for payroll accountants.
Fast Facts
• The first IKEA store opens in the USA in 1985.
• The IKEA group employs a total of 84,000 co-workers in 44 countries.
• The retail organization employs over 36,000 thousand co-workers.
The IKEA Catalog is printed in 30 languages. 140 million copies are distributed to over 30 countries.
• Over 400 million customers visited IKEA stores in 2004.
Computers in Accounting: Thinking Critically
Answers will vary. Students may suggest the following.
•
•
•
•
names of payees
correct pay rates
correct hours
correct withholdings
Computers in Accounting: Internet Application
The American Payroll Assoc. Web site address is www.amerlcanpayroll.org. The organization offers a
nationwide course on “Payroll System Selection and Implementation.” The outline of the course is available
online.
Managerial Implications: Thinking Critically
The 941 is prepared from the Quarterly Summary of Earnings.
Discussion Questions
These questions are designed to check students’ understanding of the new terms, concepts, and procedures
presented in the chapter.
1. B, C, D
2. Federal deposits are due on the 15th day of the following month.
3. Federal deposits are due on either Wednesdays or Fridays, depending on the employer’s payday.
4. Electronic Federal Tax Payment System; use if the annual federal tax deposits are more than $200,000.
5. Used if the employer has been assigned a federal ID but has not yet received their supply of Forms
8109.
6. Unique ID number assigned by the federal government to employers.
7. SUTA, FUTA, social security, and Medicare
8. A four-quarter period ending June 30 of the preceding year.
9. Summarizes employees’ earnings and deductions for the year; sent with W-2 forms to Social Security
Administration by last day of February following close of calendar year.
10. To each employee by January 31 following the close of the calendar year.
11. Employer is responsible and must pay any taxes due.
12. Form 8109
13. Circular E
14. Start of the year
15. Employer
16. Reports employee earnings subject to federal income, social security, and Medicare taxes. Filed
quarterly.
17. Yes, if FUTA payable is $100 or more, deposit by last day of month following end of quarter.
18. 5.4 percent
19. Filed once a year, it reports net federal unemployment tax; indicates amount of additional tax due.
20. Intended to encourage states to adopt state unemployment tax programs.
21. To alleviate hardship on employees who lose their jobs.
Copyright © 2007 The McGraw-Hill Companies, Inc. All rights reserved.
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Exercises
Exercise 11.1
1. March 31, 2007. No deposit is necessary at this time since tax due is less than $2,500.
2. March 31, 2007. No deposit is necessary at this time since the tax due is less than $2,500.
3. March 31, 2007. No deposit is necessary at this time since tax due is less than $2,500.
4. March 15, 2007. A deposit is required by the 15th of the month following the period where $2,500 or
more in tax is owed.
In 1, 2, and 3, the taxes may be paid with Form 941 on or before April 30, 2007.
Exercise 11.2
GENERAL JOURNAL
Date
2007
July 16
PAGE 24
Post.
Ref.
Description
Social Security Tax Payable . . . . . . . . . . . . . . . . . . . . . .
Medicare Tax Payable . . . . . . . . . . . . . . . . . . . . . . . . . .
Employee Income Tax Payable . . . . . . . . . . . . . . . . . . .
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deposit payroll taxes
Exercise 11.3
TAX
Social Security
Medicare
FUTA
SUTA
BASE
RATE
AMOUNT
$71,200
71,200
39,000
39,000
6.2%
1.45%
0.8%
5.4%
$4,414.40
1,032.40
312.00
2,106.00
Total
Debit
Credit
20,160
4,644
18,360
43,164
$7,864.80
Exercise 11.4
GENERAL JOURNAL
Date
2007
Apr. 30
Description
PAGE 24
Post.
Ref.
Federal Unemployment Tax Payable . . . . . . . . . . . . . . .
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deposit of FUTA
Debit
Credit
1,152
1,152
Exercise 11.5
SUTA = $1,600.80 ($100,050 x 0.016)
Exercise 11.6
GENERAL JOURNAL
Date
2007
July 31
Description
State Unemployment Tax Payable . . . . . . . . . . . . . . . . .
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Pay SUTA
264 䡲 Chapter 11
PAGE 30
Post.
Ref.
Debit
Credit
2,736
2,736
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Exercise 11.7
Gross tax (0.008 x $128,400)
Less Deposit
Net tax payable
Exercise 11.8
WORK
CLASSIFICATION
Office
Factory
=
=
=
$1,027.20
1,000.00
$27.20
ESTIMATED
EARNINGS
RATE
ESTIMATED
PREMIUM
$180,000
960,000
$ .40/$100
$8.00/$100
$ 720
76,800
Total
$77,520
Problems
Problem 11.1A
TAX
BASE
RATE
AMOUNT
Social Security
Medicare
FUTA
SUTA
$2,800
2,800
2,800
2,800
6.2%
1.45%
0.8%
5.4%
$173.60
40.60
22.40
151.20
Total
$387.80
GENERAL JOURNAL
Date
2007
June 14
Description
PAGE 28
Post.
Ref.
Payroll Taxes Expense . . . . . . . . . . . . . . . . . . . . . . . . . .
Social Security Tax Payable . . . . . . . . . . . . . . . . . . . .
Medicare Tax Payable . . . . . . . . . . . . . . . . . . . . . . . .
Federal Unemployment Tax Payable . . . . . . . . . . . . .
State Unemployment Tax Payable . . . . . . . . . . . . . . .
Record employer’s payroll taxes . . . . . . . . . . . . . . .
Debit
Credit
387.80
173.60
40.60
22.40
151.20
Analyze: Social Security and Medicare are paid by the employee and matched by the employer.
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Problem 11.2A
GENERAL JOURNAL
Date
2007
April 8
May 15
June 17
PAGE
Post.
Ref.
Description
Payroll Taxes Expense . . . . . . . . . . . . . . . . . . . . . . . . . .
Social Security Tax Payable . . . . . . . . . . . . . . . . . . . .
Medicare Tax Payable . . . . . . . . . . . . . . . . . . . . . . . .
Federal Unemployment Tax Payable . . . . . . . . . . . . .
State Unemployment Tax Payable . . . . . . . . . . . . . . .
Payroll tax expense
Social Security Tax Payable . . . . . . . . . . . . . . . . . . . . . .
Medicare Tax Payable . . . . . . . . . . . . . . . . . . . . . . . . . .
Employee Income Tax Payable . . . . . . . . . . . . . . . . . . .
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deposit payroll taxes for April
Social Security Tax Payable . . . . . . . . . . . . . . . . . . . . . .
Medicare Tax Payable . . . . . . . . . . . . . . . . . . . . . . . . . .
Employee Income Tax Payable . . . . . . . . . . . . . . . . . . .
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deposit payroll taxes for May
Debit
Credit
322.98
144.58
33.81
18.66
125.93
1,173.04
274.34
935.00
2,382.38
1,156.67
270.51
924.00
2,351.18
Analyze: The amount of income tax withheld was determined based on tables for the filing status and
withholding allowances claimed by each employee.
Problem 11.3A
GENERAL JOURNAL
Date
2007
July 15
PAGE
Post.
Ref.
Description
Social Security Tax Payable . . . . . . . . . . . . . . . . . . . . . .
Medicare Tax Payable . . . . . . . . . . . . . . . . . . . . . . . . . .
Employee Income Tax Payable . . . . . . . . . . . . . . . . . . .
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deposit payroll taxes for June
Debit
Credit
1,456.75
340.69
1,162.00
2,959.44
Analyze: The balance of the Employee Income Tax Payable account is 0.
Form 941
Page 1
75-4444444
Marvel Turner
Turner Broadcasting Company
3750 Belt Line Parkway
Dallas, TX 76539-6205
Quarter 2
Line 2: 30,536.00
Line 3: 3,021.00
Line 5a: 30,536.00; 3,786.46
Line 5c: 30,536.00; 885.54
Line 5d: 4,672.00
Line 6: 7,693.00
266 䡲 Chapter 11
Line 8: 7,693.00
Line 10: 7,693.00
Line 11: 7,693.00
Line 12: 0
Page 2
Marvel Turner; 75-4444444
Line 14: TX
Line 15: Check second box; Month 1: 2,382.38;
Month 2: 2,351.18; Month 3: 2,959.44; Total:
7,693.00
Part 5
Marvel Turner, Owner
07/31/07; (972) 709-3654
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Problem 11.4A
State unemployment insurance = 0.017 x $27,553.00 = $468.40
GENERAL JOURNAL
Date
2007
April 30
Description
PAGE
Post.
Ref.
State Unemployment Tax Payable . . . . . . . . . . . . . . . . .
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Payment of quarterly SUTA
Debit
Credit
468.40
468.40
Analyze: An employer’s experience rating determines the amount of state unemployment taxes paid.
Generally, a more favorable rating will result in a lower state unemployment tax rate for the business.
Problem 11.5A
GENERAL JOURNAL
Date
2008
Jan. 28
Description
PAGE
Post.
Ref.
Federal Unemployment Tax Payable . . . . . . . . . . . . . . .
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Pay balance of tax due
Debit
Credit
19.52
19.52
Analyze: The total debits made to liability accounts were $487.92.
Form 940-EZ
Mary Amos
The Style Shop
2007 Trendsetter Lane
2007
75-9462315
Dallas, TX 75268-0967
A: 1,090.77
B1: TX
B2: 37-9462315
Line 1: 117,698.00
Line 3: 53,535.00
Line 4: 53,535.00
Line 5: 64,163.00
Line 6: 513.00
Line 7: 493.78
Line 8: 19.52
Quarter: First: 220.42; Second: 198.72; Third: 74.64; Fourth: 19.52; Total 513.30
Form 940-V(EZ)
Line 1: 75-9462315
Line 2: 19.52
Line 3: Mary Amos, 2007 Trendsetter Lane, Dallas, TX 75268-0967
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Problem 11.6A
WORK
CLASSIFICATION
Office work
Shop work
Page 268
ESTIMATED
EARNINGS
INSURANCE
RATE
ESTIMATED
PREMIUMS
$ 68,000
$315,000
$0.40/$100
$5.00/$100
$ 272
15,750
Total
$16,022
WORK
CLASSIFICATION
Office work
Shop work
ACTUAL
EARNINGS
INSURANCE
RATE
ACTUAL
PREMIUMS
$ 72,000
$319,000
$0.40/$100
$5.00/$100
$ 288
15,950
Total
Estimated premiums paid
$16,238
16,022
Additional premium due
$
216
GENERAL JOURNAL
Date
2007
Jan. 15
Dec. 31
PAGE 8
Post.
Ref.
Description
Workers’ Compensation Insurance Expense . . . . . . . . .
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Estimated workers’ compensation for year
Workers’ Compensation Insurance Expense . . . . . . . . .
Workers’ Compensation Insurance Payable . . . . . . .
Adjust workers’ compensation insurance expense
Debit
Credit
16,022
16,022
216
216
Analyze: The premium estimate would have been $19,150.
Problem 11.1B
TAX
BASE
RATE
AMOUNT
Social Security
Medicare
FUTA
SUTA
$2,890
$2,890
$2,890
$2,890
6.2%
1.45%
0.8%
2.2%
$179.18
41.91
23.12
63.58
Total
$307.79
GENERAL JOURNAL
Date
2007
April 8
Description
Payroll Taxes Expense . . . . . . . . . . . . . . . . . . . . . . . . . .
Social Security Tax Payable . . . . . . . . . . . . . . . . . . . .
Medicare Tax Payable . . . . . . . . . . . . . . . . . . . . . . . .
Federal Unemployment Tax Payable . . . . . . . . . . . . .
State Unemployment Tax Payable . . . . . . . . . . . . . . .
Record taxes on payroll
PAGE 28
Post.
Ref.
Debit
Credit
307.79
179.18
41.91
23.12
63.58
Analyze: The total employer payroll taxes would be $319.35.
268 䡲 Chapter 11
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Problem 11.2B
GENERAL JOURNAL
Date
2007
July 7
Aug. 15
Sept. 15
PAGE 31
Post.
Ref.
Description
Payroll Taxes Expense . . . . . . . . . . . . . . . . . . . . . . . . . .
Social Security Tax Payable . . . . . . . . . . . . . . . . . . . .
Medicare Tax Payable . . . . . . . . . . . . . . . . . . . . . . . .
Federal Unemployment Tax Payable . . . . . . . . . . . . .
State Unemployment Tax Payable . . . . . . . . . . . . . . .
Payroll taxes for week ended July 6
Employee Income Tax Payable . . . . . . . . . . . . . . . . . . .
Social Security Tax Payable . . . . . . . . . . . . . . . . . . . . . .
Medicare Tax Payable . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deposit of payroll taxes for July
Employee Income Tax Payable . . . . . . . . . . . . . . . . . . .
Social Security Tax Payable . . . . . . . . . . . . . . . . . . . . . .
Medicare Tax Payable . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deposit of payroll taxes for August
Debit
Credit
210.87
122.76
28.71
15.84
43.56
803.00
1,023.00
239.26
2,065.26
1,067.00
1,350.36
315.84
2,733.20
Analyze: A SUTA rate of .015 would reduce the amount of tax by $13.86.
Problem 11.3B
GENERAL JOURNAL
Date
2007
Oct. 15
PAGE 31
Post.
Ref.
Description
Employee Income Tax Payable . . . . . . . . . . . . . . . . . . .
Social Security Tax Payable . . . . . . . . . . . . . . . . . . . . . .
Medicare Tax Payable . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deposit of payroll taxes for September
Debit
Credit
1,061.50
1,350.36
315.84
2,727.70
Analyze: The total taxes deposited with the IRS for the quarter ended September 30 was $7,526.16.
Form 941
Page 1
75-5555555
Carolyn Wells
The Fashion Shop
2008 Trendsetter Lane
Dallas, TX 75268-0967
Quarter 3
Line 2: 30,030.00
Line 3: 2,931.50
Line 5a: 30,030.00; 3,723.72
Line 5c: 30,030.00; 870.87
Line 5d: 4,594.59
Line 6: 7,526.09
Line 8: 7,526.09
Line 10: 7,526.09
Line 11: 7,526.16
Line 12: 0
Line 13: .07; check “Apply to next return”
Page 2
Carolyn Wells; 75-5555555
Line 14: TX
Line 15: Check second box; Month 1: 2,065.26;
Month 2: 2,733.20; Month 3: 2,727.70; Total:
7,526.16
Part 5
Carolyn Wells, Owner
10/31/07; (972) 709-3102
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Problem 11.4B
State unemployment insurance = 0.023 x $20,335.00 = $467.71
GENERAL JOURNAL
Date
2007
April 30
Description
PAGE 21
Post.
Ref.
State Unemployment Tax Payable . . . . . . . . . . . . . . . . .
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Paid state unemployment tax
Debit
Credit
467.71
467.71
Analyze: If all employees made the same amount for the quarter ended June 30, 2007, $18,715 would be
subject to the federal unemployment tax.
Problem 11.5B
GENERAL JOURNAL
Date
2008
Jan. 27
Description
PAGE
Post.
Ref.
Federal Unemployment Tax Payable . . . . . . . . . . . . . . .
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Pay balance of tax due
Debit
Credit
36.40
36.40
Analyze: The balance of the Federal Unemployment Tax Payable account is $0.
Form 940-EZ
Helen Franz
The Hobby Shop
4560 LBJ Freeway
2007
75-9999999
Dallas, TX 75232-6002
A: 1,354.36
B1: TX
B2: 37-6789015
Line 1: 88,435.00
Line 3: 29,550.00
Line 4: 29,550.00
Line 5: 58,885.00
Line 6: 471.08
Line 7: 434.68
Line 8: 36.40
Quarter: First: 162.68; Second: 170.00; Third: 102.00; Fourth: 36.40; Total: 471.08
Form 940-V(EZ)
Line 1: 75-9999999
Line 2: 36.40
Line 3: Helen Franz, 4560 LBJ Freeway, Dallas, TX 75232-6002
270 䡲 Chapter 11
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Problem 11.6B
WORK
CLASSIFICATION
Office work
Factory work
ESTIMATED
EARNINGS
INSURANCE
RATE
ESTIMATED
PREMIUMS
$ 96,000
$290,000
$0.39/$100
$7.50/$100
$ 374.40
21,750.00
Total
$22,124.40
WORK
CLASSIFICATION
Office work
Factory work
ACTUAL
EARNINGS
INSURANCE
RATE
ACTUAL
PREMIUMS
$ 99,080
$310,050
$0.39/$100
$7.50/$100
$ 386.41
23,253.75
Total actual premiums
Estimated premiums paid
$23,640.16
22,124.40
Additional Premium Due
$ 1,515.76
GENERAL JOURNAL
Date
2007
Jan. 17
Dec. 31
Description
PAGE 28
Post.
Ref.
Workers’ Compensation Insurance Expense . . . . . . . . .
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Estimated workers’ compensation for year
Workers’ Compensation Insurance Expense . . . . . . . . .
Workers’ Compensation Insurance Payable . . . . . . .
Adjust workers’ compensation insurance expense
Debit
Credit
22,124.40
22,124.40
1,515.76
1,515.76
Analyze: The balance of the Workers’ Compensation Insurance Expense account is $23,640.16.
Challenge Problem
1. Leora is not an employee. The employer does not provide a work place or tools. No one directly
supervises her activities. She has the freedom to decide when the work is to be done and how it is to be
done.
2. Ken is an employee, paid on an hourly basis by Dr. Kent, who provides all facilities, tools, and
equipment. He is not hired by the patients for professional services.
3. Jones is not an employee. A self-employed person cannot be his or her own employee.
4. Guy is probably not an employee. He has the right to refuse jobs, which is not characteristic of an
employee’s rights.
5. Peoples is definitely a part-time employee. The titles of president, secretary, and treasurer make her
officially an employee.
Analyze: Both employees are hired and work under the control and direction of the employer. The employer
determines how the employee completes the job.
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Critical Thinking Problem
1. Payroll information needed: the hourly rate paid the truck drivers; the rates for social security, medicare,
and federal and state unemployment taxes; and the employer’s obligations for workers’ compensation
insurance and fringe benefits such as health insurance, pension contributions, and group life insurance.
YEARLY COST—CURRENT SYSTEM
2. Truck Drivers:
Wages (110 x $48,000)
Social Security Tax ($5,280,000 x .062)
Medicare Tax ($5,280,000 x .0145)
State Unemployment Tax (110 x $7,000 x .05)
Federal Unemployment Tax (110 x $7,000 x .008)
Workers’ Compensation Insurance ($5,280,000 x $.70 ⳰ 100)
Health Insurance (110 x $310 x 12)
Pensions (110 x $250 x 12)
Total Payroll Costs
Teenage Carriers: Payment per paper (90,000 x $0.04 x 5 days x 52 weeks)
Liability Insurance
Total Cost
$5,280,000
327,360
76,560
38,500
6,160
36,960
409,200
330,000
$6,504,740
936,000
110,000
$7,550,740
YEARLY COST—PROPOSED SYSTEM
Truck Drivers:
Wages (30 x $48,000)
Social Security Tax ($1,440,000 x 0.0620)
Medicare Tax ($1,440,000 x .0145)
State Unemployment Tax (30 x $7,000 x 0.05)
Federal Unemployment Tax (30 x $7,000 x .008)
Workers’ Compensation Insurance ($1,440.000 x $.70 ⳰ 100)
Health Insurance (30 x $310 x 12)
Pensions (30 x $250 x 12)
$1,440,000
89,280
20,880
10,500
1,680
10,080
111,600
90,000
Total Payroll Costs
Independent Contractor Payments (90,000 x $.20 x 5 days x 52 weeks)
$1,774,020
4,680,000
Total Cost
$6,454,020
Davis would save $1,096,720 if the proposed system were adopted ($7,550,740 – $6,454,020).
NOTE: Federal income tax withholding is not a factor in this analysis since it is the employee’s
obligation, not the employer’s.
3. In addition to analyzing payroll costs, Davis should consider costs of operating the fleet of delivery
trucks. What is the current cost to operate the trucks? How much would be saved by reducing the fleet?
She should also consider the effect on employee morale of terminating 75 truck drivers and the
commitments the paper has to union contracts. She should also assess the dependability and stability
of the independent contractors; it may be worthwhile to spend more in order to have control of the
paper’s distribution system through its own employees and trucks.
Business Connections
Managerial Focus
1. Only authorized persons able to add new employees to payroll; review of payroll by different employee;
distribution of paychecks by yet another person.
2. Premiums for workers’ compensation insurance are based on the amount earned by classes of
employees.
3. Penalties and fines for the employer.
4. Experience rating is a potential source of tax savings.
272 䡲 Chapter 11
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Ethical Dilemma
Johan is paying $1,720 more per month for wages. The extra expense represents an additional employee
that he did not hire. He should consult his accountant to find the approval for an additional sales associate.
To prevent this from happening in the future, he should pass out the paychecks personally to match the
paycheck to the person.
Streetwise
1. Current liability category: Accrued Salaries and Related Expenses.
2. Advantages: Current employees will be familiar with processes and culture of the business.
Disadvantage: Restricts the infusion of new ideas and talents.
Financial Statement Analysis
1. 52.8%
2. $53,906,272
3. 6.9% increase ’02–’03; 16.0% increase ’03–’04.
Analyze Online: Answers will vary depending on the year.
Extending the Thought
Answers will vary. Students may agree that businesses must collectively contribute to national and state
funds for unemployment regardless of the layoff record of the business. Some may contend that if a
business has not fired workers, they should not be taxed.
Business Communication
Students’ memos will vary, but should include the forms and journals covered in the chapter.
Team Work
Hire temporary employees for jobs that occur seasonally. Only pay 98% of deposit required. The IRS states
that 98% is considered in compliance. Stop any unnecessary overtime by requiring management approval
for all overtime.
Internet Connection
The 940 and 941 form is available to download and use. However, the W-2, W-3, W-4 and W-5 must be
original forms.
Practice Test Answer Key
Part A
1. F
2. T
3. F
4. F
5. F
6. F
7. T
8. F
9. F
10. T
11. T
12. F
13. F
14. F
15. F
16. T
17. F
18. T
True-False
Part B
1. j
2. i
3. h
4. a
5. g
6. b
7. d
8. c
9. e
10. f
Matching
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Chapter 11 䡲 273