Chapter 10
Employer
Payroll Tax Reporting
McGraw-Hill/Irwin
Copyright © 2011 by The McGraw-Hill Companies, Inc. All rights reserved.
Learning Objective 1
LO1
Describe laws that impact an employer’s
payroll obligations.
A business obtains its employer
identification number (EIN) by completing
Form SS-4. Form SS-4 requests general
information about the business.
10-2
LO1
Laws Impacting Employer’s Payroll Tax
Under the Federal Insurance
Contributions Act (FICA), employers must
pay the same amounts as its employees
for Social Security and Medicare taxes.
Rates for 2009
FICA: 6.2% up to annual gross pay of $106,800
Medicare: 1.45% on annual gross pay
A self-employed person pays both the employee
and employers share of 15.3%.
10-3
LO1
Laws Impacting Employer’s Payroll Tax
Federal and State Unemployment Tax Acts
Federal Unemployment Tax (FUTA) - For 2009,
employers pay 6.2% on the first $7,000 earned by
each employee. This amount can be reduced by a
credit of up to 5.4% if the employer has a good
employment history.
State Unemployment Tax (SUTA) - For 2009, the
base rate is 5.4% on the first $7,000 earned by
each employee. This rate is adjusted for the
employer’s merit rating.
10-4
LO2
Learning Objective 2
Compute employer FICA taxes and record them in a
general journal.
Peter Parser, an employee of Matrix, Inc., earns gross
pay of $500 per week. The social security rate is 6.2%
on the first $106,800 of earnings, and the Medicare
rate is 1.45% on all earnings. We are in the process of
calculating the employer’s payroll taxes for the week
ended January 5, 2009.
Social Security
$500.00
× 6.2%
$31.00
Medicare
$500.00
× 1.45%
$7.25
10-5
LO2
Payroll Tax Deposit
Below is an example of Matrix’s computed total taxes payable for the week
ended January 31st. They include the amounts withheld from employees’
paychecks and the matching employer FICA taxes.
Employee taxes:
Employee federal income taxes withheld
Employee FICA: Social security tax withheld
Employee FICA: Medicare tax withheld
Employer taxes:
Employer FICA: Social security tax payable
Employer FICA: Medicare tax payable
Total payroll taxes
$ 2,575
1,755
571
1,755
571
$ 7,227
10-6
LO3
Learning Objective 3
Journalize an employer’s deposit of federal income
taxes and FICA taxes withheld, and prepare a deposit
coupon.
Journal Entry to Record Payroll Taxes
Jan. 31 Em ployee Federal Incom e Taxes Payable
Em ployee FICA: Social Security Taxes Payable
Em ployee FICA: Medicare Taxes Payable
Em ployer FICA: Social Security Taxes Payable
Em ployer FICA: Medicare Taxes Payable
Cash
2,575
1,755
571
1,755
571
7,227
January payroll tax deposit
The total amount deposited
may be paid either by check
or electronic funds transfer.
If the payment is made by
check, Form 8109 must
accompany the deposit.
10-7
Learning Objective 4
LO4
Prepare Form 941, Employer’s Quarterly Federal
Tax Return.
Each calendar quarter the employer must file Form
941, Employer’s Quarterly Federal Tax Return.
10-8
LO5
Learning Objective 5
Prepare Form W-2, Employee’s Wage and Tax Statement,
and Form W-3, Transmittal of Wage and Tax Statements.
Form W-2
Form W-3
10-9
Learning Objective 6
LO6
Compute an employer’s state and federal unemployment taxes
and record them in a general journal.
Phoenix Sales and Service provides the following schedule of gross pay in
the first quarter of the year. Based on its great employment history, the
company pays a SUTA rate of 2.7% on the first $7,000 of wages per
employee and a 0.8% FUTA rate.
Employee
Austin, Robert
Cross, Judy
Diaz, John
Keife, Kay
Miller, Lee
Sears, Dale
Weekly
Wages
$
400
581
602
560
560
560
Weeks per
Quarter
13
13
13
13
13
13
Total
Quarterly
Pay
$
5,200
7,553
7,826
7,280
7,280
7,280
Total Pay
for
FUTA &
SUTA
$
5,200
7,000
7,000
7,000
7,000
7,000
$
40,200
Computation of FUTA and SUTA
FUTA
0.80% × $ 40,200 = $ 321.60
SUTA
2.70% ×
40,200 =
1,085.40
Total Unemployment Taxes
$ 1,407.00
10-10
LO6
Computing Employer’s
Unemployment Taxes
Computation of FUTA and SUTA
FUTA
0.80% × $ 40,200 = $ 321.60
SUTA
2.70% ×
40,200 =
1,085.40
Total Unemployment Taxes
$ 1,407.00
Apr. 10 Payroll Tax Expense
1,407.00
FUTA Payable
Accounts
SUTA Payable
Payable
321.60
1,085.40
To record FUTA and SUTA taxes payable
10-11
Learning Objective 7
LO7
Prepare unemployment tax returns.
Employers report quarterly unemployment
taxes by completing Form 940
10-12
Learning Objective 8
LO8
Compute and record workers’ compensation insurance
premiums for an employer.
Phoenix Sales and Service has two types of workers: office and
landscapers. The company pays workers’ compensation of $0.30 per
$100 of office worker wages and $2.50 per $100 of landscapers’ wages.
We estimate that in the coming year office workers will earn $53,000
and landscapers $107,000.
Classification
Wages
Rate
Office workers
$ 53,000
$ 0.30
Landscapers
107,000
$ 2.50
Estimated workers' compensation
Premium
$
159
2,675
$
2,834
(Wages ÷ $100) x Rate
Jan. 14
Workers' Compensation Insurance Expense
Cash
2,834
2,834
Estim ated w orkers' com pensation expense
10-13
LO8
Workers’ Compensation Insurance
At the end of the year, Phoenix determines the
following actual wages were paid.
Classification
Wages
Rate
Office workers
$ 49,920
$ 0.30
Landscapers
119,756
$ 2.50
Actual Workers' Compensation
Premium
$
150
2,994
$
3,144
(Wages ÷ $100) x Rate
Jan. 14
Workers' Compensation Insurance Expense
Cash
310
310
Estim ated w orkers' com pensation expense
10-14
End of Chapter 10
10-15