chapter
College Accounting
8
11th Edition
Employer Taxes,
Payments, and Reports
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8-1
Employer Identification Number (EIN)
• Everyone must have a Social Security number or an
Individual Taxpayer Identification Number (ITIN).
• Employers of one or more persons are required to
have an Employer Identification Number (EIN), and
it must be listed on all reports and payments of
employees’ federal income tax withholding and FICA
taxes.
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8-2
Employer’s Payroll Taxes
• An employer’s payroll taxes are based on the gross
•
•
wages paid to employees.
Payroll taxes are an expense of doing business
A company would debit Payroll Tax Expense for the
company’s portion of FICA taxes and for state and
federal unemployment taxes.
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8-3
Employer’s Matching Portion of FICA Tax
• FICA tax is imposed equally on both employer and
employee.
• The employer’s share is determined by multiplying the
employer’s tax rate by the taxable earnings.
• The accountant obtains the Social Security and
Medicare taxable earnings amounts from the payroll
register.
© 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
8-4
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8-5
Employer’s Portion of FICA Taxes
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8-6
Employers’ SUTA & FUTA TAX
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The proceeds of the state
unemployment tax (SUTA), which
is levied only on the employer in
most states, are used to pay
subsistence benefits to
unemployed workers.
Green Sales Company is subject to
a rate of 5.4 percent of the first
$7,000 of each employee’s
earnings; in our example, $958.20
of earnings are subject to this tax.
•
•
The federal unemployment tax
(FUTA) is paid only by the
employer.
Green Sales Company is subject to
a rate of 6% of the first $7,000 of
each employee’s earnings (the
same amount of earnings that is
used for SUTA).
© 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Steps for Recording the Payroll
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8-8
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8-9
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8-10
Practice Exercise 1
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8-11
Payments of FICA Tax and Employees’
Federal Income Tax Withholding
• A federal tax deposit includes the combined total of
three items:
• Employees’ federal income taxes withheld
• Employees’ FICA taxes (Social Security and Medicare)
• Employer’s share of the FICA taxes Social Security and
Medicare)
• The IRS requires all tax deposits to be made
electronically, using the Electronic Federal Tax
Payment System (EFTPS).
© 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
8-12
Payments of FICA Tax and Employees’
Federal Income Tax Withholding
Employers submit a return, Form 941, every
quarter (three consecutive months). The due
dates for filing this return are as follows:
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8-13
Practice Exercise 2
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8-14
Payments of State Unemployment Insurance
• The state tax is usually paid quarterly and is due by
the end of the month following the end of the quarter
(the same due dates for Form 941).
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8-15
Payments of Federal Unemployment Insurance
• The FUTA tax is calculated quarterly, during the month following
•
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the end of each calendar quarter.
If the accumulated tax liability is greater than $500, the tax is
deposited in a financial institution, accompanied by a preprinted
federal tax deposit card.
The due date for this deposit is the last day of the month following
the end of the quarter.
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8-16
Practice Exercise 3
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8-17
Deposits of Employees’ State Income
Tax Withholding
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8-18
Employer’s Quarterly Federal Tax Return
(Form 941)
• The purpose of Form 941, Employer’s Quarterly Federal
Tax Return, is to report the tax liability for withholdings of
employees’ federal income tax and FICA taxes, and also
the employer’s share of FICA taxes.
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8-19
Wage Withholding Statements for Employees
(Form W-2)
• After the end of a year (December 31) and by the
following January 31, the employer must furnish for
each employee a Wage and Tax Statement, known as
Form W-2.
• The source of the information used to complete Form
W-2 is the employee’s individual earnings record.
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8-20
Employer’s Annual Federal Income Tax Reports
(Form W-3)
• Form W-3, Transmittal of Wage and Tax Statements,
is sent with the accompanying Copy A of the
employees’ W-2 form to the Social Security
administration.
• This form is due on February 28, following the end of
the calendar year.
• The amounts shown on Form W-3 must be the same
as the grand totals of the W-2 forms and the four
quarterly 941 forms.
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8-21
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8-22
Reports and Payments of Federal
Unemployment Tax
• Generally all employers are subject to the Federal Unemployment
•
•
Tax Act.
These employers must submit an Employer’s Annual Federal
Unemployment (FUTA) Tax Return, Form 940, no later than
January 31 following the close of the calendar year.
This deadline may be extended until February 10 if the employer
has made deposits paying the FUTA tax liability in full.
© 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
8-23
Workers’ Compensation Insurance
• Most states require employers to provide workers’ compensation
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insurance either through plans administered by the state or
through private insurance companies authorized by the state.
This insurance provides industrial accident insurance for
employees killed or injured on the job.
Generally, the employer pays a premium in advance, based on the
estimated payroll.
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8-24
Workers’ Compensation Insurance
The accountant determines the amount of the adjustment is
$73.19 [$3,646.19 (total exact premium) – $3,573.00 (total
estimated premium paid)]. The accountant then makes an
additional adjusting entry for the extra premium.
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8-25
Types of Payroll Fraud
• Ghost employee fraud - Someone is recorded in the
payroll system who does not work for the business.
• False wage claim fraud - Extra hours or other
relevant factors are added to wage information to
increase the amount of pay.
• False expense reimbursement fraud - Improper
claims are made for the reimbursement of expenses.
© 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
8-26
Internal Controls to Prevent and Detect Payroll Fraud
•Require mandatory vacations
•Use cash payment or checks
minimally and increase the use of
direct deposit of payroll checks
•Require proper identification to
receive paychecks
•Conduct periodic unannounced
audits
•Cross-reference the payroll
roster for duplicate addresses or
Social Security numbers
•Conduct a thorough preemployment reference check for
all payroll personnel
•Compare payroll expense per the
payroll register to the payroll
deposit made
•Outsource payroll administration
© 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
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