PAYING, RECORDING, AND REPORTING PAYROLL AND …
Transcript of PAYING, RECORDING, AND REPORTING PAYROLL AND …
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PAYING, RECORDING, AND
REPORTING PAYROLL AND
PAYROLL TAXES: THE
CONCLUSION OF THE
PAYROLL PROCESS
Chapter 8
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Learning Objectives
1. Recording payroll and payroll taxes
2. Recording the payroll and the paying of the
payroll taxes
3. Recording employer taxes for FICA OASDI, FICA
HI, FUTA, SUTA, and workers’ compensation
insurance
4. Paying FUTA, SUTA, and workers’ compensation
insurance
5. Preparing Forms W-2, W-3, 941, and 940
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Pay, Record, and Report
In Chapter 7, we learned how to calculate:
gross earnings
employee withholding taxes
net pay
employer payroll taxes
We now look at how businesses
pay, record, and report these amounts
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Familiar Payroll Accounts
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Recording payroll and payroll
taxes
Learning Objective 1
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Record Salaries Expense
Use Employee’s Payroll Register
Salary/Wages Expense = gross salary of all employees
Salaries/Wages Payable = net pay
Amounts of taxes withheld = “payable” accounts
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Payroll Tax Expense
Different taxes are recorded in separate
liability accounts. These are:
FICA OASDI, FICA Medicare, FUTA, and SUTA
FICA taxes are paid to different government
agencies.
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Recording the payroll and the
paying of the payroll taxes
Learning Objective 2
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Record Payment of Salaries
Record the payment of payroll to
employees
Would occur if the pay date is different from
the payroll recording date
Could occur if the pay date is the same as the
recording date
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Pay Checks with Pay Stub
Pay stubs show the gross earnings, deductions & net pay
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Employer’s Quarterly Federal Tax
Return, Form 941
Taxes withheld from employee checks are
reported and paid to the specific levels of
government
How?
Every employer must get a federal identification
number (EIN)
Form SS-4 to obtain the EIN
Use the EIN to report employee earnings and
payroll taxes
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Form SS-4
Employer
identification
number (EIN)
is like a
Social
Security
number
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Recording employer taxes for
FICA OASDI, FICA HI, FUTA, SUTA,
and workers’ compensation
insurance
Learning Objective 3
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FIT and FICA
First, determine when FIT and FICA taxes need to be paid and make the payment on time
Secondly, report these on Form 941, the Employer’s Quarterly Federal Tax Return
Use worksheet to complete the form
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FIT and FICA
Transmitted to the Treasury Department using the Electronic Federal Tax Payment System (EFTPS)
If company owes < $2,500 in total taxes deposit quarterly
Monthly depositor – deposit taxes on 15th day of every month
Employer pays less than $50,000 of Form 941 taxes during look-back period
Semiweekly depositors – deposit taxes within three banking days
Employer pays more than $50,000 of Form 941 taxes during look-back period
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Record Payment of Taxes
Journal entry to record the payment
of the FIT and FICA taxes
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Employer’s Quarterly Federal Tax
Return, Form 941
Requires all employers to complete tax returns reporting
FICA OASDI, FICA Medicare, and FIT taxes
If taxes total less than $2,500 for a calendar year,
employers prepare Form 944, Employer’s Annual
Federal Tax Return
Due by January 31 of the following year
If taxes total more than $2,500 for a calendar year,
employers prepare Form 941, Employer’s Quarterly
Federal Tax Return
Due every quarter
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Form 941
At the end of the
calendar year,
someone prepares the
Form 941 following
line-by-line instructions.
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Paying FUTA, SUTA, and workers’
compensation insurance
Learning Objective 4
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Paying FUTA Tax
If tax owed for calendar year is < $500, employer
pays to the IRS by end of January of the next year.
If amount owed is > $500, employer pays quarterly
due by the end of the month following the end of the
calendar quarter.
In each case, a journal entry is recorded when the
payment is made.
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Form 940, Employer’s Annual Federal
Unemployment (FUTA) Tax Return
Form 940
Prepared at end of calendar year
Filed by January 31 following year
If taxes have be paid in full, then the firm has until February 10
Reports the amount of unemployment tax due for the year
Calculated on total wages, not individual earnings
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Form 940
At the end of the
calendar year,
someone prepares the
Form 940 following
line-by-line instructions.
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Paying SUTA Tax
Paid to state government
Typically due by end of month following
each calendar quarter
Usually required to complete a state
unemployment tax form
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Record Payment of Workers’
Compensation Insurance
Paid at the beginning of the year
Will gradually be transferred from the Prepaid
account to Workers’ Compensation Insurance Expense
account
At the end of the year, one could owe more
premiums or receive a refund
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Preparing Forms W-2, W-3, 941,
and 940.
Learning Objective 5
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W-2: Wage and Tax Statement
Prepared by employer each calendar year
Provides summary of gross earnings and deductions to each employee
Copies provided to:
Employee
IRS
State and Local Governments
Social Security Administration
Company records
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Form W-3: Transmittal of Income and
Tax Statements
Reports
Total amounts of wages, tips, and
compensation paid to employees
Total OASDI and Medicare taxes
withheld
Sent to a Social Security Administration
with copies of each employee’s W-2
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Summary of the chapter
The payroll register provides the data for journalizing the payroll in the general journal. Deductions for payroll withholding taxes represent liabilities of the employer until paid. The Accounts Charged columns of the payroll register indicate which accounts will be debited to record the total wages and salaries expense when a journal entry is prepared. The accounts FICA OASDI Payable and FICA Medicare Payable accumulate the tax liabilities of both the employer and the employee for OASDI and Medicare taxes.
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Summary of the chapter
The payroll tax expense is recorded at the same time that the payroll is recorded. Paying a payroll results in debiting Wages and Salaries Payable and crediting Cash or Payroll Cash.
Federal Form 941 is prepared and filed no later than one month after the calendar quarter ends. It reports the amount of FIT, OASDI, and Medicare tax withheld from employees and the OASDI and Medicare taxes due from the employer for the calendar quarter. FIT, OASDI, and Medicare taxes are known as Form 941 taxes.
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Summary of the chapter
The total amount of Form 941 taxes paid by a business during a specific period of time determines how often the business will have to make its payroll tax deposits. This time period is called a look-back period.
Businesses will normally make their payroll tax deposits to pay their Form 941 taxes either monthly or semiweekly. Different deposit rules apply to monthly and semiweekly depositors and these rules determine when deposits are due. Form 941 payroll tax deposits must be made—if the payment is less than $2,500 per quarter it is made—by check at the time the Form 941 is submitted.
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Summary of the chapter
Information to prepare W-2 forms can be obtained from the individual employee earnings records. Form W-3 is used by the Social Security Administration in verifying that taxes have been withheld as reported on individual employee W-2 forms. Form 940 is prepared by January 31, after the end of the previous calendar year. This form can be filed by February 10 if all required deposits have been made by January 31. If the amount of FUTA taxes is equal to or more than $500 during any calendar quarter, the deposit must be made no later than one month after the quarter ends.
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Summary of the chapter
If the amount is less than $500, no deposit is required until the liability reaches the $500 point or until the year ends, when any tax due must be paid by January 31 of the following year. The premium for workers’ compensation insurance based on estimated payroll for the year is paid at the beginning of the year by the employer to protect against potential losses to its employees due to accidental death or injury incurred while on the job.
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