Accounting Chap 9 Flashcards
In addition to the gross pay for each employee, the employer must pay
___
FICA
FUTA (Federal Unemployment Tax Act)
SUTA (state unemployment tax)
These taxes add substantially to the cost of having employees
payroll taxes
Most employers pay Payroll Taxes (FICA, FUTA, and SUTA taxes) But NOT ___.
federal or state income taxes
Are levied on employers at the same rates and on the same earnings bases as the employee FICA taxes.
Employer FICA taxes
Both the employer and employee are subjected to Social Security and Medicare taxes. Half of the total tax for these programs is paid by the ___. The other half is levied directly on the employer.
employee
The ___ provides the information necessary to compute employer payroll taxes.
payroll register
The employer’s Social Security liability is determined by multiplying Social Security taxable earnings by ___.
6.2%
The employer’s Medicare liability is determined by multiplying total earnings by ___.
1.45%
Paid by individuals who own and run their own business
These individuals can be viewed as both
employee and employer
They do not receive salary or wages from the business, but they do have earnings in the form of the business net income (self-employment income)
Self-employment tax rates are double the Social Security and Medicare rates
Self-Employment Tax
___ is the net income of a trade or business run by an individual.
Self-employment income
Currently, persons earning net self-employment income of ___ must pay a self-employment tax.
$400 or more
Self-employment tax is a contribution to the ___.
FICA tax program
Self-employment tax rates are ___ the Social Security and Medicare rates.
double
The logic for the self-employment tax rate being approximately double the
employer and employee Social Security and Medicare rates is that the self-employed person is considered both the employer and employee.
1
tax is levied only on employers to raise funds to administer the combined federal/state unemployment compensation program.
EMPLOYER FUTA TAX
The EMPLOYER FUTA TAX current rate is ___ applied to maximum
earnings of ___ for each employee, but employers are allowed a credit of up to ___ for participation in state unemployment programs.
6.2%
$7,000
5.4%
Levied on employers in most states to raise
funds to pay unemployment benefits. Tax rates, earnings bases, and unemployment benefits vary among the states, and most states only levy on employers.
EMPLOYER SUTA TAX
The EMPLOYER SUTA TAX common rate is ___ applied to maximum
earnings of ___ for each employee
5.4%
$7,000
Most states have a ___ to encourage employers to provide regular employment to workers
If an employer has very few former employees receiving unemployment
compensation, the employer qualifies for a lower state unemployment tax rate
merit-rating system
Journalizing Employer Payroll Taxes
- Obtain the total and taxable earnings amounts from the ___ columns of the payroll register.
- Compute the amount of employer Social Security tax by multiplying the Social Security taxable earnings by ___.
- Compute the amount of employer Medicare tax by multiplying total earnings by ___.
- Compute the amount of FUTA tax by multiplying the Unemployment Taxable earnings by___.
- Compute the amount of SUTA tax by multiplying the Unemployment Taxable earnings by 5.4%___.
- Prepare the journal entry using the amounts computed in steps 2–5.
Earnings—Total and Taxable Earnings
- 2%
- 45%
- 8%
- 8%
Is the account used for debiting all the employer payroll taxes.
Payroll Taxes Expense
The accounts are credited to enter the amount of the Social Security and Medicare taxes imposed on the employer (and remember those amounts deducted from the employee’s paychecks).
Social Security and Medicare Taxes Payable
The accounts are debited when the Social Security and Medicare taxes are paid to the IRS.
Social Security and Medicare Taxes Payable
There is no need for separate liability accounts for employer and employee Social Security and Medicare taxes payable. Both the employer and employee taxes are due and will be paid to the IRS.
1
This account is credited for the tax imposed on employers under the Federal Unemployment Tax Act.
FUTA Tax Payable
The account is debited when this FUTA tax is paid.
FUTA Tax Payable
Total Payroll Cost of an Employee
- Gross wages
- Employer Social Security and Medicare tax
- SUTA tax
- FUTA tax
The issue of the total cost of employing a person is one that most employees have never considered. It is interesting to consider the cost of medical insurance, pension plans, paid vacations, and other fringe costs as well.
1
Employer reporting and payment responsibilities
- Federal income tax withholding and Social Security and Medicare taxes
- FUTA taxes
- SUTA taxes
- Employee Wage and Tax Statement (Form W-2).
- Summary of employee wages and taxes
Determining when payments are due for Federal Income Tax Withholding and Social Security and Medicare Taxes, use the deposit rules stated in ___.
In general, the ___ the amount that needs to be deposited, the more frequently payments must be made.
Circular E-Employer’s Tax Guide
larger
Accumulated Tax Liability (Federal Income Tax Withholding and Social Security and Medicare Taxes):
Less than $2,500 at the end of the current quarter,
Deposit Due:
Pay with Form 941 at end of the month following end of the quarter
Accumulated Tax Liability (Federal Income Tax Withholding and Social Security and Medicare Taxes):
$2,500 or more at the end of the current quarter and $50,000 or less in total during the lookback
period
Deposit Due:
Pay with Form 941 at end of the month following end of the quarter
DEPOSITING PAYROLL TAXES Deposits may be made using either:
The Electronic Federal Tax Payment System (EFTPS)
– An electronic funds transfer system
– Required for taxpayers who deposited more than $200,000 in the prior year
Form 8109 Federal Tax Deposit Coupon
– Submitted with the deposit made at:
Federal Reserve Bank, or
Other authorized commercial bank
The Electronic Federal Tax Payment System (EFTPS) is required for depositors of over ___.
$200,000
Deposits other than EFTPS are made at an authorized bank using ___
Form 8109
Form 8109 Includes:
Employer Identification Number (EIN)
– Obtained from the IRS
– Must be shown on all payroll forms and reports filed with the IRS
Amount of the deposit
Type of tax
Tax periodUse of Form 941, Employer’s Quarterly Federal Tax Return Must be filed with the IRS at the ___ following each calendar ___.
– Due April 30, July 31, October 31, and January 31
end of the month
quarter
Form 941, Employer’s Quarterly Federal Tax Return Reports the following taxes for quarter:
(1) Employee federal income tax withheld
(2) Employee Social Security and Medicare taxes withheld
(3) Employer Social Security and Medicare taxes
- FUTA Taxes Must be calculated on a ___ basis.
- If the accumulated liability exceeds $500, the total must be paid to an ___.
- If the liability is ___, no deposit is necessary, and the amount is simply added to the amount to be deposited for the next quarter.
quarterly
authorized commercial bank
$500 or less
FUTA taxes are deposited using Form ___.
8109 or EFTPS
For the journal entry FUTA Tax payment, ___ FUTA Tax Payable and ___ Cash.
debit
credit
Form ___ is used to report FUTA wages and taxes
following the end of the calendar year.
940 or 940-EZ
SUTA Taxes Deposits are usually required on a ___ basis and Forms required vary by state.
quarterly
For the journal entry SUTA Tax payment, ___ SUTA Tax Payable and ___ Cash
debit
credit
Given to each employee by January 31, it shows the total amount of wages paid and taxes withheld during the preceding taxable year
Prepared from the employee earnings record
Employee Wage and Tax Statement – FORM W-2
Multiple copies of Form W-2 copies are needed for the following purposes:
a) Copy A—Employer sends to Social Security Administration
b) Copy B—Employee attaches to federal income tax return
c) Copy C—Employee retains for his or her own records
d) Copy D—Employer retains for business records
e) Copy 1—Employer sends to state or local tax department
f) Copy 2—Employee attaches to state, city, or local income tax return
Sent by employers with Copy A of Forms W-2 to the Social Security Administration
Summary of Employee Wages and Taxes
Summary of Employee Wages and Taxes Form W-3 must be filed by ___ following the end of each taxable year.
February 28
___ form summarizes the employee earnings and tax information presented on Forms W-2 for the year.
Information needed to complete Form W-3 is contained in the ___.
Summary of Employee Wages and Taxes Form W-3
employee earnings record
Note that the complexity of payroll reports, deposit rules, and due dates is a major reason small businesses often hire an accountant to handle payroll.
1
The reporting and payment of employee and employer taxes is a very
important obligation of every employer. Be aware that payroll tax reporting is
very important to all sectors of employment. Companies must hire competent people to make sure all of their payroll taxes are reported and paid on time.
Very severe penalties can be assessed on an employer who does not report on a timely basis. Accountants should discuss with businesses that are thinking of hiring employees the duties and filing responsibilities that every employer must perform.
1
Summary of Taxes, Reports, and Payments
- File Forms 940, 941, W-2, and W-3
- Federal income tax, Social Security, and Medicare deposits.
- FUTA and SUTA deposits
- State and local requirements
Required by most states that employers provides insurance for employees who suffer job-related illness or injury.
Workers’ Compensation Insurance
Workers’ Compensation Insurance Cost of insurance:
- Usually paid by the employer.
- Depends on the number of employees, riskiness of the job, and the company’s accident history.
- Paid at the beginning of the year, based on the estimated payroll for the year, with end-of-year adjustments for over- or underpayment.
