Accounting Chap 9

Question 1

 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

Answer 1

payroll taxes

Question 2

Most employers pay Payroll Taxes (FICA, FUTA, and SUTA taxes) But NOT ___.

Answer 2

federal or state income taxes

Question 3

Are levied on employers at the same rates and on the same earnings bases as the employee FICA taxes.

Answer 3

Employer FICA taxes

Question 4

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.

Answer 4

employee

Question 5

The ___ provides the information necessary to compute employer payroll taxes.

Answer 5

payroll register

Question 6

The employer’s Social Security liability is determined by multiplying Social Security taxable earnings by ___.

Answer 6

6.2%

Question 7

The employer’s Medicare liability is determined by multiplying total earnings by ___.

Answer 7

1.45%

Question 8

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

Answer 8

Self-Employment Tax

Question 9

___ is the net income of a trade or business run by an individual.

Answer 9

Self-employment income

Question 10

Currently, persons earning net self-employment income of ___ must pay a self-employment tax.

Answer 10

$400 or more

Question 11

Self-employment tax is a contribution to the ___.

Answer 11

FICA tax program

Question 12

Self-employment tax rates are ___ the Social Security and Medicare rates.

Answer 12

double

Question 13

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.

Answer 13

1

Question 14

tax is levied only on employers to raise funds to administer the combined federal/state unemployment compensation program.

Answer 14

EMPLOYER FUTA TAX

Question 15

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.

Answer 15

6.2%

$7,000

5.4%

Question 16

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.

Answer 16

EMPLOYER SUTA TAX

Question 17

The EMPLOYER SUTA TAX common rate is ___ applied to maximum

earnings of ___ for each employee

Answer 17

5.4%

$7,000

Question 18

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

Answer 18

merit-rating system

Question 19

Journalizing Employer Payroll Taxes

1. Obtain the total and taxable earnings amounts from the ___ columns of the payroll register.
2. Compute the amount of employer Social Security tax by multiplying the Social Security taxable earnings by ___.
3. Compute the amount of employer Medicare tax by multiplying total earnings by ___.
4. Compute the amount of FUTA tax by multiplying the Unemployment Taxable earnings by___.
5. Compute the amount of SUTA tax by multiplying the Unemployment Taxable earnings by 5.4%___.
6. Prepare the journal entry using the amounts computed in steps 2–5.

Answer 19

Earnings—Total and Taxable Earnings

6. 2%
7. 45%
8. 8%
9. 8%

Question 20

Is the account used for debiting all the employer payroll taxes.

Answer 20

Payroll Taxes Expense

Question 21

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).

Answer 21

Social Security and Medicare Taxes Payable

Question 22

The accounts are debited when the Social Security and Medicare taxes are paid to the IRS.

Answer 22

Social Security and Medicare Taxes Payable

Question 23

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.

Answer 23

1

Question 24

This account is credited for the tax imposed on employers under the Federal Unemployment Tax Act.

Answer 24

FUTA Tax Payable

Question 25

The account is debited when this FUTA tax is paid.

Answer 25

FUTA Tax Payable

Question 26

Total Payroll Cost of an Employee

Answer 26

1. Gross wages 2. Employer Social Security and Medicare tax 3. SUTA tax 4. FUTA tax

Question 27

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.

Answer 27

1

Question 28

Employer reporting and payment responsibilities

Answer 28

1. Federal income tax withholding and Social Security and Medicare taxes 2. FUTA taxes 3. SUTA taxes 4. Employee Wage and Tax Statement (Form W-2). 5. Summary of employee wages and taxes

Question 29

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.

Answer 29

Circular E-Employer's Tax Guide larger

Question 30

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:

Answer 30

Pay with Form 941 at end of the month following end of the quarter

Question 31

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:

Answer 31

Pay with Form 941 at end of the month following end of the quarter

Question 32

DEPOSITING PAYROLL TAXES Deposits may be made using either:

Answer 32

 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

Question 33

The Electronic Federal Tax Payment System (EFTPS) is required for depositors of over ___.

Answer 33

$200,000

Question 34

Deposits other than EFTPS are made at an authorized bank using ___

Answer 34

Form 8109

Question 35

Form 8109 Includes:

Answer 35

```  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 period ```

Question 36

Use 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

Answer 36

end of the month quarter

Question 37

Form 941, Employer’s Quarterly Federal Tax Return Reports the following taxes for quarter:

Answer 37

(1) Employee federal income tax withheld (2) Employee Social Security and Medicare taxes withheld (3) Employer Social Security and Medicare taxes

Question 38

1. FUTA Taxes Must be calculated on a ___ basis. 2. If the accumulated liability exceeds $500, the total must be paid to an ___. 3. If the liability is ___, no deposit is necessary, and the amount is simply added to the amount to be deposited for the next quarter.

Answer 38

quarterly authorized commercial bank $500 or less

Question 39

FUTA taxes are deposited using Form ___.

Answer 39

8109 or EFTPS

Question 40

For the journal entry FUTA Tax payment, ___ FUTA Tax Payable and ___ Cash.

Answer 40

debit credit

Question 41

Form ___ is used to report FUTA wages and taxes | following the end of the calendar year.

Answer 41

940 or 940-EZ

Question 42

SUTA Taxes Deposits are usually required on a ___ basis and Forms required vary by state.

Answer 42

quarterly

Question 43

For the journal entry SUTA Tax payment, ___ SUTA Tax Payable and ___ Cash

Answer 43

debit credit

Question 44

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

Answer 44

Employee Wage and Tax Statement – FORM W-2

Question 45

Multiple copies of Form W-2 copies are needed for the following purposes:

Answer 45

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

Question 46

Sent by employers with Copy A of Forms W-2 to the Social Security Administration

Answer 46

Summary of Employee Wages and Taxes

Question 47

Summary of Employee Wages and Taxes Form W-3 must be filed by ___ following the end of each taxable year.

Answer 47

February 28

Question 48

___ 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 ___.

Answer 48

Summary of Employee Wages and Taxes Form W-3 employee earnings record

Question 49

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.

Answer 49

1

Question 50

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.

Answer 50

1

Question 51

Summary of Taxes, Reports, and Payments

Answer 51

1. File Forms 940, 941, W-2, and W-3 2. Federal income tax, Social Security, and Medicare deposits. 3. FUTA and SUTA deposits 4. State and local requirements

Question 52

Required by most states that employers provides insurance for employees who suffer job-related illness or injury.

Answer 52

Workers’ Compensation Insurance

Question 53

Workers’ Compensation Insurance Cost of insurance:

Answer 53

1. Usually paid by the employer. 2. Depends on the number of employees, riskiness of the job, and the company’s accident history. 3. Paid at the beginning of the year, based on the estimated payroll for the year, with end-of-year adjustments for over- or underpayment.