The Employer’s Tax Responsibilities

8 - 1© 2004 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 9e by Slater

The Employer’s TaxThe Employer’s TaxResponsibilitiesResponsibilities

Chapter 8Chapter 8


Calculating and journalizingCalculating and journalizingemployer payroll tax expenses.employer payroll tax expenses.

Learning Objective 1Learning Objective 1


Learning Unit 8-1 (The Learning Unit 8-1 (The Employer’s Payroll Tax Employer’s Payroll Tax

Expense)Expense)The employer must calculate and recordThe employer must calculate and recordpayroll tax expenses as a journal entry.payroll tax expenses as a journal entry.

An EIN (employer identificationAn EIN (employer identificationnumber) is necessary.number) is necessary.

Payroll reports must be submittedPayroll reports must be submittedon specialized government forms.on specialized government forms.

Tax payments must be paid on dueTax payments must be paid on duedates or penalties will be incurred.dates or penalties will be incurred.



Expense)Expense)

FICA (Federal Insurance Contributions Act):FICA (Federal Insurance Contributions Act):Employers must match the amount deducted fromEmployers must match the amount deducted from

employees’ checks for Social Security and Medicare.employees’ checks for Social Security and Medicare.

FICA – Social Security PayableFICA – Social Security Payable(employee)(employee)(employer)(employer)

FICA – Medicare PayableFICA – Medicare Payable(employee)(employee)(employer)(employer)



Expense)Expense)

induces states to create theirinduces states to create theirown unemployment programsown unemployment programs

allows the federal governmentallows the federal governmentto monitor state programsto monitor state programs



Expense)Expense)FUTA (Federal Unemployment Tax Act)FUTA (Federal Unemployment Tax Act)

The wage base limit is $7,000The wage base limit is $7,000per year for each employee.per year for each employee.

6.2% FUTA tax6.2% FUTA tax – – 5.4%5.4% normal FUTA tax credit normal FUTA tax credit .8% net FUTA tax for federal purposes.8% net FUTA tax for federal purposes



Expense)Expense)

State rates vary and are merit based.State rates vary and are merit based.

Rates are higher for seasonal employers.Rates are higher for seasonal employers.

Each state’s wage base limit is different.Each state’s wage base limit is different.

The lowest limit in any state isThe lowest limit in any state is$7,000 per year for each employee.$7,000 per year for each employee.



Expense)Expense)

Accounts AffectedAccounts Affected CategoryCategory RulesRulesPayroll Tax ExpensePayroll Tax Expense ExpenseExpense Dr. Dr.FICA – Social SecurityFICA – Social Security LiabilityLiability Cr. Cr.FICA – MedicareFICA – Medicare LiabilityLiability Cr. Cr. SUTASUTA LiabilityLiability Cr. Cr.FUTAFUTA LiabilityLiability Cr. Cr.



Expense)Expense)

Payroll Tax ExpensePayroll Tax Expense 479.79479.79FICA SS Tax PayableFICA SS Tax Payable 290.36290.36FICA Medicare Tax PayableFICA Medicare Tax Payable 67.91 67.91SUTA Tax PayableSUTA Tax Payable 105.84105.84FUTA Tax PayableFUTA Tax Payable 15.68 15.68

To record the August 25 employer’s payrollTo record the August 25 employer’s payrolltax expensetax expense



Expense)Expense)The following are not deductedThe following are not deducted

from the employees’ pay:from the employees’ pay:

– – Matching amounts for FICAMatching amounts for FICA

– – Workers’ Compensation InsuranceWorkers’ Compensation Insurance

– – Federal and State UnemploymentFederal and State UnemploymentInsurance (FUTA) & (SUTA)Insurance (FUTA) & (SUTA)


Completing the Employer’s QuarterlyCompleting the Employer’s QuarterlyFederal Tax Return and DepositFederal Tax Return and DepositCoupon (Forms 941 and 8109)Coupon (Forms 941 and 8109)and paying tax obligations forand paying tax obligations forFICA tax (Social Security andFICA tax (Social Security and

Medicare) and federal income tax. Medicare) and federal income tax.



Learning Unit 8-2Learning Unit 8-2(Form 941)(Form 941)

Form 941 is the Employer’sForm 941 is the Employer’sQuarterly Federal Tax Return.Quarterly Federal Tax Return.



It also lists cumulative total tax.It also lists cumulative total tax.

FICA information is separated intoFICA information is separated intoSocial Security and Medicare.Social Security and Medicare.

Total gross pay for the quarter is listed.Total gross pay for the quarter is listed.



MonthlyMonthly

SemiweeklySemiweekly



The The look-back periodlook-back period rule views the rule views thetotal amount of payroll taxes paidtotal amount of payroll taxes paid

the previous year to determinethe previous year to determinethe frequency of the deposits.the frequency of the deposits.

The payroll taxes must be deposited inThe payroll taxes must be deposited inan authorized Federal Reserve Bank.an authorized Federal Reserve Bank.

Form 941 must be accompanied by IRSForm 941 must be accompanied by IRSForm 8109, Federal Deposit Coupon.Form 8109, Federal Deposit Coupon.



The total time period spans three years.The total time period spans three years.

20022002 20032003 20042004

This is the look-back period for 2004.This is the look-back period for 2004.

July 1, 2002July 1, 2002 June 30, 2003June 30, 2003


Preparing Forms W–2, W–3,Preparing Forms W–2, W–3,and 940-EZ, and estimatesand 940-EZ, and estimatesof workers’ compensationof workers’ compensation

insurance premiums. insurance premiums.



Learning Unit 8-3 (FormsLearning Unit 8-3 (FormsW-2, W-3, and 940-EZ)W-2, W-3, and 940-EZ)

The original copy is mailed to theThe original copy is mailed to theSocial Security Administration.Social Security Administration.

Employers prepare a W–2 formEmployers prepare a W–2 formfor each employee for the year.for each employee for the year.

January 31 is the deadlineJanuary 31 is the deadlinefor issuance to employees.for issuance to employees.

W-2 W-3



Employers with employees in moreEmployers with employees in morethan one state must use Form 940.than one state must use Form 940.

Form W-3 (Form W-3 (Transmittal of IncomeTransmittal of Incomeand Tax Statementsand Tax Statements) is mailed) is mailed

with the original copy of the W-2s.with the original copy of the W-2s.

Form 940-EZ: Employer’s AnnualForm 940-EZ: Employer’s AnnualUnemployment Tax Return is usedUnemployment Tax Return is used

to report FUTA for one state.to report FUTA for one state.



Workers’ compensation insuranceWorkers’ compensation insuranceprovides insurance against lossesprovides insurance against lossesdue to accidental injury on the job.due to accidental injury on the job.

The premium is based on theThe premium is based on thetotal estimated gross payroll.total estimated gross payroll.


Learning Unit 8-3 (Workers’)Learning Unit 8-3 (Workers’)Compensation Insurance)Compensation Insurance)

Accounts AffectedAccounts Affected CategoryCategory RulesRulesPrepaid InsurancePrepaid Insurance AssetAsset Dr. Dr.CashCash AssetAsset Cr. Cr.Workers’ Compensation:Workers’ Compensation:Insurance ExpenseInsurance Expense ExpenseExpense Dr. Dr.Insurance PayableInsurance Payable LiabilityLiability Cr. Cr.


End of Chapter 8End of Chapter 8

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The Employer’s Tax Responsibilities