Teacher Version - WTPS · • An employer’s payroll taxes are based on the gross ... (December...

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College Accounting

11th Edition

Employer Taxes,

Payments, and Reportscha

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Teacher Version


• 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.

Employer Identification Number (EIN)

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• 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.

Employer’s Payroll Taxes

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• 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.

Employer’s Matching Portion of FICA Tax

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Employer’s Portion of FICA Taxes

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Employers’ SUTA & FUTA TAX

• 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).


Steps for Recording the Payroll

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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).

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Employers submit a return, Form 941, every quarter (three consecutive months). The

due dates for filing this return are as follows:


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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Payments of Federal Unemployment Insurance

• The FUTA tax is calculated quarterly, during the month following 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.


Deposits of Employees’ State Income Tax Withholding

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• 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.

Employer’s Quarterly Federal Tax Return (Form 941)

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• 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.

Wage Withholding Statements for Employees (Form W-2)

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• 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.

Employer’s Annual Federal Income Tax Reports (Form W-3)

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• 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.

Reports and Payments of Federal Unemployment Tax

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• Most states require employers to provide workers’ compensation 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.

Workers’ Compensation Insurance

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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.


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 pre-employment

reference check for all payroll personnel

•Compare payroll expense per the payroll

register to the payroll deposit made

•Outsource payroll administration

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• 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.

Types of Payroll Fraud

Teacher Version - WTPS · • An employer’s payroll taxes are based on the gross ... (December...

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