ACG 2021 Current Liabilities and Payroll Computing Net Pay o Formula Gross Pay Federal Income Tax Withheld Social Security Tax Medicare Tax NET PAY Example 5 Using all the information on Sally what is her net pay Gross pay Federal withholding Social security Medicare NET PAY 520 00 96 10 32 24 7 54 384 12 the amount of her paycheck Liability for Employer s Payroll Taxes Most employers are also subject to federal and state payroll taxes Matches the These include employee s contribution o Social security tax o Medicare tax o Federal unemployment compensation tax FUTA Federal Unemployment Tax Act provides for temporary payments for those who become unemployed as a result of layoffs due to economic causes beyond their control Tax of 6 2 on the first 7 000 wages per employee o State unemployment compensation tax Created by M Mari Fall 2007 Page 1 of 4 ACG 2021 Current Liabilities and Payroll Varies by state Florida rates as high as 5 4 of the first 7 000 of wages per employee In Florida Form UCT 6 is filed quarterly to report the tax Journal entries To record the salaries paid for the period Account Salaries Expense Social security tax payable Medicare tax payable Federal income withholding Cash Debit Gross pay Credit Employee s share Employee s share Employee s Net pay Example 6 Using all the information on Sally what is the entry to record her wages for the week Gross pay Federal withholding Social security Medicare NET PAY 520 00 96 10 32 24 7 54 384 12 the amount of her paycheck DebitCredit 52 0 Fed income tax payable 96 10 FICA tax payable 32 24 Medicare tax payable 7 54 Cash 384 12Account To record the employer s share of the payroll taxes for the period Created by M Mari Fall 2007 Page 2 of 4 Debit Credit ACG 2021 Current Liabilities and Payroll Account Payroll tax expense Salaries expense FICA tax payable Medicare tax payable FUTA payable SUTA payable Total taxes owed Matches employees Matches employees 6 2 of the first 7 000 in wages Based on state regs Payment of Payroll Taxes Companies are required to deposit payroll taxes due weekly monthly or quarterly based on the amount due each payroll period Companies are required to file quarterly reports on the payroll taxes o Form 941 Quarterly Federal Payroll Taxes http www irs gov pub irs pdf f941 pdf o Form 940 FUTA taxes annually http www irs gov pub irs pdf f940 pdf o W 3 Report on total wages and taxes collected from employees http www irs gov pub irs pdf fw3 pdf o W 2 Wage and Tax Statement for individuals http www irs gov pub irs pdf fw2 pdf Contingent liabilities Some past transactions will result in liabilities if certain events occur in the future Created by M Mari Fall 2007 Page 3 of 4 ACG 2021 Current Liabilities and Payroll If a contingent liability is PROBABLE and the amount of the liability can be REASONABLY ESTIMATED it should be recorded in the accounts For example warranty costs Product warranty expense Warranty expense DR CR If a contingent liability is probable but cannot be REASONABLY ESTIMATED or is POSSIBLE then the nature of the contingent liability should be disclosed in the footnotes to the financial statements Created by M Mari Fall 2007 Page 4 of 4