College AccountingHeintz & ParryHeintz & Parry2020ththEditionEditionPayroll Accounting: Employer Taxes and Reports9Chapter1Describe and calculate employer payroll taxes.Employer Payroll Taxes•In addition to the gross pay for each employee, the employer must pay payroll taxesFICAFUTA (Federal Unemployment Tax Act)SUTA (state unemployment tax)•These taxes add substantially to the cost of having employeesEmployer FICA TaxesBoth the employee and employer pay FICA taxes. Each pays an equal share.Social Security = 6.2% on maximum earnings of $106,800The amount of earnings subject to Social Security tax is obtained from the payroll register.Payroll Register (Left Side)EARNINGSNAME # ALLOW.MARITAL STATUSREGULAROVER-TIMETOTALCadrain, Sarah 4 M 1,600.00 60.00 1,660.00Guder, James 1 S 760.00 140.00 900.00Istone, Ken 6 M 545.00 545.00Kuzmik, Helen 2 M 480.00 294.00 774.00Lee, Hoseoup 3 M 440.00 440.00Swaney, Linda 2 S 528.00 198.00 726.00Tucci, Paul 5 M 490.00 490.00Wiles, Harry 1 S 300.00 300.005,143.00 692.00 5,835.00Sarah earned $1,660 this period….Payroll Register (Left Side)EARNINGS TAXABLE EARNINGSTOTAL CUMULATIVE TOTALUNEMPLOYMENT COMP.SOCIAL SECURITY1,660.00 107,800 660.00900.00 43,400.00 900.00545.00 27,025.00 545.00774.00 31,000.00 774.00440.00 22,340.00 440.00726.00 27,500.00 726.00490.00 25,050.00 490.00300.00 6,300.00 300.00 300.005,835.00 290,415.00 300.00 4,835.00But only $660 of her earnings are below the maximum and therefore subject to Social Security tax.But only $660 of her earnings are below the maximum and therefore subject to Social Security tax.Payroll Register (Left Side)EARNINGS TAXABLE EARNINGSTOTAL CUMULATIVE TOTALUNEMPLOYMENT COMP.SOCIAL SECURITY1,660.00 107,800.00 660.00900.00 43,400.00 900.00545.00 27,025.00 545.00774.00 31,000.00 774.00440.00 22,340.00 440.00726.00 27,500.00 726.00490.00 25,050.00 490.00300.00 6,300.00 300.00 300.005,835.00 290,415.00 300.00 4,835.00This period’s total earnings are subject to Social Security tax.Employer FICA Taxes$299.77 Withheld from employee+ 299.77 Paid by employer$599.54 Total Social Security tax to be paid to the IRS Social Security Taxable Earningsx Tax Rate = Tax$4,835.00x 6.2% = $299.77Employer FICA Taxes$84.61 Withheld from employee+ 84.61 Paid by employer$169.22 Total Medicare tax to be paid to the IRS Total Earningsx Tax Rate = Tax$5,835x 1.45% = $84.61Medicare = 1.45% of ALL earnings Self-Employment Tax•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 ratesEmployer FUTA TaxThe FUTA (Federal Unemployment Tax Act) tax is levied on employers to raise funds to administer the combined federal/state unemployment compensation program. The current rate is 6.2% applied to maximum earnings of $7,000 for each employee, but employers are allowed a credit of up to 5.4% for participation in state unemployment programs.Let’s look back at the payroll register and determine the FUTA tax owed.Payroll Register (Left Side)EARNINGS TAXABLE EARNINGSTOTAL CUMULATIVE TOTALUNEMPLOYMENT COMP.SOCIAL SECURITY1,660.00 107,800.00 660.00900.00 43,400.00 900.00545.00 27,025.00 545.00774.00 31,000.00 774.00440.00 22,340.00 440.00726.00 27,500.00 726.00490.00 25,050.00 490.00300.00 6,300.00 300.00 300.005,835.00 290,415.00 300.00 4,835.00Only one employee’s earnings is below the $7,000 earnings limit and therefore subject to the FUTA tax.Payroll Register (Left Side)EARNINGS TAXABLE EARNINGSTOTAL CUMULATIVE TOTALUNEMPLOYMENT COMP.SOCIAL SECURITY1,660.00 107,800.00 660.00900.00 43,400.00 900.00545.00 27,025.00 545.00774.00 31,000.00 774.00440.00 22,340.00 440.00726.00 27,500.00 726.00490.00 25,050.00 490.00300.00 6,300.00 300.00 300.005,835.00 290,415.00 300.00 4,835.00A credit of 5.4% is granted because this company participates in a state unemployment program.(6.2% – 5.4% = 0.8% FUTA rate) Payroll Register (Left Side)EARNINGS TAXABLE EARNINGSTOTAL CUMULATIVE TOTALUNEMPLOYMENT COMP.SOCIAL SECURITY1,660.00 107,800.00 660.00900.00 43,400.00 900.00545.00 27,025.00 545.00774.00 31,000.00 774.00440.00 22,340.00 440.00726.00 27,500.00 726.00490.00 25,050.00 490.00300.00 6,300.00 300.00 300.005,835.00 290,415.00 300.00 4,835.00FUTA tax is $2.40.($300 × 0.8%)Employer SUTA Tax•Levied on employers in most states•The purpose of this tax is to raise funds to pay unemployment benefits•A common rate is 5.4% applied to maximum earnings of $7,000 for each employee•Most states have a merit-rating system 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 ratePayroll Register (Left Side)EARNINGS TAXABLE EARNINGSTOTAL CUMULATIVE TOTALUNEMPLOYMENT COMP.SOCIAL SECURITY1,660.00 107,800.00 660.00900.00 43,400.00 900.00545.00 27,025.00 545.00774.00 31,000.00 774.00440.00 22,340.00 440.00726.00 27,500.00 726.00490.00 25,050.00 490.00300.00 6,300.00 300.00 300.005,835.00 290,415.00 300.00 4,835.00SUTA tax is $16.20.($300 × 5.4%)2Account for employer payroll taxes expense.General JournalDATE DESCRIPTION PR DEBIT CREDIT1234567891011Payroll Register (Left Side)EARNINGS TAXABLE EARNINGSTOTAL CUMULATIVE TOTALUNEMPLOYMENT COMP.SOCIAL SECURITY1,660.00 107,800.00 660.00900.00 43,400.00 900.00545.00 27,025.00 545.00774.00 31,000.00 774.00440.00 22,340.00 440.00726.00 27,500.00 726.00490.00 25,050.00 490.00300.00 6,300.00 300.00 300.005,835.00 290,415.00 300.00 4,835.00Step #1 Obtain the total earnings and taxable earnings amounts from the Earnings—Total and Taxable Earnings columns of the payroll register.Step #1 Obtain the total earnings and taxable earnings amounts from the Earnings—Total and Taxable Earnings columns of the payroll register.Step #1 Obtain the total earnings and taxable earnings amounts from the Earnings—Total and Taxable Earnings columns of the payroll register.Payroll Register (Left Side)EARNINGS TAXABLE EARNINGSTOTAL CUMULATIVE TOTALUNEMPLOYMENT COMP.SOCIAL SECURITY1,660.00 107,800.00 660.00900.00 43,400.00 900.00545.00 27,025.00 545.00774.00 31,000.00 774.00440.00 22,340.00 440.00726.00 27,500.00