Chapter 9: Appendix

Payroll Reports, Records, and Procedures Payroll accounting involves creating and maintaining a series of reports and records to ensure that payroll liabilities, employee wages, and taxes are accurately recorded and reported. This process includes generating required reports for federal, state, and local tax authorities and keeping records for internal use. 1. Payroll Reports • • • FICA and Income Tax Reporting (Form 941): Employers must file IRS Form 941 quarterly to report Federal Insurance Contributions Act (FICA) taxes and withheld income taxes. This includes: o Social Security Tax: Calculated as 6.2% each from both employee and employer, totaling 12.4% on taxable wages (up to an income cap). o Medicare Tax: Calculated as 1.45% each from employee and employer, totaling 2.9% with no income limit. o Total Tax Liability: Income and FICA taxes are reported, and if the total tax for a quarter is under $2,500, payment can accompany Form 941. Unemployment Taxes (FUTA and SUTA): o FUTA (Federal Unemployment Tax): Filed annually on Form 940, with quarterly payments required if the liability exceeds $500. o SUTA (State Unemployment Tax): Requirements vary by state, typically requiring quarterly reporting and payment. Employee Wage Report (Form W-2): Provided to each employee annually by January 31, this form summarizes wages, FICA contributions, and federal income taxes withheld. Copies are also sent to the Social Security Administration and IRS, forming the basis for Social Security benefits and tax records. 2. Payroll Records • • • Payroll Register: This record summarizes payroll data for each employee, showing details like hours worked, gross pay, deductions (e.g., FICA, FUTA, SUTA), and net pay. It serves as a comprehensive record for payroll transactions. Employee Earnings Report: This is a cumulative report for each employee, tracking total hours worked, gross pay, deductions, and net pay over the year. It is used for tax reporting, payroll record-keeping, and calculating when employees reach FICA, FUTA, and SUTA tax exemption points. Payroll Check and Statement of Earnings: Employees receive payment by check or direct deposit, often accompanied by a statement of earnings that details gross pay, deductions, and net pay. For large companies, payroll checks are issued from a separate payroll bank account to facilitate easier control and reconciliation. 3. Payroll Procedures • • Computing Federal Income Taxes: Employers calculate federal income taxes based on employee gross pay and withholding allowances, indicated on Form W-4. Withholding tables, like those in Exhibit 9A.6, provide tax amounts based on pay frequency and marital status. Payroll Bank Account: Large companies use a dedicated payroll bank account to issue checks, which involves either depositing the total payroll amount or transferring funds electronically from the main account. This setup enhances internal control, as it minimizes access to the main account and simplifies reconciliation. 4. Who Pays Payroll Taxes and Benefits • Employer vs. Employee Payroll Taxes: o Employee: Pays federal income tax, FICA (Social Security and Medicare), and any voluntary deductions (e.g., insurance, retirement). o Employer: Matches employee FICA contributions and covers FUTA, SUTA, and sometimes other benefits depending on company policies and agreements. This framework of payroll reports, records, and procedures ensures compliance with tax laws, supports internal control, and helps maintain accurate records for employee compensation and benefits.