- Prepare entries to accrue payroll and payroll-related taxes
Assume a company had a payroll of $35,000 for the month of April. The company withheld the following amounts from the employees’ pay: federal income taxes $4,100; state income taxes $360; FICA taxes $2,678; and medical insurance premiums $940. This entry records the payroll:
| Date | Description | Post. Ref. | Debit | Credit |
|---|---|---|---|---|
| April | Salaries Expense | 35,000.00 | ||
| April | Federal Income Tax Withheld Payable (given) | 4,100.00 | ||
| April | State Income Tax Withheld Payable (given) | 360.00 | ||
| April | FICA Social Security Taxes Payable ($35,000 x 6.2%) | 2,170.00 | ||
| April | FICA Medicare Tax Payable ($35,000 x 1.45%) | 507.50 | ||
| April | Employee Medical Insurance Payable (given) | 940.00 | ||
| April | Salaries Payable (35,000 – 4100 – 360 – 2170 – 507.50 – 940) | 26,922.50 | ||
| April | To record the payroll for the month ended April 30. |
All accounts credited in the entry are current liabilities and will be reported on the balance sheet if not paid prior to the preparation of financial statements. When these liabilities are paid, the employer debits each one and credits Cash.
Employers normally record payroll taxes at the same time as the payroll to which they relate. Assume the payroll taxes an employer pays for April are FICA taxes, state unemployment taxes (SUTA) $1,890; and federal unemployment taxes (FUTA). No employee has earned more than $7,000 in this calendar year. The entry to record these payroll taxes would be:
| Date | Description | Post. Ref. | Debit | Credit |
|---|---|---|---|---|
| April | Payroll Tax Expense | 4,848 | ||
| April | FICA Social Security Taxes Payable ($35,000 x 6.2%) | 2,170 | ||
| April | FICA Medicare Tax Payable ($35,000 x 1.45%) | 507.5 | ||
| April | FUTA Taxes Payable ($35,000 x 0.8%) | 280 | ||
| April | SUTA Taxes Payable | 1890 | ||
| April | To record employer’s payroll taxes. |
These amounts are in addition to the amounts withheld from employees’ paychecks. The credit to FICA Taxes Payable is equal to the amount withheld from the employees’ paychecks. The company can credit both its own and the employees’ FICA taxes to the same liability account since both are payable at the same time to the same agency. When these liabilities are paid, the employer debits each of the liability accounts and credits Cash.
You can view the transcript for “FA 8 5 Payroll and Payday” here (opens in new window).