Vocabulary
What is EFTPS?
The Electronic Federal Tax Payment System is a way that companies can pay their taxes electronically. Many large companies use this system because they are sending payments so frequently.
What is Form 8109, and how is it used?
Form 8109 is a tax form sent along with payments to inform the government what exactly the payment is for. Form 8109 includes several options to mark what kind of tax is being paid for with the check. The form also includes a section to list what quarter of the year the payment is for.
Form W-2 summarizes the gross earnings and taxes withheld for a single employee.
(True or False?)
True. Form W-2 summarizes tax information for one employee, whereas Form W-3 summarizes this information for an entire company.
Is the Payroll Tax Expense account debited or credited for the total amount of money due in taxes?
Debited.
What are unemployment taxes?
Unemployment taxes are payments made by employers that fund the unemployment system. This money is distributed to people who have lost their jobs or can no longer work to help them cover their expenses. All employers are required to pay into unemployment taxes.
What is Form W-2, and why is it useful for employees?
Form W-2 is used to summarize the gross earnings, withholdings, and taxes paid for each individual employee. Employees use this form to fill out their individual tax returns. Form W-2 is known as the Wage and Tax Statement.
Companies, unlike individuals, prepare taxes quarterly.
(True or False?)
True. Whereas people complete their taxes annually (once a year), companies do their taxes once a quarter.
If the gross earnings of a company is $5,450.00, what is the amount due by the employer to the federal government in FICA taxes?
5,450.00*(0.062+0.0145) = $416.93
What are FUTA and SUTA, and how are they different?
The Federal Unemployment Tax Act (or FUTA) established that employers must pay 6.2% of their gross earnings in unemployment taxes to the federal government. The State Unemployment Tax Act (or SUTA) set standards for what percent of the company’s earnings must be paid in state unemployment taxes. While the percentage varies from state to state, the maximum amount is 5.4% of gross earnings.
How is Form W-3 different from Form W-2?
Whereas Form W-2 includes the information specific to one employee, Form W-3 is a summary for the entire company how much was earned and paid in taxes.
The amount of money withheld by the employer from employees for income taxes, Social Security, Medicare, and other personal withholdings are liabilities of the business.
(True or False?)
True. Social Security Tax Payable and Medicare Tax Payable are examples of the liabilities accounts that would record the amount of money withheld.
If the gross earnings of a company is $1578.00, what is the amount of money due in state unemployment taxes? (Hint: 5.4%).
1578.00*0.054 = $85.70
What is the difference between Salaries Expense and Payroll Tax Expense?
In comparing the Payroll Tax Expense account to the Salaries Expense account, the Payroll Tax Expense account is the total taxes that the employer owes based on total earnings including state and federal unemployment taxes. The Salaries Expense account, on the other hand, includes all of the withholdings for the employees for income taxes, Social Security and Medicare, and optional withholdings for things such as savings bonds or health insurance.
What information is included in Form 941?
Form 941 is the form for a company’s federal tax return. Form 941 is completed quarterly. It includes information on the amount of money due for FICA taxes for employees, federal income tax for employees, and FICA taxes for the employer.
The Salaries Expense account is debited for the amount of net pay for a pay period.
(True or False?)
False. The Salaries Expense is debited for the amount of GROSS pay for the period. Cash in Bank is credited for the amount of net pay.
If Salaries Expense is debited for $1240.00 and the total of the personal and tax deductions is $267.00, what is the amount of net pay?
The net pay is $973.00. (1240 - 267)
What are the accounts such as Federal Unemployment Tax Payable, State Unemployment Tax Payable, and Social Security Tax Payable used for?
These accounts record the amount of money that the employer owes in unemployment taxes and in Social Security taxes (the Social Security Tax Payable account also includes the amount withheld from employee paychecks).
What is the purpose of Form 940?
Form 940 is a summary of the amount of money due in federal unemployment taxes from the employer. It is known as the Employer’s Annual Federal Unemployment Tax Return. It is completed annually.
The amount of money owed by the employer in FICA taxes will always equal the total of the amount withheld for FICA taxes for all employees.
(True or False?)
False. The amount owed for FICA taxes by an employer is calculated from the total gross earnings. The total amount withheld from employee's paychecks will likely be a few cents off from the employer's total because of rounding.
If Cash in Bank is credited for $2,350.47 and the total amount of money withheld is $450.00, what is the amount for Salaries Expense? Is this value credited or debited?
The gross pay of $2,800.47 is debited to Salaries Expense (2350.47 + 450).