CHAPTER 12 PAYROLL ACCOUNTING Section 12-2 Payroll Deductions Section 12-3 Payroll Records.

CHAPTER 12PAYROLL ACCOUNTING

Section 12-2Payroll Deductions

Section 12-3Payroll Records

• The collection and processing of information needed to begin to prepare and issue payroll checks.

Gross earnings is the total amount an employee earns in a pay period.

A deduction is an amount that is subtracted from an employee’s gross earnings.

Net pay is the total amount that the employee actually receives (gross earnings less deductions).

SECTION SKILLS

PRACTICE

Problem 12-5 (page 333)

3940

39

4337.357.60

286.65338.20

185.00

250.00

37.05 222.05

22.80 272.80

Ann Ryan

Mandatory deductions – deductions required by law

Voluntary deduction – deductions that are optional

DEDUCTIONS

MANDATORY DEDUCTIONS

Federal Income

Tax

SocialSecurity

Tax

City andState Income

Tax

Deductions Required by Law

MANDATORY DEDUCTIONS

The amount of income tax

withheld depends on:

The employee’s marital status(found on Form W-4)

Number of allowances claimed(found on Form W-4)

The employee’s gross earnings

MANDATORY DEDUCTIONS

withholding allowance - An allowance an individual claims on a Form W-4; it is used to calculate the amount of income tax withheld

from an employee’s paycheck.

See page 319

MANDATORY DEDUCTIONS

Look at the Tax Tables shown on page 320

- Separate tables for Single and Married

- Different tables for pay periods

- Reading the tables

MANDATORY DEDUCTIONS

Employer withholds federal income federal income

taxtax

Too much money withheld

Refund

Too little money withheld

Amount Due

from the IRS

to the IRS

State/Local Income tax is similar – employer is required to withhold and forward to the government

MANDATORY DEDUCTIONS

The Federal Insurance Contributions Act (FICA) established social security taxes in 1935. Two

components of FICA are:

Social Security–provided as old age

and disability insurance and

survivors’ benefits

Medicare–provides health insurance for

people who are elderly or disabled

Social Security has an annual maximum; currently the maximum taxable earnings

amount is $106,800.

Currently 6.2%

Currently 1.45%

VOLUNTARY DEDUCTIONS

Examples of Voluntary DeductionsUnion Dues

Health Insurance Premiums

Life Insurance Premiums

U.S. Savings Bonds

Charitable Contributions

Retirement Contributions (401k, etc.)

Credit Union Deposits and Payments

PRACTICE

Problem 12-2 (page 322)

6.2% 1.45% 2%Page 320

9.6511.41

12.6913.4212.2059.37957.56

2.262.67

2.973.142.85

13.88

16.0012.00

23.006.00

057.00

3.113.684.09

4.333.94

19.55

31.0229.7742.7526.88

18.99149.40

124.58154.33161.90

189.52177.82808.16

Double-check by taking the gross total minus total deductions to make sure it equals the net total.

PAYROLL RECORDS

Paying Employees

Two most common methods:

-Paper Check

-Direct Deposit

PAYROLL RECORDS

payroll register - A form that summarizes information about employees’ earnings for each pay period.

1. Total Hours Column

2. Rate Column

3. Earnings Section

4. Deductions Section

5. Net Pay Column

6. Check Number Column

7. Column Totals

See page 323

PAYROLL RECORDS

An employer must also keep an employee’s earning record, which includes

accumulated earnings information.

employee’s earning record – a record prepared for each employee that contains all payroll

information related to the employee; it is kept on a quarterly basis

accumulated earnings - the employee’s year-to-date gross earnings

ASSIGNMENT

• Problem 12-6 (pages 333-334)– Excel – template– Compare with group

• Problem 12-7 (page 334)– Handout– Compare with group