It is payday at ET Ice Cream and you need to ensure that the correct payroll and tax adjustments are made to the company books. In a typical payroll entry taxes are withheld from employees pay and must be paid to various state agencies.
Identify the payroll and tax adjustments to be made. Identify the agencies to which taxes are paid.
Explain how and why these payments classified on the balance sheet. Some taxes have to be absorbed by the employer without an employee contribution. What taxes are these?
Payroll taxes can be classified as either employer taxes or employee taxes. Some are both, such as FICA and Medicare (the two components of social security.) Following is a list of typical payroll taxes although there are differences from state to state.
1. FICA and Medicare are federally imposed taxes paid by employees and matched by employers. Both are computed as a percentage of gross payroll, but FICA has a cap limit of $102,000 for 2008. FICA is calculated at 6.20% of gross pay (to the cap limit) and Medicare is an unlimited 1.45% of gross pay. The employer matches the exact amount ...
The solution explains the various type of payroll taxes which are mandated by the federal government and by state governments. The explanations disclose whether each tax is an employer tax, an employee tax, or a combination of both.
Sample entries are included for clarity.