Payroll Journal Entry
What's often lost or kept behind the scenes with a payroll software program or payroll outsourcing to companies like ADP or Paychex, is the payroll journal entry that gets posted to the company general ledger. Once the payroll journal entries are posted to the General Ledger, financial statements can be prepared.
Salaries and payroll taxes are major expenses that should be recorded to the Income Statement for your books to be prepared in accordance with proper accounting rules. Withholding tax payable to the IRS and State Revenue Department should be recorded on the Balance Sheet as are liabilities for unemployment taxes, insurance deductions and repayment of employee loans.
Here's an example of the components of a regular paycheck with a gross pay of $800.00 and the employee paying $10.40 for health insurance and $15.00 towards his payroll advances:
| Gross Pay |
800.00 |
| Federal income tax withholding |
50.00 |
| State income tax withholding |
25.00 |
| Social Security withholding (6.2% x gross pay) |
49.60 |
| Medicare withholding (1.45% x Gross pay) |
11.60 |
| Health Insurance withheld |
10.40 |
| Employee Loan repayment |
15.00 |
| Net Pay |
638.40 |
Here's the related Payroll Journal Entry:
| Description |
Debit | Credit |
| Salaries expense |
800.00 | |
| Payroll tax expense (Employer matching Social Security & Medicare) |
61.20 | |
| Payroll tax expense (Fed Unemployment) |
6.40 |
|
| Federal income tax withholding payable |
|
50.00 |
| State income tax withholding payable |
|
25.00 |
| Social Security Payable (Employee withholding + Employer
matching) |
|
99.20 |
| Medicare tax payable (Employee withholding + Employer
matching) |
|
23.20 |
| Federal Unemployment tax payable (.008 x gross pay (up to $7,000) maximum $56/employee) |
|
6.40 |
| Insurance Expense (Employee contribution for health
insurance) |
|
10.40 |
| Employee Advances (Loan repayment of previous advance) |
|
15.00 |
| Cash (Amount of net pay) |
|
638.40 |
The employee withholding and matching employer social security and Medicare along with Federal income tax withholding are reported on IRS Form 941. This is a quarterly form so you need a system to keep track of what you owe the IRS. See our "when to deposit withholding taxes" page for a discussion on when to pay these withholding taxes.
State withholding taxes are paid either monthly or quarterly and you will be required to file a monthly or quarterly report. Federal unemployment taxes are paid quarterly and employers file Form 940 at the end of the calendar year. Not shown in this table are SUTA, state unemployment taxes. The accounting and
journal entries are identical to FUTA with the exception that you pay SUTA to State Unemployment office and file quarterly with the State unemployment
office.
|