Question
What taxes are recorded when recording Payroll Tax Expense?
Ask by Howell Burgess. in the United States
Mar 25,2025
Upstudy AI Solution
Tutor-Verified Answer
Answer
When recording Payroll Tax Expense, the following taxes are recognized:
-
Employer’s Share of FICA Taxes:
- Social Security Tax: 6.2% of employee wages up to a certain limit.
- Medicare Tax: 1.45% of all employee wages.
-
Unemployment Taxes:
- Federal Unemployment Tax (FUTA): Calculated on the first $7,000 of each employee’s wages.
- State Unemployment Tax (SUTA): Determined by the state’s rate and wage base.
-
Journal Entry:
- Debit Payroll Tax Expense for the total employer taxes.
- Credit FICA Taxes Payable, FUTA Payable, and SUTA Payable for the respective amounts.
Summary: Payroll Tax Expense includes the employer’s portion of FICA taxes (Social Security and Medicare) and unemployment taxes (FUTA and SUTA).
Solution
-
Identify the Employer Payroll Taxes:
When a company records Payroll Tax Expense, it is recognizing the employer’s cost for taxes related to its payroll. These taxes generally include those for which the employer is liable in addition to the amounts withheld from employee wages. -
Employer’s Share of FICA Taxes:
The Federal Insurance Contributions Act (FICA) taxes include:- Social Security Tax: Typically, the employer pays
of the employee’s wages up to a wage base limit. - Medicare Tax: The employer pays
of all gross wages.
Together, these form the employer’s share of FICA taxes, which can be expressed mathematically for total wagesas: - Social Security Tax: Typically, the employer pays
-
Unemployment Taxes:
Employers are also responsible for unemployment taxes, which include:- Federal Unemployment Tax Act (FUTA): This tax is generally calculated on the first
of each employee’s wages (with being the wage base limit, for example, ), at a specified rate (which may be adjusted by credits for state unemployment taxes). - State Unemployment Tax Act (SUTA): This is determined by the state’s rate and wage base and varies by state.
- Federal Unemployment Tax Act (FUTA): This tax is generally calculated on the first
-
Journal Entry Implication:
When recording the Payroll Tax Expense, the journal entry typically involves a debit to Payroll Tax Expense and credits to the related liability accounts:- Debit Payroll Tax Expense for the total cost (employer FICA plus unemployment taxes).
- Credit the appropriate tax payable accounts (such as FICA Taxes Payable, FUTA Payable, and SUTA Payable).
-
Summary:
In summary, when recording Payroll Tax Expense, the taxes recorded are the employer’s portion of:- Social Security tax
- Medicare tax
- Federal Unemployment Tax (FUTA)
- State Unemployment Tax (SUTA)
These constitute the payroll tax costs incurred by the employer in addition to the withholdings made from employee wages.
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Simplify this solution The Deep Dive
When recording Payroll Tax Expense, you’ll typically account for employer contributions like Social Security and Medicare taxes, often referred to as FICA taxes. The employer generally matches the employee’s contribution, which is 6.2% for Social Security (up to the annual wage limit) and 1.45% for Medicare, with an additional 0.9% for high earners.
Additionally, you would consider federal and state unemployment taxes (FUTA and SUTA). FUTA is 6% on the first $7,000 of each employee’s wages, while SUTA varies by state and can provide a substantial financial safety net for unemployed workers. Understanding these taxes helps ensure compliance and accurate payroll management!
