Payroll Accounting

Payroll Accounting for Salaries and Wages

Wages paid to employees consist of the net pay plus all deductions for taxes and benefits. Gross wages are recorded as a wage expense (or salary expense for salaried employees) on the income statement. Unlike employer taxes, which represent a separate expense, the employee pays the tax or the benefits owed through deductions from wages.

For example, if payroll pays an employee gross wages of $1,000, then the payroll accountant records the total $1,000 as a wage expense. Since the employee owes Social Security, Medicare, federal and state withholding on the wages, in addition to any other taxes (such as state disability or local taxes), the payroll accountant records the tax liabilities and the net payment of cash with gross wages.

Date	Account and Explanation	Debits	Credits
July 1	Wage Expense	$1,000.00	–
	FICA (Social Security) Payable	–	$62.00
	Medicare Payable	–	$14.50
	Federal withholding payable	–	$87.00
	State withholding payable	–	$20.00
	Cash	–	$816.50
	To record wage payment for bi-weekly (every two weeks) payroll.

Payroll Accounting and Employer Payroll Taxes

The employer payroll taxes are not included in wage expense, and are recorded separately to account for the employer portion of the taxes.

Date	Account and Explanation	Debits	Credits
July 1	Payroll Tax Expense	$138.50	–
	FICA (Social Security) Payable	–	$62.00
	Medicare Payable	–	$14.50
	Federal unemployment tax (FUTA) Payable	–	$8.00
	State unemployment tax (SUTA) payable	–	$54.00
	To record employer payroll tax expense and liability.

At the time of the payment, the employer is liable for depositing both the employee and employer portion of taxes due. The date of the check determines when tax payments must be made, and not when the check is issued.

For example, if payroll issued a check dated July 1 on June 28, taxes are due based on the date of the check of July 1. If the company is a monthly depositor, taxes are due the next month, or August 15, and federal and state unemployment taxes are due October 31, or the month third quarter unemployment taxes are due (July is the beginning of the third quarter).

When the payroll accountant deposits the federal and state tax withheld, and the employer match for Social Security and Medicare, he makes the following accounting journal entry:

Date	Account and Explanation	Debits	Credits
August 15	FICA (Social Security) payable (62 x 2)	$124.00	–
	Medicare payable (14.50 x 2)	$29.00	–
	Federal withholding payable	$87.00	–
	State withholding payable	$20.00	–
	Cash	–	$260.00
	To record federal and state deposit with employer match.

Federal and state unemployment taxes are typically due on the last day of the month following the quarter. The filing of the tax return and the tax payment are made at the same time. The payroll accountant makes the following entry to record the payment of state and federal unemployment taxes:

Date	Account and Explanation	Debits	Credits
October 31	Federal unemployment tax (FUTA) Payable	$8.00	–
	State unemployment tax (SUTA) payable	$54.00	–
	Cash	–	$62.00
	To record FUTA and SUTA tax payment for Qtr 3

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