QuickBooks Payroll - QuickBooks Online

1. QuickBooks Payroll QuickBooks Online 2019 Course: if we are a business owner who would like to run our business better and half more peace of mind related to payroll by learning payroll, have a process payroll. How to input the payroll data into a QuickBooks system or a business professional would like to advance our career by better understanding how the processing of payroll works or an accounting student who would like to put the theory of payroll practice into practical accounting software such as QuickBooks. The scores is a course for us. What will we learn? Payroll. QuickBooks Payroll will learn how to set up the payroll within QuickBooks as system that most people are not as familiar with, but one that is very important if we know how to do the set up process within QuickBooks and if we do it properly than the processing of payroll, the actual processing, if the payroll checks the entering of data into the system will be much easier to dio. And if there's any problems, then of course, the set up will also help us to get a better understanding of them so that we can troubleshoot. Those problems will go through the process of processing the checks, which is going to be the processing of the payroll within the QuickBooks system. As we process the payroll, we will consider what QuickBooks is do. It will take a look at the With holdings how QuickBooks is using the payroll. Set up data Teoh. Enter the data into the paycheck system and actually calculate or process to pay checks so we won't just go through. Ah, the process of making the paychecks but thinking through what QuickBooks is doing So once again, if there's a problem, we can troubleshoot any problems along the way. Then we'll process the tax returns. These they're going to be the quarterly returns that yearly returns. They include the forms 9 41 that we're going to report quarterly and then the yearly reform . That 9 40 that W. Tuesday W three will also take a look at payroll reports and other reports, including the financial statements we want to be able to tie out and reconcile these items as we process the payroll. We want to keep this in mind all the time because the processing of payroll will be something that will be fairly standard to standardize the data input will not be too difficult if we have the set up process, correct. But we also want to consider what's going to happen, at least on a periodic basis. And that is that we're gonna have to compile this data on a quarterly basis, the 9 40 ones and on a yearly basis, the w two w threes. We want to make sure that we're confident as we go to make the these quarter and and year in process is as easy as possible. That's really the goal of payroll as we go, because if there are any problems, they typically happen or come to light. At least at the end of the quarter or the end of year. We'll talk about the payment of the payroll taxes. And what are the conditions, or when do we have to pay the payroll taxes as we process payroll? Of course, we will have with holdings and we'll have the employer taxes and we're gonna have to calculate what those taxes are. We're gonna have to do that with holdings from the employees. We're gonna have to calculate our portion of the taxes and then we'll have to pay. Those taxes will discuss what that process will be and how we can account for it on the financial statements, as well as how QuickBooks can help us to account for it and help us along the way to make sure that we're doing the proper with holdings, the proper payments and then recording those payments properly on the returns on the 9 40 ones in the 19 forties. Then we'll analyze and understand payroll along the way, and this is really what will do as we go through the whole process. As we enter the data. Well, think about basically payroll law as it as it relates to entering data within the QuickBooks system. In other words, principally on those payroll loss that are related to the calculation of payroll will go through the calculation of peril. Actually processing the payroll and, as we do will consider those components of what the with holdings are. What are the effect? Will actually look at the financial statements in a QuickBooks system, which only has payroll in it. So we'll get to see all of the accounts, and there's a lot of them that will be affected on the balance sheet and the income statement from just processing payroll. And by doing that we could take a scientific method looking at each of these items and considering what is the effect as we process each component of payroll comparing and contrasting, seeing what the effect is on those statements and also seeing the reconciliation of those financial statements to the payroll reports and to the the forms to 9 40 ones the 9 40 the W twos and the W three. Who will we be learning from? We'll be learning from a practicing that c p a. A. Certified public accountant, someone who has a charter global management accountant designation is a has a master's of science in taxation is a certified post secondary instructor and curriculum development expert, someone who has experienced putting together courses, courses of a technical nature and or courses that need to be taught in some type of linear fashion in such a way that students can get from them what they want. Please join us for QuickBooks payroll. QuickBooks online 2019. It will be great 2. 10 Regular & Overtime Pay Calculation: In this presentation, we will calculate regular and overtime pay for an hourly worker. We'll start off with the calculation of regular pay, which is pretty straightforward as long as we know what how many hours were worked and what the rate is. Note, however, that to know the hours worked for regular pay, we do need to know what the overtime rules are and how to calculate what is regular pay versus overtime pay. For example, with a new employees, it's subject to overtime, and they're an hourly worker. We typically have the federal rule that we have Teoh have anything over 40 hours in a work week would then be over time. So if somebody worked 43 hours in a work week, then 40 of them would be regular. Three of them would be over time. It's possible for states to have more stringent rules, such as daily requirements like eight hour day workday, anything over eight hours being over time as well. So in that case, would need to be able to calculate the daily wages and subject, see what would be over time. This does get a little bit more complicated, because if we're semi Muffy or bi weekly or monthly payers o R process our payroll in those time frames that rather than just weekly then we still we still need to go back on and check the weekly totals and make sure that, uh, we're in compliance with the overtime and paying the proper amount for overtime. And if we're subject and daily totals and then we need to go back and make sure that we're picking up any kind of over time, that would be calculated for for that as well. Once we know the hours, then it would be, in this case, 40 hours in the work week. Just multiply it times to pay rate, which would be whatever would be agreed upon in the terms of employment. In this case, 17 and 40 times 17 in this case would be 680 for regular pay. Then we've got the overtime pay now the overtime pay. We first need to know what the overtime pay rate will be. Typically, it's gonna be time and 1/2. It's often called time and 1/2. Let's try to break down what that actually means, though, and we'll see three different calculations we can use to do this. This is a very common calculation in daily life as well. So it's important toe. Just understand what this means. So if we if we had a regular pay of 17 time and 1/2 basically means we're gonna get a 50% raise, it's kind of equivalent to get in the rays of 50% or 0.5 for any hours better over time. That means that we got an $8.50 raise on this case, which is 17 times 170.5 or 50% means that we haven't $8.50 basically raised. If we add that to our original 17 that means that our overtime rate is $25.50. This is a similar calculation. If we were to calculate, say, a tip or something like that, it would be a, you know, 50% tip, but it would be 17 and then we have 50%. We're adding another 8 50 on it to it, and then we have to add the original amount to get to the total dollar that we're going to pay now. We could do this a little bit more quickly. We could say that the $17 is the original pay and just multiply it times 1.5 time and 1/2 time and 1/2 time, 100% and 1/2 another 50%. So that's really what we kind of mean. By time and 1/2. It's 1.5 150%. Which means that we're gonna multiply one which results in 17 and 50 which is the other component which will give us the 25 50 now one last week. So this would be the faster calculation. We want to calculate a tip. If we had a 20% tip or something instead of most trying times 200.2 or 20% then adding the original, we could just say times one point to him and give us the amount we need to actually pay. So then, if we do this again, we got the regular pay of 17 and we multiply it. Then 150% which is just 1.5 times. You know, we'll put to a percent move the decimal two places over. In other words, if you had 1.5 times 100. It would be 100 50 or move the decimal two places over 150%. Just another way to say that same thing. So that's what we mean when we multiply the overtime rate. Once we have that overtime rate, then it's pretty straightforward to do the overtime calculation. So again, this is kind of the way we might if we were just to kind of make up what is over time by without thinking about it too much, we probably come up with this longer calculation, and then we can trim it down to something like this, or just another represent imitation like this. Okay, so then we're gonna go to the payroll register and we'll actually calculate the overtime in this case. Notes. We've already filled out that regular pay, which was 40 hours at 17 which gives us the 680. Then we're saying there's three hours overtime. There's 43 total hours, 40 of them regular, three hours overtime and the overtime rate. Then we're saying it's gonna be that 25. So the total pay is going to be this 76 which would be the three hours times 25.5 rate, or 76.5 3. 12 Why Learn Payroll Using QuickBooks Online: In this presentation, we will discuss why learned payroll as it relates to QuickBooks. One of the main reasons toe learn payroll as relates to a computer software such as QuickBooks is because that is the way that payroll will be processed most of the time. These days, we can learn the payroll concepts, and it's important to learn payroll concepts. But in practice, of course, they will be processed using some type of computer software. Reason being is because the payroll laws are getting very complex. So even if we only have a few people involved in terms of payroll, it's still fairly complex to process the payroll. And we almost have toe have some support with that, and that support is typically going to come from some type of software and or outside professional help. So, therefore, even if we are going to outsource payroll to payroll companies such as A T. P or paychecks, or pay for our full service within QuickBooks toe, help us to process the payroll. We can't really get around needing to know and understand some components of peril because even if we outsource it to a T. P or paychecks, we pay for full service payroll within QuickBooks, we're still gonna have to deal with questions and problems. If we have ADP and Paychex, we're gonna have to somehow get into our bookkeeping system so that we can report it on tax returns and have the information to answer employee questions and make sure that our income statement is properly reported in terms of the payroll expense on that side of things, just a really big part of the company, even if we only have a few people involved. And therefore, we need to know something about the theory as well as something about the practice. And the practice is gonna involve some type of software such as QuickBooks. We are in our practice file. We're gonna use this practice file to navigate through QuickBooks and the paid payroll options. We're actually gonna build this practice file in the second part of the course. This is what we're gonna create in our course project. However, at this point, we're just gonna use his file to navigate through the system. This means that you do not have access to this practice file unless you worked through the problem first. So that is an option, you could go through and work through the problem first and then go back and look through this data. However, if you're going through this data first this being the navigation portion of the course and just the general payroll information, then you don't have this exact data file. You can then use your own data file your own company filed. If you so choose to go through the navigation, even though the numbers will not be exactly the same. And you can also use thief free option to navigate through as well, this being the test drive file, it won't have all the options for the payroll. However, it will have some of them and give you an idea of something that you can navigate through as we just look at the layout of QuickBooks. We're gonna think about the theory of QuickBooks and the theory of payroll and then apply that to practical purpose within QuickBooks by finding those options and navigating through them within the QuickBooks file. Then, of course, we will set this up in the payroll problem in the second part of the course. Also note that most of the options we will have for payroll will be applicable whether we are an s corporation or a sole proprietor or just about any type of organisation. However, we will look at a few payroll options, which will be specific to an as corporation. As we learned, payroll within QuickBooks will be taking a look at a few different files. One being specific to our payroll problem and entering payroll will also take a look at QuickBooks test drive file. You could find this by just googling QuickBooks online test drive, and this will give us some examples. So if you don't have access to the practice file that we are working in, you can go to this file and I don't give you some information, not full information to access all the payroll data, but some information to follow along with. And of course, if you have your own company file and a QuickBooks file and payroll set up there, we can follow along with that information as well as we go through the QuickBooks in the QuickBooks system, we're going to be in the workers tab, will be able to see the flow and the process of us running the payroll entering the payroll , adding the employees looking at the process of adding the employees and then actually processing the payroll. We'll also see the effect of processing payroll on the financial statements and payroll reports. This is gonna be a very important because no matter how we enter the payroll, we're gonna have to reflect that data on the financial statements. Be able to read it in, communicate that information to others, including our employees are cells for future decision making and anyone else that's in the business that needs the information for decision making. We're gonna process a file that just has payroll in it so that we can see the effect just of payroll on the financial statements and other reports. For example, this file here just has payroll process. That's all we have in it that allows us to go through this and say, All this information is a process of payroll. Now, obviously we have more than just a straight payroll. Here we have other items happening, including benefits, But all these items are from payroll and benefits. We'll see how this is constructed and put together just through the processing of payroll. This is gonna be a the effect on the balance sheet just of processing payroll. We'll see that information on the profit and loss as well, so we'll be able to see just the information from payroll on the profit and loss be able to concentrate in on that payroll because of the with holdings because of the regulations because of taxes is one of the most complex areas of just journal entry recording data. Which would have been if there was no complications with taxes and withholding. Just be another simple kind of journal entry. But because of those complications, it is something that's more difficult. And no matter what we do with it, even if we outsource it, even if we pay for a full service payroll, we have to have an idea of what it's doing to our financial data. How to enter that financial data? How to read that financial data looking at a payroll problem, going through a payroll problem that actually processes payroll, generates reports with just that payroll information, and it will give us a really good idea of what payroll is doing and therefore how to make best decisions about what type of payroll we should have. And once we make that decision how to communicate the payroll information to others 4. 13 Course Resources: in this presentation, we will take a look at course. Resource is related to QuickBooks online. Practicing entering data into QuickBooks online can be a little bit tricky because we have a few different options in terms of what resource is we want to use. We may have, for example, our own company filed that we can look at and look through as we consider the data input into QuickBooks online. However, we don't really want to practice entering data into our personal file just for the point of practicing, because we want to keep our personal file with our personal company data in it. We don't really have the option of having multiple files practice files as we do with the desktop version, because the online version we generally have to pay per new company file. And therefore we have some limitations for how many company files or how to inter date it into that company file. Here are a few resource is that we can and will use as we go through the cores. One is going to be the free resource, and that's gonna be a test drive file. So if we just were to Google test drive QuickBooks online, which will show in a second. Then we can find a free test drive file. It doesn't have all the options for the payroll options, but it has some examples for us to just navigate through. As we just test general payroll concepts and theory, we can go to the test drive file and see how they will be populated or how they might apply into the QuickBooks software. The other option we have is a trial discount version. In other words, we can actually purchase QuickBooks online for specifically this course. We can purchase QuickBooks online with a trial version. Oftentimes QuickBooks having a discount, at least for a 30 day discount, this allowing us to inter date it into a practice filed directly and being able to go through a problem specifically related to the same data that we will be entered into the system. If we choose this system, we recommend waiting until we go to the practice file format. When we start a new payroll problem and work through that payroll problem, and then focus in on that, make sure you have enough time to focus in on it at that point, so you can take full advantage of any kind of discount that would be available by QuickBooks. Typically a 30 day type discounts so you can work through the file, get as much learning that you can from it as we work through a practice problems entering data directly into QuickBooks online and then possibly not continuing with the subscription after the trial period, after typically a 30 day period. And then, of course, we have your data file. We may have a company data file that we're setting up for our personal data file setting up QuickBooks setting a payroll for our personal data file. And we can use the information that we are entering here in terms of just theory and in terms of practice problems and see how it applies to our personal data. We have good information there in that we can look and compare and contrast what we're talking about to our personal data. But of course, we are limited in terms of entering new data into our personal data file because we want to make sure not to compromise our personal data file. These are gonna be the options that we have to go through we can consider each of them. We don't have to use all of them. But consider these options as we move forward through the course and we will touch on them periodically as we do. So this is just a Google search of test drive QuickBooks online. So he just searched for test drive QuickBooks online. You'll find this test drive QuickBooks online file, and this is what QuickBooks currently has available for us to just basically navigate around for you. Get a feel of the QuickBooks file so we don't have all the options. And obviously, if we go and enter data into the file as we can, we can practice. But when we leave the file and go back into it, the data that we have entered will not be saved or populated or possibly will not. The data file will not be the same as we enter data and go back into it, but it is something that we can navigate to weaken. Go to the payroll item in the workers field, we can see the workers, we can see the data input and some of the payroll options. However, of course it is limited. The other option is to go to QuickBooks and look for their trial version so they might have some kind of 30 day trial. And that's usually a discounted period. If you want to go with this option and do this specifically for the payroll problem, as opposed to the file you might have for your personal company data file, then we recommend recommend doing this at the point in time that we start the new project and make sure you have a point in time that you can put enough effort into that project to get the most out of it within that 30 days and just work through that data file along with the problem, and then you'll get the most out of that whatever discounted period that it is. 5. 14 Regular & Overtime Pay QuickBooks: in this presentation, we will discuss the calculation of a regular and overtime pay within. QuickBooks, here we are on the home page. We currently have the open windows open. In order to open the open windows, you go to the view, drop down and select the open windows list. We're gonna go to the payroll items list that's gonna be found in the lists. Drop down and we're gonna go down to the payroll item list. Payroll item list. This is what we're gonna set up the items within QuickBooks that will drive the payroll calculations. Four things such as the regular pay and the overtime pay. We'll go through the set up process later. But just to give an idea of how these will be calculated, they will be driven by these payroll items. For example, we have the hourly item here, the hourly payroll item. If we double click on the hour of the item, we could see this little interview process which will go through the set up process for that hourly payroll item. It's gonna go to apparel expense account when we use it, and that's gonna be the hourly pay when we go to the overtime pay item. Then we can see the calculation at 1.5% double clicking on that item and going through the little interview process, we could see it's currently set at 1.5 as opposed to double time. In some circumstances, we could set or need some type of double time, depending on the regulations that we are in or how we've said a payroll, what agreements we've come to and we can say next. And it's going to go to the payroll expense and finished. Once we set those items up when we process payroll, then the calculations will be done much for us through the QuickBooks system. And to get an idea of that, let's take a look at a paycheck. We're gonna go to the banking drop down, up top. We're gonna go to use register, and we're gonna open up the checking account. There's the checking account, and if we pick up one of these employees, these are all paychecks in this example problem that we have. This is the S Corp paid paid role. We're going to go to Anthony here, Anthony More if we double click on just the paycheck here we will then get the payroll information and then we'll go into the paycheck detail and that will show the paycheck that was made. So as we processed payroll, this is basically the processing screen, and you could see that those payroll items then are being driven here with the hourly pay and the overtime. So we then set up the hourly pay for this employee being 23rd 25 then QuickBooks should calculate for us what the overtime should be. Based on the payroll items we set up 25 times, 1.5 gives us the 37.5, and then we just put in the hours of regular and overtime. QuickBooks then calculates those for us of the 25 times the 160 hours. This for an entire month of payroll, gets us the 4000 the 37 50 times. Thea, the one hour gives us the 37 50. So this is how it would be calculated. The the payroll within QuickBooks. We can see that, of course, once we set up those payroll items, the driving factors within QuickBooks it will really help us the process payroll much more easily. By calculating the hourly and over time for us 6. 20 Federal Income Tax FIT: In this presentation, we will calculate the federal income tax F i t. Using tax tables. This is gonna be our example set of data. We're looking at the payroll register, focusing in mainly on Bill Smith. Bill Smith, who is an employee, worked 40 hours at 17 rate for a regular pay of 683 hours. Overtime overtime rate. 25 54. Overtime pain 76 50 Total earnings, then 756 50. We're focusing here on the calculation of F i t. Federal income tax. Remember, that's not our federal income tax as the employers, but the employees. Federal Income tax, which is reported on the employees 10 40 at the end of the year, however, is something that we need to calculate throughout the year. Take out of their paycheck at the employer in accordance to comply with the law. So that's what we're doing here. We're gonna remove federal income tax in a new attempt. Teoh match How much is going to be taken out so that when they do that 10 40 at the end of the year, it will have already been removed, and so that's what we're going to first. We need to know what the f I t wages are, which could differ then total wages. So total wages is here. Was that 756 50? It's gonna be reduced by those things that are on the 10. 40 for example, typically, uh, reduced for growth pay or adjusted gross income, things like retirement plans and, um, the cafeteria plan. So we're gonna take those out of f i t. So that we can then calculate f i t using the tables. Also note that the federal income tax when we say federal income tax it's not the employers taxes that we pay on our tax return, meaning a corporation pays federal income tax. A partnership pasted on a flow through eso is the sole proprietor. However, those air on net income and we're paying the federal income tax for the employees that the employees in essence oh, and will ultimately report on their 10 40. So to get the federal income tax, wages were going to start with the 756 50 and then we'll subtract from what the cafeteria plan. So we first need to know that so we got to get the cafeteria plan on the retirement plan. So these these numbers, we gave these numbers here, and so that's gonna be the 7 56.5 minus 250 minus. The 35 would give us the 4 71 50 So we're looking for 71 50 is gonna be our actual f i t wages. And then we're not focused so much on the second employee. But if Pam had to 80 and 1 85 same type of thing, we're gonna say 3653.85 minus 280 minus the 1 85 gives us 3001. 88. 85 1 3088 85 So these are the numbers we're then gonna use to look up our tables. Now that we have these numbers, we can go to our tables and look this up and there's the totals here. So if we could our tables, they look like this and we're focusing in here on this first f I t wages and looking this number up in the table, it's important to note that we get the right table. We have to. If we go through the circular e to find this and you go into the iris dot gov website and find it the current circular, e whatever the current time period is, and then go to the brackets and find the correct tables, there's gonna be a ton of tables because we're gonna have to have a different table for pay periods. So we'll need to know when the paper it is ours, we're gonna say is weekly in this case. Could be bi weekly. Could be semi monthly. Could be monthly. Uh, just make sure not to mix up semi monthly and bi weekly there different eso you want to pick up the right the right table there and ah, then we need to know if the person is the single or married. So again there's gonna be two separate tables for each pay period based on single or married. And note. All this complexity is basically because of the complexity of calculating the tax. It's a it's a progressive tax system, so we have to somehow figure out how what the tax brackets do. And one way to do that is with the tables. Clearly, it's a lot easier to have software that will automatically look up this information for us . But it's still important toe kind of look this up and try to figure out why the tables are this way so that we can understand it. And if we do any tax planning, it's important for us to have some concept of what's going on here. So we're gonna look for this 1 41 within these two sets and then find the number of exemptions here, which for Bill is one. So we're going to say that it's going to be between the 4 70 the 480 right in between here , and that's gonna be the exemptions. One will get us to this 300 or this $35. So on this one paycheck, we're gonna withhold $35. Also note that if it was on the 4 70 like if noticed, four seventies here twice. So you might say, Well, should we pick the 34? The 35 typically will pick the higher number, and that's kind of like a conservative type estimate. We're wanna estimate on withholding too much than too little. We would rather have our employees get a bigger withholding or bigger return on their 10 40 at the end of the year than pain? Because that's probably more likely to cost problems so typically will withhold more than less, you might ask. Well, this is kind of complicated. What if I picked up the wrong number, which is possible? Like if if we're doing this by hand, If we picked up the wrong number, it would kind of watch itself out of the end? The f i t. It kind of works itself out in a way, because when we do the 10 40 we'll have the will have the total with holdings that will match up to what the actual tax calculation was based on our 10 40. And if we withheld too much, then we'll get more of a refund. If we withheld too little, then we'll owe money and, ah, so that's gonna we want it to be right on target because we want to give our employees as much money as they can in their paycheck or if we are. The employees were trying to calculate our payroll to get as much as we can in our paycheck and not owe any money at the end of the year. Getting a refund is not the objective. The objective is to not pay penalties and interest at the end of the year. And if we end up owing a lot of money, we could then end up paying interest in penalties. Um, otherwise we would It would be better for us to actually not pay until the end of the year , because then we get to hold onto our money longer and invested and possibly make money on it. So that's why that's why we have to do that with holdings. The iris wants their money sooner, and therefore we have to do these with holdings and get the money to them as the time passes. So this is gonna be the 35 then. And so we're gonna put that into our information here. So we have the f i t. And we're gonna withhold the $35 from the F I t on our table 7. 20 Payroll Legislation: In this presentation, we will discuss a roller legislation. We're gonna talk about Laws that are related to Payroll noted that this course will get into the calculation of payroll, the recording of the debits and credits the accounting related to payroll. But we do want to give some context as well and list out some of the laws related to payroll for a few different reasons. One. Some of them will have a direct impact on the journal entries that we will make to. We want to know the complexities of payroll outside of just recording the payroll so that we can see how the internal controls could be affected as well. We want to see how they could be related in terms of payroll and human resource is in order to have a better understanding of what's entailed within payroll. We won't go over all the laws in detail, but we'll give you an idea of the complexity of payroll and how it has changed over time. Once we get to recording the payroll, then, of course, we're gonna be focusing in on those types of legislations that have to do with mainly taxes that air requiring us to make a deduction in those types of laws will be similar on the federal level. State laws will typically have similar type of laws. And if we're in other countries other than the US, then we're typically gonna have similar type of withholding laws that can be applied in terms of taxation. So when we think about taxation, it's just really a question of Okay, what type of taxation is being used here when we try to think of how are we going to record the journal entry related to the processing of payroll? Once we know that we can then figure out how to apply and just we have to use the appropriate tax rates, of course, and then apply the circumstances and record the journal entry in accordance with the rules that we are in. As we list through some of these laws, remember that some of them are gonna have a direct impact on the recording of PayPal on some of them have overlap between human resource is in other areas. We've got the Equal Pay Act of 1963 which deals with women in the workforce and working towards having a more equal pay for the same work being provided. We've got the Civil Rights Act of 1964 which is going to prevent or reduce discrimination based on race, gender or national origin. We've got the Age Discrimination in Employment Act, which prevents or reduces the likelihood for mandatory retirement for workers over the age of 40 and we have the Occupational Safety and Health Act of 1970. We also have the Employee Retirement Income Security Act of 1974 which is gonna protect and safeguard the retirement fund accounts for employees. We've got Cobra of 1985 which allowed for health insurance continuation after termination so that someone doesn't get thrown off the health insurance. There's gotta be a requirement for that continuation of health insurance. We have the Immigration Reform and Control Act of 1986 which deals with employers having proof of employment eligibility within 20 days of employment. So it once again gets a little bit more responsibility to the employer to make sure that the there's proof of employment eligibility by the employee. We've got the Americans With Disabilities Act of 1990 and that's gonna protect the rights of disabled workers, the Civil Rights Act of 1991 that deals with infringements and monetary penalties for civil rights issues. One of the major pieces of legislation with regard to recording payroll taxes. Recording the Journal Entry Recording the taxes related to payroll is the 16th Amendment to the US Constitution of 1913 and this mandates that the employer be the one that collects payroll taxes from the employees. And this is a huge change, the huge change in focus in terms of whose responsibility it is in some sense to pay the payroll taxes. In other words, the assumption before this time would be that all individuals are going to have the responsibility of reporting their own payroll taxes, as we still do at the end of the year, with with our 10 40 we report the taxes and paying the payroll taxes. However, this mandates that the responsibility for withholding lies, at least in part on the employer, and that's a huge shift for the employer now has a responsibility, a huge responsibility. Teoh. Withhold the payroll taxes from the employees and then, of course, to process and give that information that that has been done and that's going to include a lot of added paperwork. And so wherever that is the keys. That's where this idea of withholding is in place. And that's where the complication in terms of recording will also be in place as well, because they're becomes confusion in terms of who's paying the payroll tax, who's actually getting a tax imposed on them. Is that the employee or the employer and who is responsible for pain, that taxes and whose pocket of those taxes coming out of it's a little bit confusing when the employer is the one that's taking the payroll taxes for the government out of the employee taxes and then paying them theoretically for, ah, the employees? When we get to the journal entries and recording journal entries, we'll see how that kind of muddies the water. And so anywhere that is the case of state taxes, they're gonna be similar that we have. These types of with holdings will have the similar responsibility that responsibility being on the company, any location where we're at were that is the case that responsibilities on the company to basically make sure that payroll taxes are withheld will have similar type of issues with regard to recording payroll and making those with holdings. We then had a lot of laws of the 19 thirties that that dealt with payroll or payroll related issues and including faker of 1935. And that's gonna be the federal Insurance Contributions Act. We'll talk more about faker because it's gonna be a major component in terms of taxes and payroll taxes. We've got the Fair Labor Standards Act of 1938. We've got Futa and Suta, federal employment tax and state unemployment. Now, the federal unemployment in state unemployment again are going to be things that the employer are gonna have to withhold. And so we'll deal with those when we do our calculation, note that we are including the state unemployment here, and we don't typically do that. You might be saying, Well, you know, we're not gonna do with each individual state or each location were usually dealing with the federal side, and then we can apply these principles as they relate to word of her location. We're in whether whatever state we're in, whatever country we're in in this case were including the state taxes because the Fed did something kind of sneaky here. They basically in some ways when they put in this law pretty much mandated that the states have to have some law by making the food tow law dependent on the state law on and therefore the state laws are often pretty standardized because of that. So this is one area where we could have difference in SUTA. But we're going to touch on the state law better. We also have the Fair Labor Standards Act of 1938 again, another law that was created in the Depression. So we know that a lot of a lot of legislation was created in the 19 thirties when we had a depression, and that would stimulate a lot of activity. Of course, in terms of trying to do something Teoh to make this circumstances in situations of people better. So we have the Fair Labor Standards Act, and that's going to include including things related to working conditions, working hours on overtime regulations, things that like break times and having proper types of break times and a minimum wage 8. 20.2 Federal Income Tax QuickBooks: in this presentation, we will take a look at federal income tax F I t tax within QuickBooks online. Here we are in our test file. You can follow along with your own company file where you could use the practice file that is provided by into it by searching Google searching QuickBooks online test. Dr. We're gonna go down here to the workers tab in our test file. Within the workers tab, we will consider the F i t. With regard to individual employees. The federal income tax will be applied as we set up an employee. For example, if we were to look at an employee, we're gonna go into an employee. We're gonna go into the editing of an employee and think about the options within this settings that apply to federal income taxes. Clearly, the amount of the pay period will apply because that will change the gross pay that we will have. We can also have some things that will have an effect on federal income tax, including a 401 K plan which may reduce the federal income tax. Mainly, the federal income tax will be affected here as we and put that W four information into the system with the marital status and the number of allowances. The only reason we need those information that information, which seems like it might seem like a more personal information, is because of the federal income tax, which is needed for the calculations for the system. Till then, look up the tables. The federal income taxes is one of the main things. The main reasons why we want QuickBooks, because for us to look up the taxes is a different calculation for each employee. And it's a tedious task to do so because it's not a flat task. It's not a flat tax, so it's more difficult to do so. So it's really nice than to have a computer to do that, that process. But we still want to have some understanding of it, of course, and what is involved? What we need to give the computer in order for it. Teoh, calculate that tax correctly. Now we'll close this out. I'm gonna close this item back out, and then I'm gonna go back to our employees list with this blue button up top back to our employees Now, clearly, this would happen as we process the papal. When we run the payroll processing the check, then QuickBooks would calculate for us the amount to withhold for federal income taxes taken out of the employees. Check to see that. I'm gonna go to an employee check and look at the detail for it. So to do that, I'm going to go to the accounting on the left side and we're gonna look at the chart of accounts. So I mean, the chart of accounts tab and we want to go through the register for the checking account. This is where our checks are written from. If you have a different account, whatever payroll account, then you can go to the payroll account to find a payroll check and observe it. So then we're gonna go to the view register and see if we could find a payroll check in this area. All of them are paychecks because we only have payroll in this file. So all of these air payroll checks, if we then work to select the detail of a check and edit it, then it will take us to the options or the editing of that check. So if we go through that we basically get jumped to QuickBooks, takes us out of the register in essence and takes us to the payroll area and opens up that actual paycheck data entry portion so we could see here than that. The pay here was hours times the rate and then over time, times the rate for a total pay of 4060 to 50. We'll go through this more as we start to enter data in our practice problem will do this Ah, lot. And if we scroll down, we've got the employee taxes. The 1st 1 is the federal income tax. Now, remember that this is not the company's federal income tax. As we think about this, the company pays taxes as well. If this was a C corporation or even if it's, ah, sole proprietor than the company in the sense that were the company where the owner, we're gonna pay taxes on net income on our form 10 40 federal income taxes. But this is employee payroll, federal income taxes, which we theoretically don't pay. We as the company as the owner, the employee theoretically pays it out of their check so we can see that item here being taken out. It's nothing that we it's nothing that's gonna be on the employees er side as well. Unlike Social Security and Medicare, which has both an employee and employer portion, this federal income tax is the employees taxes which they owe, which we are taking from them out of their paycheck, which they have earned this money and given it to the government. Because we're required to do that. And we're required to do that in accordance with a certain system, a certain structure by taking the information from the employees with regard to their allowances and marital status, and then our pay period taking this information out so that the system is going to calculate this for us, not an easy we know it's based on that number, but it's not an easy thing for us to basically know from each employee what that is without basically going through the marital status and the pay period and the wages and then looking up tables. So this is really helpful for the QuickBooks system to have. So that, of course, is gonna be a component that is being taken out from the gross pay to get to the net. pay. Now we'll close this back out. I'm gonna close this back out, and we're gonna go to the reports on the left side. Say Okay. Well, what does that do in terms of the actual data that will be entered into the financial statements? If we take a look at the balance sheet and income statement balance sheet first, I'm gonna change the date to the year. Were working on a 10119 to 12. 31 19 Let's try that one more time. A 10119 So january through December 2019 and will run that report here is gonna be the balance sheet information, and you'll note that the F I T tax is gonna be something that is creating a liability. It will create a liability right here on the 9 41 because that's where we we report it. So we will report the F I T with holdings on the form 9 41 along with the Social Security and Medicare. So it's creating a liability for us. Why? Because theoretically, the employees earned it and we withheld it. We took it from them. We withheld their earnings, and we were required to do so because now we owe it to whoever they owe the money to, which is the government. So then, if we I'm gonna make a new tab by right clicking on this tab and duplicating it so know we could have two tabs open and QuickBooks online. This is great tool. I'm gonna put my cursor on the left one and drag it to the right cause you'll note that it renamed this one balance sheet. And now I'm gonna make this when the profit and loss. I'm gonna do that by going to the reports on the left side, we're gonna go to the profit and loss report, changing the dates once again over 10119 to 12 31 19 and then run that reports. And you'll notice that the f I T wages then you would think would be here under taxes. This is basically payroll taxes, but this is only the employer portion. The F I T is being grouped by QuickBooks in wages dependent employees or owner wages. So it'll be included in wages. Why? But its attacks. You might say it's clearly going to the government, but it's not being paid by us. It's not our tax as the company. It's the employee's tax. So on the expense side, you'll note that we don't see the taxes in a separate area for F i T. They're included in the expense of the check. This is one of the most confusing things to really for. Most people wrap their head around. Why would that be in white? And then? So if I if I go back up and go back to our report, then the taxes here that we do have payroll taxes. But those are the employer taxes paid over and above the group it grows. Pay will reiterate this time and again as we think about who's paying the taxes and and who is actually responsible for the taxes. As we work through the concepts and work through comprehensive problems. Now, you might say, Hey, maybe if we went to this balance sheet, maybe we want to break something out differently. I mean, how does QuickBooks No, that it should be reported to this account because we don't We didn't see. We're not going to see it in the set up process. It's going to be set up by QuickBooks automatically to look at that. Let's take a look at another tab, going to right click on this tab again and duplicated. Pull the one from the left to the right and you'll note up top in this cog up top. If we go to the cog up top and your company preferences and the payroll settings, then we'll see within the payroll settings. I'm going to go to the preferences on the right now, these air default preferences. And then I'm gonna go to the accounting preferences. They've already been set up. They're usually really good, so they're fine. Nothing necessarily needed to change. But if we scroll down, we'll see the accounts that QuickBooks has assigned. QuickBooks made the chart of accounts when we set up payroll, and it assigns these items to them as we go. So the company tax account is here. So here's payroll taxes, but but we're not dealing with employees, er, taxes. We're dealing with employees tax. So we have the tax liabilities here, and you'll notice what we have our federal taxes. So that's going to this account, which was called 9 41 we could set up another account. Name it something different. Like maybe we don't want the 9 44 Well, maybe we just file a 9 41 or vice versa. Or maybe we just want to call it, you know, taxes payable or something like that. Maybe we want all of these taxes in one account. And we don't like seeing all the detail of all these different accounts on that are all related to payroll. Just making our balance sheet look huge. We might want just want one account called payroll liability. We could do that. We can change this. Weaken, weaken, set up another account. These is basically coming from our chart of accounts. We would probably first want to go to the chart of accounts and then set up an account and then come back here and make this change. But that's 11 way we can do it. Note what we cannot dio is really break out the federal taxes of Social Security, Medicare and Federal Income tax to their own separate accounts. Because those air all included in this 9 41 which includes Social Security, Medicare and if I t taxes so if we wanted it. Anyway, If we wanted a group the liabilities differently, we could do. So this is how QuickBooks is telling it. This is what tells QuickBooks where to put those liability accounts. So we're gonna keep it as is for now. I'm gonna cancel this down below and then, of course, notes that those F i t taxes will be used to create the reports payroll taxes, which will find in the taxes tab on the left. If we go to the payroll taxes up top, then we'll see our reports. The quarterly reports is the one Will will have the, ah, the FBI team. If we take a look at the quarterly 9 41 QuickBooks will generate that 9 41 for us. I'm doing this fast. So about that. But this is just a example. Here's the 9 41 And then here's the F I T taxes for the first quarter. Ah, and this is gonna be for all employees. So this will group up basically all of the information all the f i t. With holdings for all the paychecks, all of the employees. QuickBooks will do that for us. This is another huge thing that we're paying for paid payroll to do for us. Grouping this together in a form 9 41 We still of course, want to understand what it is doing so we can explain it to ourselves, to others, to the iris. If they come giving us letters and questions and whatnot in asking us what happened here, I'm gonna close that back out. I'm gonna go back, Tom, and we're gonna go back to the payroll tax Center. We also, of course, note that at that same information will be on the annual reports on the W two and W three. So if we were to take a look at the W three report, we would have that same information if we were to use you their reports. We also are gonna group on on a year end bases, the withholding. So here's the federal income tax withholdings group here as well. Another huge benefit that QuickBooks will do this forest for all of our employees. Group this together as well as break them out from employees to employees 9. 21.2 Payroll Considerations & Forms QuickBooks: In this presentation, we will discuss payroll considerations and forms within the QuickBooks online. Here we are in our test file for demonstration purposes. Remember that you can follow along with your own company filed to navigate through the information. We're not gonna enter any new data at this point. Just navigate through the current data and or you can follow along with the test file for QuickBooks online by typing in test drive QuickBooks on mind you won't have all the options here. However, you do have some of the navigation options. We're just looking at some of the components of payroll within pay payroll QuickBooks online. Once we have the QuickBooks file set up within QuickBooks online, that payroll information is typically found and navigated through the workers tab on the left side of the workers tab on the left side. Well, if we have not yet purchased the payroll item and it is, of course an added item to purchase the payroll, then we will have an option to purchase the payroll. Once the payroll is purchased, we will typically see C three taps up top, including the overview the employees, that contractor and the workers comp tab. The overview will give us some shortcut information to the right and basically a to do list on the bottom. We can use the features to the right to jump toothy areas that are typically done or needed to process within payroll. But I usually go to the second tab, which is THEAN Employees tab, to process most of the payroll function. So we have the actual run payroll, which will happen from this tab, and if we scroll back down, we're going to see a list of our employees. So we currently have three employees in this data file. If we were to add another employee, we have the option to add the employees here. QuickBooks also provides a year end guide, which will be here. So if we select this year and guide will get some common topics some common thing themes that QuickBooks will help us out with. For example, we have the year in checklist, which can be very useful bonus checks and w two information for the year end information. If we go to the year in checklist, for example, we get to QuickBooks common kind of checklist items that we can go through at the end of each year. So review and update employees in great information run final payroll before we process the year in data order Your in supplies, which might include the W to prepare and file payroll tax reforms, is gonna be the W. Tuesday w three the 9 40 the 9 40 ones get any nut 10 90 nines, which are contractor information. Give employees access to pay check detail. Keep an eye out for federal tax notices. So these are gonna be some useful tips within. QuickBooks will close this back out to run the payroll. We will typically hit the run payroll option up top, and then this will go through the processing of the payroll detail will have the processing detail in detail, and then we will preview the paycheck. Once we go through this option notice we've got the pay period up top, and then we have the pay date. These aren't typically always the same thing. The pay period in this case being by month, the pay date being at the end of that paper, the payday it doesn't always have to be at the end of that pay period will discuss that more as we go, we'll close this back out when we purchase payroll payroll will go through A short interview process, which will set up many of the payroll items in payroll, will be having a lot of default items as well, which QuickBooks will set up. We can change those defoe items up top in this cog up top once we have set up payroll and then go Teoh your company information and then take a look at the payroll settings. So these settings many of these the defaults are great, and we don't need to go through and change the thesis, Eddings. But if we go into the preferences and we go into the preferences over here in particular and then go into the accounting preferences, we can change things like the type of accounts that we will be entering to whether we want one payroll account or to breaking out payroll taxes and possibly putting different customers into different expense accounts will discuss this a little bit as we go through the payroll problem. Much of the time, however, the default options within QuickBooks work quite well. But if we wanted to change some of these default options. This is where we would go to do so. We're gonna go back to the workers tab. Also note that as we set up new employees, that is also where we will enter some of the optional data for the payroll options. So if we were to add an employee free selected employees, for example, this data is what we would input when we add a new employee. If we take a look at some of the options for the data that's going to be input, you'll notice it's includes more than just the employee address and name. We're gonna have things like, How often do we pay the employees? So this is gonna be something that will be asked us every time we enter a new employee. Now, typically, it will be the same for our example here, we're paying people monthly, so we're gonna choose that we pay people monthly, and then it will give us the next starting date. When do we want to pay? And then, of course, we'll have the standard information from the W four, including salary and any kind of benefits we will be having for this this employee. So we'll set those up. We'll look at some examples of that as we go as we enter new data also note that as we process the payroll then and the other tab to process payroll taxes is gonna be down on the left side. So if we go down to the left and we think about Okay, well, how are we gonna process thes payroll forms? We go down to the items on the left to process those forms. We have the sales tax and the payroll tax. We're gonna go to the payroll tax item up top, and this is where we can process are. Forms are quarterly forms, our annual forms, quarterly forms being the 9 40 ones that we will typically process annual forms the W two, w three. This is where QuickBooks is really helpful, that we can go through this form, for example, and just select the item that we are on. We're going to say 9 41 and if we have the data input properly, we can go ahead and just preview this data, and QuickBooks will populate this form as we just process the payroll. So we have this information now we do of course want to go through here and we will as we go through a practice problem, double check and say, Hey, what is QuickBooks doing? Does it make sense? We want to be able to explain this information to ourselves and to the Iressa if there are any problems or questions about it. But QuickBooks does, it's great. Equipments can then populate the nine forties, the 9 40 ones and the W two and W three information. So if we go back down and we go back to our reports, we'll see also that we have. We're gonna go back to the payroll center, the annual forms. And of course, that includes that 9 40 the W two and the W three that we can process with the pay payroll version. Then, of course, we have the reports. So if we go to the reports, Tab QuickBooks will also populate this information with reports. We've got the standard reports, the balance sheet and the income statement. Here's the balance sheet and note. Our balance sheet problem that we're running here is just with payroll. So the information in it is just payroll related, and we could see how it affects the balance sheet and QuickBooks. Of course, as we process, payroll generates these accounts and these air in the setting. So when we looked at the settings up top to see which it counts are affected, the items here are basically mainly the default settings for QuickBooks to populate the financial statements in accordance with the running of payroll. So everything's pretty much set up. It's set up pretty well, however, Of course, we might have some standardised options have won a group some accounts in different ways, but the default settings are pretty good. So this is all related to payroll, and QuickBooks will basically populate our balance sheet just with the processing of payroll. If we go to the profit and loss the same kind of thing, all this information is payroll information. You could see how it basically breaks out the expenses versus the taxes. We. This is another thing that we added by adjusting the options. So there are some times where we might want to expense accounts or something like that or some other grouping, and we do have the option to do so. But again, the default options are pretty good. And then we're gonna go up top and just look at a I'm gonna duplicate this form right click and duplicate this form, and I'm going to go down to the reports again just to demonstrate the payroll reports which are gonna be under payroll. And we have all these different kind of formats that QuickBooks can then take that payroll data populated, and once again, we can then use it to try to understand it. We can use it to say, How can I communicate this information to others? How can I use this to try to understand the financial statements of what got reported on my balance sheet and income statement and why it's reported in that format? So one of the main papal reports here will take a look at is the payroll detailed report and the payroll detail report will give us the detail paid information by employees. If we take a look at it for this year and run that report, then we'll get the payroll information by employees and at the bottom of this report will get a summary information. So here's all the wages. This is going to be the regular wages or regular wages ot salaries sick pay bonus as Corp wages will talk about all these and our and our problems as we go, this will be the total wages. This is gonna be the stuff that was taken out for one K dental vision, medical insurance, health savings account garnishment with taken out federal income taxes, Social Security, Medicare and whatnot, employee taxes and then the benefits for one K that are and the medical insurance which in our problem was paid by the employer and then the employer taxes. We'll take a look at this data. See how it's see how QuickBooks got to it, how it uses the same data to populate the balance sheet and income statement with payroll information. Uses the same data to then enter into the payroll forms the 9 40 ones that 9 40 that w twos the w threes. And we'll see how that all that data from all these sources are populated from the ultimate source. Processing the payroll, setting up the payroll properly and entering the payroll data into the system 10. 22 Payroll Periods and Time Frames: In this presentation, we will discuss payroll periods and time frames. When we consider payroll, we're gonna have different types of time friends, different times of times that people will be paid given different companies. So in other words, it's up to us to make the choice as to how often we pay our employees when art the employees going to be paid. This is a decision where once made, we then just apply the same principle. We're gonna be consistent with that one principle, whatever that pay period is. If we work within a particular company, then we're just gonna get used to the payroll cycle once implemented and work with it. If we work as a Pedro professional, however, then we may we working with different companies, and they may have different needs and maybe implementing different types of payroll periods . So it's important to understand payroll periods in general. So when we go from different types of payroll applications, different types of companies, we know that they're gonna have different types of payroll periods. And once we do work into the company, we will then of course, specialize in some way, knowing that the system that we are working in, so one would be to be paid monthly. So if we're paid monthly, and then we're gonna have every month of a payment and there's gonna be a 12 pay periods because, of course, there's 12 months. So monthly is gonna be an easier pay rates because there's, like, 12 pay periods. We can break it up fairly, fairly easily. However, most of the time employees would like to get paid more often than monthly, often times so we could have weekly, which is kind of the other extreme. And weekly is gonna be, of course, every week. And that would mean that there's gonna B 52 pay periods because there's 52 weeks in the year. Note that that number is unlike the months of 12 a number that possibly not everybody knows offhand. How many weeks air in the year, something for payroll probably worth memorizing. So how many weeks are in the year? 52 generally, and then we have the other two, which are usually the more confusing because oftentimes we get paid every other week, um, or so or bi weekly. So bi weekly means that we're gonna paid every other week. And so that's gonna be 26 pay periods. So you might say 26. That looks a little funny. Like where does that number come from? 26 pay periods. If we paid because you would think possibly that it would be 12 times to which would be 24 pay periods, because there's 12 months in the year. And, um, we're pain. Um, you would you would think about twice a month, right? So be about 24 but it's not. It's 26 that number comes from saying 52 weeks in a year divided by two. So 26. So what you really want to do is memorize these two or the way I do it. I memorized these two. And then when I get to bi weekly at say, Well, what what does that mean? That's in essence, gonna take the weekly amount and divided by two to get to the 26. Whereas if I pay semi monthly, you can think of something like on the 15th or the 30th and 31st so I pay in the middle of the month and the end of the month. In other words, then that's slightly different, then pain bi weekly. That means you're being paid twice a month, no matter what, which is gonna be 24 pay periods. So when we pay in other words, bi weekly every other week because there's different amounts of days in each month, then we could have some months that have three pay periods, possibly and that that would line up to having two more pay periods within the year, whereas semi monthly, we have a significant amount, really of less paper. So if we paid two times a month, no matter what in the middle of the month in the end of the month, then I would think of that as really two times a month is, of course, going to be 12 times two or 24. So the way I would remember this is, you know, monthly is, of course, 12 pay periods, and this is the important, by the way, because we will be using these paper. It's when we start to calculate things like hourly rate and payroll rates. So So I would think of this as monthly. Of course. Is 12 months pretty straightforward? No problem. Weekly. We have to start to memorize that there's 52 weeks in a year, 52 pay periods. If we pay weekly bi weekly, then means we're paying every other week. It doesn't necessarily mean we're paying twice a month. What it means is that we're taking the 52 divided by two to get to the 26 pay periods, whereas if we pay semi monthly, then we're paying two times a month, no matter what. So that means we're gonna take the 12 months Times two gives us the 24. So just this is where the problem usually lies. Are we doing bi weekly, semi monthly? They're not the same, just ah, and I would use the monthly and weekly as as the check to memorize the two numbers. I don't memorise thes two numbers, I say. Semi monthly is monthly times to I se bi weekly is 52 weeks divided by two. So once we have that some key numbers that you really want to memorize, then as we go through payroll, it's just numbers that you should kind of have in mind is one. There's 365 days in a year. Now again, note that you know there's a leap year and whatnot, but we're gonna go with 65 days in a year, and that's different than some of the rounding we've used in in. Like if we do some type of calculations for interest types of calculations, we may use some estimates. In other words, sometimes there's estimates that we could say 12 months times about 30 days in a month. Even it was 31. There's there's could be 30. There could be 28 but that would be about 3 60 But to be exact, to be more exact, there's 3 65 generally in a year, so we just want to know when doing payroll. We need to be more exact. So we typically would say We don't want to just know that number 3 65 days in a year. Bi weekly pay periods. 26 Again, We don't really need to just memorize that. We could take the 52 divided by two to get to the 26 ah weeks in a year should be weeks in weekend, eight weeks in here. It's gonna be 52 that's when you just want to memorize, so you just want you. Just gotta know that 52 weeks in a year might not be as common for for a lot of people to know how many weeks or in a year, but 50 to 52 weeks in here and in the semi monthly pay period is 24 again. I wouldn't just memorize that, but you need to be aware of that number. It's a payroll number. You gotta know semi monthly again. How would I get there? 12 months times to bi weekly 52 weeks, divided by two semi monthly, 12 months. Times 2 26 vs 24. 11. 21.2 Payroll Considerations & Forms QuickBooks: In this presentation, we will discuss payroll periods within QuickBooks online. Here we are in our practice test file to practice navigating through payroll. You could practice and navigating through your own company file. Or you can use the free QuickBooks file, which you can find by Google searching test drive online. We're going to scroll down to the workers tab. So we're gonna take a look at the workers tab and then up top be in the employees. Taff. So in our company file, we have three employees. As we look at this, we want to reiterate the periods that we will be discussing because this is thing something that will change from company to company once it's set up. If we work in a particular company, we're just gonna get used to whatever the payroll is. If we pay every week, then we're just gonna know that if we pay every other week, we're just going to know that if we pay semi monthly, we're gonna obviously know that and monthly will know that However, if you work in an area where we have different payroll processes or switch, cos it's something that we really want to be aware of the basic payroll and enough itself. The rules are going to be much the same. However, of course, there will be a difference within the cycle. As we have different payroll periods, the payroll periods will generally be set up as we add new employees. So as we add a new employees, for example, if we go through and we were to edit the employee, I'm just selecting an employee and going through the edit screen. We will then have the How often do you pay the employees here? Now, if we select this drop down, we've got monthly and we have other options. Normally, when we add the new employees, which will include weekly twice a month, semi monthly or bi weekly and so on, we hear, of course, will be going with one payroll option. Typically, for most of our employees, as most companies do, most companies will pay all of their employees in the same fashion. We're not going to say that we were gonna pay one employee monthly and another employee weekly. However, that might happen. There are circumstances where that could happen, so note that we are setting this up in terms of an employee by employee bases. Most employers will have the same set in for all employees for their basis, or at least this standard, that will be the norm. That will be the default setting. We here are going to use a monthly set in, and the reason for that is because we want to be able to jump through time and get through a full quarter's worth of data or even more than a quarter's worth of data, so that we can then look at the quarterly reports and we could look at the year end reports in the W two and W three. So going monthly allows us to cover more time so that we can look at those quarterly reports as we do this. As we go through these examples, you want to just keep in mind and visualize. Okay, what would this quarterly information, what with this monthly information? What would this yearly information look like if we just had run more payroll periods? And it would just mean that we would, for example, twice a month be running twice as many payrolls than we would if we just had one a month? What would that look like and you can kind of visualize the data, and this will help us to be more flexible as we inter data to help us to visualize what it might be like if we were in a different company set in or working on the payroll for a different company. I'm gonna close this back out and just go through what it would look like if we were to process payroll. So I'm gonna go back to our employees list up top, So I'm gonna navigate back to the employee list and then just run the payroll just to look at the payroll settings and look at how often it would be run and what the dates look like . So the typical dates, you'll see the periods up top. So ours our monthly here. So you'll see that QuickBooks actually is adding into the future or projecting out into the future these pay periods. So here the pay periods, therefore, the entire month and then we set the pay date to be as of the end of the pay period. So the paper is gonna be a timeframe in our case a month having a starting date, and it ending date. And then we've got a pay date, which may be the ending date, but doesn't have to be in often times. It wouldn't be. Oftentimes, it's gonna be a little bit later because we want the cycle to end and then possibly have a pay period. That will be some time after that. So we have time to process the payroll. So that's gonna be a typical type of set up. Just remember that the period is going to be different than the date here. The periods, the time frame starting and ending point. The pay date is the date that we write the paycheck. 12. 23 New Employee Tax Forms & Contractor vs Employee: In this presentation, we will take a look at new employees, tax forms and the concept of a contractor versus an employee relationship. Whenever we have a new employee, that tax form typically that needs to be filled out by that employees will be a W four. The W four form looks like a straight Ford form. It is a straightforward form, but it is a bit more complex. It's very important win. Recording the information for the employees to get the proper withholding is also a form that the payroll department within a company can't really give as much guidance with as, ah ah, lot of employees would hope, because the payroll department can't typically give tax advice. So even though the employer, in other words, is required to withhold the employee taxes for federal income taxes, they're not able t give the kind of advice that ah would be considered tax advice because the reporting of the income taxes in terms of the 10 40 is really the responsibility of the employees. So, in other words, the reporting of the W four is going to deal with exemption amounts and how much is going to be withheld from an employee paychecks for federal income tax, their federal income tax and then the employees. That means it's gonna be related. Teoh the tax filing at the end of the year by the employees using the form 10 40. So they w four the with holdings and your reporting of the 10. 40 our employees reporting out the 10. 40 at the end of the year are gonna have a relationship to each other. We also have some other important data from the W four. So whenever considering the W four when entering data into our payroll system that w Form four is often the form that we're gonna use it if we're gonna enter data into our database system about a new employee, weaken typically get a lot of that information from the W four. Now that W four is a I arrest former federal form. You're going to get it. If you could find this copy to get a current iris W four form from iris dot gov type in W four, you could find current copy of W four form as well as instructions for the W four form and see how it all fits together and how it's gonna be worked out. Note. I also didn't include the worksheet that it will typically be here. That will help with the calculation for how many exemptions we have. So I'll talk about that more in a bit. This is just gonna be the reporting form. So the W four when we're entering data for a new employee This, of course, has the first name and middle initial. That last name is gonna have this Social Security number, which we're gonna need to put into our database system. It's gonna have the full address which we're gonna need to put into our system. It's gonna have the marital status. And again you might be thinkable. Why do I have a marital status and that is gonna feed into the calculation for the federal income taxes? You'll note that when you filed your form 10 40 which again is related to this form that you have to you have to say whether you're married or single or head of household or widowed. And that's in. The reason for that, of course, is that there's different tax rates. And so when we do that with holdings because of that complication we have Teoh, we have to know the marital status so it could be single, married or married, but without a higher sink, but without a higher single rate. And so this is gonna be the The reason for this third option is the fact that when we combine incomes together, um, it can confuse things, of course. So if we only had one employee making income, then that's usually what the tax system was first designed to do, meaning most houses used to be single income houses. And therefore, if you worked for a company anywhere the only wage earner for that company, then we could pretty accurately calculate your with holdings based on whether you're single or married. Ah, and then be it. But when you have multiple different types of of of wages that that are going into the TV home as well with different sources of income, then that really complicates the matter in terms of what the withholdings should be. So long story short, if we if we select the married but with a higher single rate, were basically saying, Yeah, we're married, but we want you to withhold at the higher single rate because If we were single, we would be paying a higher tax rate than if married, because we typically have double income if married and therefore lower rates. Why would we do that? Because the higher the with holdings we have the lower you know, the more likely we'll get a refund at the end of the or the more payment will be making towards the 10 40. And if we have someone else that is working within the household, another spouse working within the household, then we may have higher rates that we need to be calculating at because our income combined will be at a higher rate. So and then and then, of course we have. If your last name differs, then we have the total number of allowances that were claiming. Now this has a kind of a loose relationship to the number of exemptions your recording on the um on the 10 40 meaning if we're single, we have at least ourselves as an exemption. If we are married, we have ourselves in our spouse as an exemption for a married filing joint. If we are having dependence Children, for example, types of dependence and we would have ourselves, our our spouse and our child or Children as exemptions. Now, the allowances are not exactly the same as exemptions. Those are gonna be part of the calculation. And this would be the information if we looked at the at the more comprehensive tax of calculation for the W four to try to come up with. Ah, this this number number five, will take into consideration these exemptions in this calculation. But just note, there's a relationship there. Why are we doing this? Why do we need this? Because we're trying to figure out based on the complex individual tax system what the with holdings will be so that usually we want the withholdings to just barely b'more than what the tax obligation would be meaning? You know, the tax system is designed to hopefully try to make the employer take from the employees a little bit more than they're gonna actually Oh, for income taxes, which they will then realize once they do their income taxes with the 10. 40 at the end of the year, and therefore they're going to get a refund. Why would it be set up that way? Because then the government is most likely to get paid the government's most likely to get paid by the employer doing the calculation, withholding the proper amount, withholding a little bit more than is actually going to be owed. And therefore, at the end of the time period, the iris will give the difference back. They'd rather give the difference back then, have the employees owing money at the end of the year knowing that it's much harder to collect for the I. R s if they if the individual owes money at the end of the year and the iris would also have the money sooner rather than later. So for those couple of reasons that the system is designed for that format, so they're related and this is gonna be the the line that will help us to get those exemptions Now we also have this this line additional amount. If any you want with help from the paycheck, why would you want an additional with help from the paycheck? That's gonna be less income or less paycheck. And the reason is that that's basically saying, Hey, you know, if we do a tax estimate with our tax professional, um, they we might just come up with a number and say I want to ADM. Or why? Because possibly we have other income sources and that's gonna push us into a higher tax bracket and therefore are with holdings from this W four will not be sufficient to pay for our taxes. Or, um, we have a spouse which would be part of our other income, who has substantial income and therefore pushing us into a higher tax bracket and therefore the with holdings from this calculation will not be sufficient. We would need to increase it, and then we have seven. I claim exemption from withholding for 2008 and I certify that I meet both of following conditions So we could try to say, You know what? I don't I don't need withholding. You don't need to withhold from me. And you have to basically tell the employer importer having the responsibility to withhold needs to needs to have a reason not to withhold. And that would be last year I had a had a right to a refund for all federal income taxes withheld because I had no tax liability. So you're basically saying, hey, last year, you know I didn't haven't have any taxes. So and the iris is going to say, Well, if that's a condition, your taxes are probably pretty low. And maybe you don't have a responsibility to pay. If you're under a certain threshold, then you probably won't have any taxes because you won't be over the, um, the standard deduction. And if you weren't over last year than maybe you won't be this year so and the other this year, I expect a refund for all federal income taxes withheld because I expect to have no tax liability. So again, if your if your taxes that if your income is under a certain a certain level under, like under the standard deduction, then you're not gonna have any taxes typically. And you could basically claim that you could say, OK, I don't have any withholding under that specific scenario. And then, of course, we need the first date of employment and the employer identification number, as we need on every type of payroll tax form and the 1/4 name and address. So then we have this concept between the employee and a contractor, and this is a huge kind of concept because there's pros and cons to having a contractor relationship to an employee employer relationship. Eso if we If we're trying to find work, we need someone to do something for us, and we're trying to hire out someone to do someone for us are our choices are to hire them as an employee or hire them as a contractor. Now, at one point in time, this relationship might. That might have been more kind of foggy than it is now. At least from a legal standpoint. From reporting standpoint, we want to have a very definite line. Prior to this, we might have hired someone and said, Hey, we're gonna pay you so much at the end of the week and it is what it is. You know, I don't care what we call you if your employer employee or a contractor. But now that, of course, as an employee that the employer, the company employer, hasn't responsibilities to do things such as withhold and other responsibilities in terms of legal responsibilities over and four their employees more responsibilities than they would have over, say, a contractor, a contractor who basically is running their own business. So if someone that contractor. You're just paying them whatever they invoice you, in essence, whereas if they're an employee, then you have more legal responsibility. You have to withhold. You gotta report all of all the reporting. So, of course, one of the disadvantages when making this determination as to whether an employee of employee or a contractor. We also have businesses that might want to lean towards contractors sometimes because that would mean that they're not responsible for many of the legal responsibilities, such as reporting, withholding and a lot of the other type of requirements paying payroll taxes in some of that stuff that viewed so it could cut costs. Now the advantages of being an employee is, of course, you have a bit more control over, Ah, the behavior of the of the employees, and you're able to take care of more. In some cases, you're able to provide them with benefits. Some like 41 K plan, which could entice better people to to work there. So there's gonna be kind of like the pros and cons assume pros and cons between contractor and employed now went from the IRS standpoint. From a regulatory standpoint, uh, they're gonna have their own kind of, ah, critiques of of whether your contract or not, one more point before we go into those. Ah, if if you're an employee, obviously you get your income reported as a w two income telling the iris that you made money as a contractor, you get your income reported typically as a 10 99 if certain conditions are met. Meaning you're not like the contractor isn't. And employees. I mean, the contractor isn't a company and typically earns over a certain dollar amount, which is fairly low, like 5 to $600.600 or so dollars. Then you have to 10 99. And remember what 10 99 is to The contractor is similar to Adobe to your basically telling the contractor. Look, I paid you this amount this year, and I'm reporting to the ire s and therefore you Really? Yeah. I mean, you really ought have reported in some way on your form. 10 40. If you don't, you'll probably be notified by the IRS. Now the problem with a 10 99 again if there's no with holdings Theo Employers not responsible for with holdings. And also when you're a contractor. You may have job related expenses because you're your own business that are not going to be included on the 10 99. They're going to be something you have to deduct on the 10 40 in somewhere in the schedule C. So there's more responsibility if you're a 10 99. If you're a sole proprietor, if your contractor to report your own income to report your expenses on and make sure you get all that taken care of now, from the Iressa standpoint, they're kind of weary of, ah, of an employer reporting someone as a contractor rather than a um rather than an employee. I mean, from a From a regulatory standpoint, you may rather have someone reported as an employee from an IRA standpoint, because then you can hold the bigger, larger employer, the bigger company most likely responsible for collecting taxes from the contractor. So at, rather than having the smaller contract of a smaller business probably the sole proprietor responsible for reporting on the income and paying their own taxes, they probably rather and the larger company that they can put more restrictions on two be required to withhold the taxes. Therefore, they want toe. They probably are gonna lean towards the idea that if someone's an employee, if we want to make sure they're reported as an employee, So what does it mean to be an employee? It comes down Teoh. There's a bunch of different tests that you can you can have. But the more control the employer has over the employees work the behavioral control, financial control and the relationship between the party. If there's more control on the employer than you would typically say, Hey, that's more of a wage relationship, meaning If you had someone like a secretary that would, or an office worker that was going in every day and told, This is what you need to do. I need I need this done and had that done. It's 9 to 5 job. You need to be here from 95 what not then that's a pretty high level of control. It would be pretty difficult to say if someone's working a 9 to 5 job in a specific defined location and their jobs were being dictated on a daily bases, then pretty much unemployed be pretty difficult to argue that that one is that someone's a contractor. If, on the other hand, we had someone that you know needed to do a specific job, like paint the house or something like that or paint the office, then that would be more likely. That would say, Hey, this is the job we need done You know, you have your own tool, you know, And it would be the contractor's responsibility. Bring their own tools, you know, decide how to get the job done, work out the dates that will get the job done and in the goal there being in goal, they're getting the place painted. Now. Those are two pretty, pretty stark differences between a contractor and a ah, an employee. And there's a lot of gray area as to when someone is a contractor in an employee and different industries that could be industry specific. So there could be a lot of areas where there's debate as to whether we should be a contractor or an employee, and it's important t make sure to go over those rules. So, um, we don't get in trouble on on Ah, on on that. We don't want toe wouldn't want the IRS to come back and say that someone is reported as a contractor and they should have been an employee and then say that we need to report, you know, Social Security, Medicare. So it's really it's really important kind of distinction. The distinction between whether someone is an employee or a contractor. The employees have much more responsibility for reporting by the employer. The contractor still some responsibility to report the income given given in certain conditions but less responsibility in terms of many other types of regulations, including the conflict of withholding the taxes for the contractor. 13. 23.2 New Employee QuickBooks: in this presentation, we will take a look at the process for setting up a new employee from a form W four within QuickBooks online. Here we are in our test file. You could navigate through your own company file and follow along and or look through the QuickBooks test file the free test file by Google searching QuickBooks online test drive and to set up a new employee. We would go down to the workers tab on the left side. So on the left side, up top, we have our tabs up top. Want to be in the employee tab? This is what it would look like if we have to pay payroll, set up with QuickBooks online, and then we would scroll down. And we see here that we have our three employees typically to add the new in fluid. We would go up top to the ad employees section before we do so. Also note that as we set up hero in and of itself for the first payroll set up as well do in the practice problem. Then we typically have an option for entry in employees at that time as well, so we can inter employees as we go through the set up process. And then, of course, once set up, we can add new employees as we go. The Ad employees button would be here, and then we can populate the data tabs in a similar fashion as we might to populate other kind of data input for things like customers and vendors. It has some information that's gonna be specific to payroll, some information that is not necessary for payroll but information that we would need contact information, notes that we might want to have for any type of contact that we would have, whether it be employees, whether the non employees year, a vendor or a customer, something like that. The Asterix field would be where the name would be required. Fields that we have the required fields up top. And then we've got the information down below in terms of how we're gonna pay the employees . As we scroll down to these items, 1234 and five will see the information we can use to enter this data, including a W four type form. So this is gonna be a quick entry data form which allows us to take the data directly from the W four that the employees would fill out themselves. Take that data and use it to input into this system, using a screen designed to look like the W four so that we can enter that data more easily . We'll see an example of that as we inter new employees in our example problems. I'm gonna cancel this for now and not enter a new employees, but instead look at a current employees information. So now let's go into the current employees. A current employee. Let's go with Anthony this time. And then if we scroll down through Anthony and we have two tabs up, top the employee detail the check list, we want to be in the detail. And then we could select any of these pencil items and we'll have the same kind of data input screen as we would win entering a new employee or win, and we want to change some type of information for that employees. So if we so like that pencil item, we'll see ah familiar screen that we saw last time we have the data up top, we're gonna have the date higher information and now we have that familiar 1234 and five. If we were to select a pencil on these items, then we can go into the changing of that information. So it's gonna be a monthly filer as opposed to a weekly or twice a month filer. So I noticed that the terms that they use are a little bit different than we might hear. Usually you would, you would see you would see weekly or biweekly or semi monthly are the traditional kind of payroll terms. I think the terms they're using are are meant to be simpler or more simple and in the format rather than kind of having more, I guess, really payroll type terms for the for the time period. But we could select our time periods. And just note that if you have more traditional terms and of course, you can apply them to the terms that they have here, we have a list out of the pay periods on the right. Based on this information, I'm gonna cancel this out and go back to the prior screen. Then, if we take a look at item to how much do you pay Anthony? So if we select the Pennsylvania. We would have the data input for that. We're going to say this is an hourly employees as opposed to salary or commission these payroll items Air set up by default by QuickBooks QuickBooks is using these items. Most companies will probably be using salary or hourly, and that's all they'll really need in the payroll. Set up options. But if more is needed, other items are needed. Then we can add those items going up to the settings. So then we have the 25 an hour and we have other options down here. Include in the overtime. Pays off over time is applicable or other. These items that double pay the sick pay, the vacation Holiday bonus Commission and so on. If those are applicable, then we would check those items off as well for close this back out, going back to our tab. And obviously we'll send will view these items when we set up a new employees and as we change the options for them. If we go back into this pencil tab again and go back into the editing, we then have item three. This is where we're gonna add the deductions and these are where the benefits are included . So we currently have for this employee for one K dental and vision. We could then ADM. Or by selecting this item, we will do that as we go. What are Anthony's with holdings? This is going to come straight from the W four. So note as we go on to that, that's going to be that W four data input screen. So it's designed to look like the w form to kind of help us out to enter this information more specifically, including the marital status and the number of allowances, and typically will get the name from the W four as well as the Social Security number. So I'm gonna close this back out. We'll cancel this item and scroll back down. That's going to be that W four. What do you want to pay, Anthony? We can have the paper check. Or we can have the direct deposit and other options in terms of the payment options here. Scrolling back up top. If we go to the second tap, the profile tab, We're gonna have the address in this tab. More information. Some of it required. Some of it not required, but could be useful for just any data, including the home number, that different kind of mobile numbers we can choose and the gender we should have chosen and the date of birth information. Then if we go to the employees E tab next tab to the right, we have the employee i d. Which is gonna be an optional field. If we have an employee i d. Status active versus paid leave, unpaid leave and other type of status options. Have you filed a new hire report for this state? We should check these off if applicable. Have you stored a completed for my nine? Check these off. If applicable. That date hired and the location if we only have one location, will choose. Of course that one. If we have multiple, we can have multiple there. So it's just an overview will go through these as we add new employees and at 14. 25 Federal Income Tax FIT Percent Method: In this presentation, we will calculate federal income tax F i t using the percentage method. We currently have our payroll register here where we're focusing in on Pam, who's the bigger earner here and therefore the one that's gonna need to be calculated with the percentage method rather than just using the tables. She's gonna be married. Four allowances. She's got a salary pay, which is going to be this 6 3053 Its's a weekly pay. And that, of course, will be the total earnings are focused. Then here is on the f i t. Calculation. So we're looking for the F i t. Calculation. Therefore, we're gonna need to know what the F I T wages are, which could differ from this total wages. This is what she's getting paid will typically really reduced by those types of things that could be reduced in, say, are 10 40 adjusted gross income, things like a cafeteria plan or a retirement plan like a four, a one cave. So if we say here that the cafeteria retirement plan are these numbers, then we can say that her total earnings are going to be or the F I t earnings are gonna be this 6 3053 You sort of say 3653.85 minus. And then we have the cafeteria and retirement plan of 280 minus 1 85 and that will give us the 3000 won 88 85. That's 3000 won 88 85 that we're gonna basically be using here. We're focusing in on this on this number on Pam's wages, because that's the one we're gonna be focused in on for the f i t. So here we are at the circular e the circular ikan be found on iris dot gov the iris website. I rest stock of the circular e To get the most current tables, we need to go down to the tables to calculate the payroll withholdings. These are not gonna be the normal just tables that we can look up. They're gonna be the percentage calculations typically used if the wages are too high. For example, if we went and found this number in the tables, we'd say all the tables aren't big enough to find that number, and therefore typically, that's when we would have to go to this method. The percentage method, in essence, calculating what the wages are gonna be Now, this is an important method to do it. It's useful to do because we get a better understanding of what the progressive tax system is, what these tears doing? How complex is it to calculate these taxes and why is it that format? So to do this first, we gotta look at the table in the circular e to see what the allowance is. So if we need to know what pay period were using, we're currently in weekly, and then we're gonna say, OK, that's 779. 80 is how many money per allowance that we get. So 79 80. Once we have that, we can then take our federal income tax pay. This is how much we started with from our table. That's how much we earn after the retirement plan and cafeteria. Then we're going to calculate the allowances, which is gonna be the 79 80 that we just looked at times the number of allowances which for her is four, which is going to give us 79 80 times four or 319 and 20 cents. Then we're gonna take the F I T wages minus the 3 1920 for the allowances to give us this 8 2069 65 This, then, is the number we're gonna use for our percentage tables. So now we're back to the circular Eem, and we're still in the percentage areas. This isn't like the tables where we would just look up the number, noticed what we're gonna have our our calculations will have to dio We've got to find the right bracket that this is in, and then we'll have to calculate the top tier and add it to the tier below. So let's see if we can kind of break this down and why this happens. This is closer to us actually having to calculate what the taxes on a progressive system. And remember, It doesn't mean if we're say in this tax bracket that all of our money is taxed at 22%. It means that some of its tax of 10% some of its tax that 12% some of its tax at 22. So it's just it's the top portion that's taxed at 22%. So we need to go through this whole thing and say, Well, this much is taxed at 10% and this much is tax zero. This much is taxed at 12. And to do that we can short cut it a little bit by saying, for example, we are in this bracket and that's gonna be between 1007 11 and one and 3 3095 That's the number were using because this falls in between there. And so we can basically say that this number up to the bottom level of 1007 11 has already been calculated. We can calculate that on the table table can give us that because that's a set point in time. It knows exactly where that is. It can't give us the number of tax at the highest bracket because it's somewhere between here. So we'll have to figure out what that is, because it's we don't the table don because he doesn't know exactly what that how much is gonna be taxed at 22%. But it knows exactly how much is taxed at 10%. How much is taxed at 12% so we can take that floor number and the table can just give us this 1 71 36 which is, in essence, the amount tax that either 0 10 or 12%. So we have we have that. And then we just need to figure out how much is gonna be taxed at the 22%. To do that, we're gonna take our number 8 2069 minus the floor number. Typically the bottom number which they give us over here, excess over 11 1711. The difference then will be taxed at the 22% the highest tax bracket. And then we add to it the 1 71 36 which is the table already calculating the tax on the 1007 11 the floor, which is the 10% and 12% brackets that we don't need to recalculate because the table can give us those. So it looks basically like this. We've got the federal income tax here, and then this. This is our tax are taxable wages. And then we've got the lower limit on the table. This number, this number and that will give us the amount to be taxed at the highest bracket. So we subtract these out. That's the amount of the highest rate, which is 22%. So the amount tax of the highest rates times 22 gives us $254.90. Then we add to it the 1 71 given to us by the table, which is in essence, the tax on the lower portion. And if we add those together, we get for 26 24 26 26 which is gonna be our withholding amount. So this is basically the full break out that will take from the table. It's nice to have a format like this. You can kind of, ah, think through it. If if you do it a few times, if you have some of these calculations and you and you set the table up, then you can go through and just fill out the format of the calculation and fill out what's the appropriate amount? What's the appropriate table that you're looking at? Just make sure you're picking up the correct table ours with for weekly. If you're bi weekly, Semi ah weekly or semi monthly, uh, or monthly another table and make sure we're picking up the single versus the married side of it. So then we can basically use all that in order to fill out our number here in our f i t federal income tax withholdings. 15. 25.2 Federal Income Tax Percentage Method QuickBooks: In this presentation, we will take a look at the federal income tax, considering the percentage method versus using the tables within QuickBooks online. Here we are in our practice file. You can follow along and your own company file or used the QuickBooks free file, which you could find typing in Google Searching QuickBooks Test drive. We'll go down to the workers tab for the payroll information when considering the percentage method and the tables that could be used to calculate taxes. We think about that from a manual perspective. We think about how do we calculate the F i T. If we were to do this manually, we would take the information for the marital status. We would take the exemptions. We would take the pay period. We would look up the tables usually, however, if the payroll is too high, which is usually the purpose when we can't use the tables, which would be the easier option. Then we have to use what we would call the percentage method so we won't go through those calculations here. We just want to note that how important it is, how nice it is that QuickBooks can basically make those determinations for us. If we give them the information, that marital status, the number of exemptions and the pay period, as well as the as the pay amounts, then quip Ozcan, make that determination. And what would then happen within QuickBooks? It's just good to note within QuickBooks. If you have an employee such as a Hourly employees, as these two are, then QuickBooks will used, in essence, the tables to calculate the pay. If you wanted to verify the calculation for these two items, then we can go to their payroll. We can look up their paycheck, and we can consider the monthly pay period the number of exemptions and we can look up tables. And, of course, the pay that for that period. And then we could look at the table and figure out the F I T and match it up to what has been calculated through QuickBooks. If we had someone such as Judy Jones here that makes Mawr or makes a significant amount of money that maybe over the cap that we can then use the tables for, we would then have to verify this number, which QuickBooks does for us as we process payroll for Judy by using the percentage method , and QuickBooks will, of course, being a Nauta mated system do those calculations for us. So this is great because we note that QuickBooks does it for us, and it's easy in that sense. But we still have to have some idea of the complication that goes behind that, because if we want to explain how how it is that we got to the f i t kind of deduction we want have some idea of what's what's happening if we want to actually completely verify it , then we can go with with an employee that has has a lower rate typically and go through the tables and look that up to kind of verify to ourselves what QuickBooks is doing. And then if we had a higher employee calculation off rate, and then we would want to use the percentage method and we can kind of verify what QuickBooks is doing, of course, QuickBooks having the knowledge to know when to apply the tables and when to apply the the percentage method. If we give QuickBooks the information to do so, then to test this, we can go to the accounting on the left side and take a look at a couple different paychecks just to see what the paychecks look like. If we then go to view the register, we would consider a couple different paychecks if we scroll down to the month of January. In our example, we'll see that Judy Jones here is the ah owner in our case, who gets paid a significant amount and therefore probably is on the percentage meth method calculation, whereas our other two employees, Beth and Anthony, are on hourly and would have a table method. So if we were to look up these items and edit them at the detail of these items, we would then see the payroll calculations down here. So if I scroll down, we see the f i T. Calculations. We can verify this number by checking it, basically re calculating it for ourselves, using tables, using the growth pay and the marital status and the exemptions. If I close this back out, go back to accounting, go back into our Jared of accounts and go back to our checking account and then scroll down and we were to go to Judy Jones. And so, like this item and edit it. Then we can go through the information for Judy Jones, and we would go down and note the federal income tax calculation here. QuickBooks still does it for us, but to verify this number, we would go through the number of exemptions, marital status and be using the percentage method most likely to double check of this number. So that's gonna be again. One of the huge benefits that QuickBooks does is to make those kind of determinations for us with regard to federal income tax, which is a complicated tax too calculate. Just because we calculated it, though, doesn't mean we're never gonna have to explain it or try to explain why it is what it is, and so that complications still, of course, causes us some problem in that sense. But the fact that QuickBooks calculates it for us, that's one of the huge factors that we're paying for with QuickBooks paid payroll 16. 30 Federal Income Contributions Act (FICA): In this presentation, we will discuss the Federal Income Contributions Act. Or pica, if I was gonna be a big component and something that we will return Teoh when we do the payroll calculations and the recording of the A Role journal entries that does another law that happened in the 19 thirties, during the Great Depression, and we had a lot of legislation aimed at making things better or, ah, lot of different aims. But in this case, we've got the Social Security Act and the Social Security Act or the Federal Income Contribution Act. Otherwise, no one asked Pica, can also be confusing because it really has two major components to it. So when we think of Fike, we're thinking of the one component old age Survivors and Disabilities Insurance, or O A. S. D. I. And Medicare. So keep that in mind whenever you see the term Fike out. Ah, lot of times people will apply it to one or the other. Typically Teoh social security of their old age survivor survivors and disabilities insurance. But it really is comprising of both of these components. Both of these components fall under the subcategory law of fickle, which is the Federal Income Contributions Act or otherwise known as Social Security Act of 1935. Fike is gonna be really interesting for multiple different reasons. One. It's gonna be part of our payroll process, major part that will have to be putting in for payroll taxes. Two. It's a big part of the government spending, and so it's gonna be interesting from just a political standpoint will always be talking about fi ca and the fight that type of payments we may be wondering, Well, how is that the case when we're gonna stay, that the employers paying it or the employees paying it will discuss more about how that payment process works? But it's important to note from a political standpoint that the money is going to the government and it's gonna be paid out at some point. And that pain out process is a big part of government spending. It's also really interesting because, really, the thought process of what the especially the old age survivors and disabilities insurance is has tended to change over time, meaning When it was first in put in the place into 19 thirties, we had more of a safety net type of idea of what this would be meaning we have. Some people that were living might live past their life expectancy. And when that is the case, it's very difficult for an individual possibly to find employment at that point in time. I mean, if your life, if you expect not to live past Ah and in that time, somewhere around the sixties, if you're probably not gonna go past 65 then because people typically don't live much longer than that, then it would be very difficult if you didn't plan for that expectancy to live past a normal life than to go back to work at that point in time. So it leaves people in a very, ah vulnerable type of position at that point. And therefore there was a safety net the idea of a safety net program which would be set up in order to provide for those individuals, Um, later. And now, of course, as people have started to live longer, it's almost converting a bit to be thought of as more of a type of retirement type of ah retirement type of plan to kind of supplement income in retirement years. So there's a really a bit of a debate. Just from a political standpoint, terms of what we want fight gonna be, is it? Is it a safety net that's helping people after the point in time that that the expected life would be a safety net? Or is it's going to be some form of retirement plan that's required in a federal type of retirement plan. How that's gonna work from a payroll standpoint is that we typically have, um, they kind of like a matching like you might think of some 41 K type plans. But the the employer is gonna be forced to put in part of the taxes based on the employee wages, and the employees will have Teoh withhold as well. So when we talk about the cycle, taxes were talking about taxes that are both employer taxes and employee taxes. And that really is where things get confusing from the standpoint of recording the journal entry. Because the employer, as we noted from the the Constitution, made a change where, of course, the court, the employer is required to withhold taxes that the employee pays, so in this case, the employers withholding taxes from the employees, and they're having to pay taxes above that as well for this employee tax for the payroll tax. And then, of course, at the end of um so what they're gonna do, of course, is there gonna take that they're going to give it to the government, which should put it into a separate fund and not not dip into that fund. And then payments will happen at the at the point in time at the end of ah, persons towards the end of persons life at some age retirement age, which could be extended by law around 65. And then they will receive payments and payments that were well received back will be based in part on how much they put into the Social Security or Old Age Survivors and Disabilities Insurance Fund. Meaning there They had money taken out of their account into and put into a, um, a fund. And then, of course, they're going to get paid back. Now notes that what's not the case here is it's not the case where the government is holding on and has this money available and waiting is investing. It kind of like a 41 k plan in order to wait for retirement to pay it back out. What's really happening is the current funds going in are paying of the current retirees going out. So it's not. It's not a system where they were paying it in there, holding onto it, and then they're gonna pay it back out. At the end of our retirement ages, we might think of like a normal kind of 41 K plan. It's more the case where, um, the current generation is paying into Social Security, which is being paid out. Teoh, the current group of of retirees. And that's just the way it was set up. That's the way it was planned for. But when there's differences, of course, in the population, then those differences can cause shortages or over urges within the fund. So that's gonna be an interesting topic. We will focus here on what's the law for the With holdings. How do we make the with holdings Haddaway recorded with holdings how to re report the withholdings? Teoh our employees, the Medicare portion is gonna be is still somewhat of a safety net program. It's gonna be some. It's gonna be similar in the format in that the employer and the employee are going to both be pain it, so some of it will come out of the paycheck. The employer will take it out of the employee paycheck, and the employer will be responsible for their portion as well that they will then pay in and then at some time later on in life. If people qualify for Medicare, they could get then the Medicare payments. Now the Medicare payments currently are a lot less. Ah, and the percentage is gonna be a lot less that it's gonna be paid in to Medicare, and it's not. Ah, and it is something that, upon receiving benefits from Medicare, there's gonna be some kind of restrictions. You got to qualify basically for Medicare, and therefore it probably still falls into Mom or definite kind of safety net type of program. Whereas Social Security or the old age survivors and disability insurance, I could be thought of by some to be more of a converting more toe like a retirement or something. The supplement income in the later years, rather than just a pure safety net type program 17. 30 Social Security Tax Calculation: in this presentation, we will take a look at the Social Security tax calculation we have here. The payroll register, which we will use to calculate thes Social Security taxes we have are two employees and the marital status, the number of of allowances, the hourly rate and salary. And then we have the regular pay and the overtime pay and then the total earning. So here's the main component we want to focus in on here we have the total earnings we're gonna calculate the O A S D I based on earnings. However, the total earning, which is just gonna be the regular pay plus the OT pay may differ from the O A. S T. I or Social Security wages. Remember to the different names that we can call the O. A. S. T. I or Social Security. It's a fight get tax. But the two factor taxes, Social Security and Medicare. We're focusing in on Social Security, which can also be called the old age Survivors and disability insurance or O a s t I. So when speaking of it, we're probably gonna end up calling it Social Security. Easiest thing to say when abbreviating it we may. I use the O A. S D I four tables as we're doing here. So the point is that we could have a different OSD I wage based on a couple factors. One if someone hit the cap. So if we had someone that hit the cap, then they're osd I wages will differ. And if there's something that's gonna be deductible for always D I calculations such as a cafeteria plan than to it could differ. So if we look at the payroll register, we can't really tell if someone hit the cap. Clearly, this are nowhere near the cap here of 1 28 400 this example. This will go up from year to year, and but this doesn't give us total earnings. This only gives us the earnings for this pay period, so it doesn't really tell us much about whether or not someone has going over the cap. What we got to do then is go to the earnings records so of the earnings records for our two employees, and this gives us the year to date earnings for the total earnings and the OSD I so they could again defer the total earnings could differ from the OSD eye. We can see here that the osd I is close to the cap for the second employee nowhere near the camp for the first employee. So if we do the subtraction problem, if we take the cap of ah 1 28 400 minus 1 25 5 35 we get 8 2065 that we need in order to get up to this cap. So if this 8 2065 then is lower than the actual wages were going to use this number so that we don't go over the cap for OSD I So that means for uh oh yes, d I wages were going to have the five or 6 15 which is going to be the wages here less that the, uh, sorry. The total wages here less the cafeteria plan. So this one there's a cafeteria plan that is bringing this down, which is a health insurance plan of 756.5, minus five or 6.5 or $250. So this difference is just due to that. The second difference, however, is due to the fact that this person hit the cap so we can't go over the 1 28 400 this person hit the cap at that point in time. And therefore we're gonna have ah lesser of Social Security wages than total wages. And going forward, we're gonna have zero Social Security wages and therefore zero Social Security for this particular employee. Then if we do the calculation for Social Security, it looks something like this. We're gonna start off with total here just so we can see, um, the fact that we could use the total and calculate based on this, And then we'll go back and calculate for each individual. And they will give us an idea that this flat tax and how this flat tax works as being opposed Teoh a progressive tax for the federal income tax or F i t. Tax. So we're first going to calculate so security based on this number here. So we're gonna have the 3 3071 50 total wages for all of our employees. All two of them. We're gonna most by that time, 6.2% or 0.62 in the decimal format to give us $209.30 if we do that again for the employer portion. Same calculation 3 3071 50 times that 6.2% gives us the 20903 So note that were, in essence, doing this two times. One for the employees. This coming out of the employees paycheck. Two for the employer that's coming out of the employers checkbook. And if we add those up, really, the total is 4 18 07 between the employer and employee who will be pain when we consider that paid role register. We're gonna be concentrating, of course, on the employee tax to get to the net check. So if we calculate this out again now we're gonna take the individual employees wages and add them up, and we'll get to the same totals down here. But we'll do that in a different format by calculating the Social Security tax for each employee. So five or 6 50 times 6.2% in other words, is 31 40. This 8 2065 times 6.2% gives 177 63 for a total of that 20 9/3. If we do the same thing for an employer portion, then once again the five or 6 50 times the 6.2 gives another 31 40. The 8 2065 times the 6.2% gives the 1 77 63 And if we add those up, we get that 20903 18. 30.2 Social Security Tax QuickBooks: in this presentation, we will take a look at Social Security tax within QuickBooks online. Here we are in our example file. You can follow along with your own company file. Or you can use thief free test filed by searching a Google search or some other browser Surge four QuickBooks online test drive. We're gonna go down here to the workers tab, and then we're gonna be on the employees tab up top. As we scroll down, we can consider our three employees note that Social Security will be set up as we process the payroll or set up the pay payroll. So Social Security and the with holdings for it and the recording of them on the financial statements will typically be something that will be set up by default and something that is set up well by default. But we can't look at those settings as we consider where they will be posted. As we calculate thesis Social Security, it will be more of a straightforward rate. So as long as we are under the cap, then we know that it's gonna be a more of a flat tax, something that will be easy to calculate in other words will be able to see the calculation for Social Security more easily than, say, federal income tax, which is going to use more of a progressive type system. However, there is a complication with Social Security. One is that we have both an employer and employee portion that we have to think about as we enter the data. The other is that there is a cap. So if we were to consider, for example, and employees like Anthony here, who's making $25 an hour, probably not gonna be making over 100,000 year at that most of lot hours being worked a lot of ot time there. But if this employee, Judy Jones, making the 500,000 is going to be over the cap, meaning there's a cap of over 100,000 it'll change each year and therefore this employee. We gotta be very careful for the high earners because at some point we know that that cap will be reached, and when it does, our paychecks will look a lot different and payroll will look a lot different. The quarterly forms will look a lot different at the end of the year than the beginning of the year. Because of that cap that will be reached to consider the effect of that. Let's take a look at a couple paychecks, but I go into the accounting tab, I'm going to go to accounting. We're going to take a look at the chart of accounts, and they were gonna go into the checking account these air where our paychecks are written . If you have a specific payroll account than you would want to do that, account that checking account and view the register and we're gonna look for our payroll accounts are payroll checks. These are old payroll checks. So it's gonna be easy for us to dio. And I'm going to go into the third month because that's gonna be the third check for our big earner here. Judy Jones, where we had a benefit given to Junie Jones also also got a bonus here. So we got a big paycheck here, as opposed to Anthony, who's gonna get basically the normal pay that Anthony's earning as Terryl. So let's first take a look at Anthony for the same pay period, or let's take a look at Anthony for February. This pay period, and we'll edit this and take a look at the detail for it. So if we scroll down through this will see that the gross pay is 4062 calculated at the hourly rate times the number of hours and O. T. And then we have the federal income tax withholding. This is what's coming out of the check and the Social Security. So here is the Social Security, and, in essence, it's going to be this 4062.5 times the rate of 0.6 to, and that's going to give us the 2 51 Easy to calculate. Notice that up here, the federal income tax much more difficult to calculate. This is really the big complication in just calculating the with holdings. The F I T. Is what we're paying for for QuickBooks. In other words, the Social Security is pretty straightforward at this point, at least, although as we add all these rules up, it gets quite tedious. So you'll see that's pretty straightforward, but it one complication that's a little bit different from the f i t. Note that we only had f i t federal income tax up top. Where is the Social Security? We have it here, reducing the net check, and we also see it down here in the employees er, taxes. We'll see a repeat of the Social Security. These are not the same thing. It's not just one amount that's paid to the government. Both those amounts they're paid to the government. They're broken out in separate locations because one is being paid in theory by the employee. The employee, in other words, earned 4060 to 50 those Social Security, and therefore we took or withheld or never gave them their actual earnings. That included this to 51 87. We took them or withheld it for them to give to the government on their behalf, in essence, So that's going to be this half this half down here in this Social Security is the Social Security that we paid over and above that, meaning we had to pay the employees their earnings of this, and then we got taxed on their earnings. That's what payroll taxes are from one employer perspective. These are not payroll taxes. These are the employees taxes. We just happen to pay them to the government there, the employees earning. So you can think of it that way at least, these taxes down here or what we had to pay over and above, not based on our net income but based on the earnings of the employees. So now I'm gonna close this out and let's take a look at our check from our bigger earner, the owner of the S Corporation, by going toothy accounting and we're in the chart of accounts, we're gonna open up that checking account again, and we're going to go into February where we had that big check for Judy Jones. So now we got this big payroll check. If we select that item and edit it, we'll see that details for that item. And that's because there was this bonus. So this big bonus happened. Here's the checked two or the gross pay to 41 6 66 And then if we scroll down to the Social Security, you'll notice that even if there's any some other things going on, what, we'll talk more about this The S Corp owners health insurance later. But even if we just took this amount of the pay of the 2 41 666.67 times 0.6 To that, we're getting something way larger than what is being taken out. Only 5000 is why? Because Judy Jones hit the cap and we no longer pay. After we hit the cap, we won't get into the rules of why it should be or shouldn't be. Or, you know, but that's the way it is. If you hit that, if you hit the cap, then you pay gnome or after that point in time, so that's gonna have a significant impact on our calculations of payroll. If you see someone having an employee that's gonna earn over 100 some 1000 100 and 1020 then you're gonna want to know that you're going to hit that cap. At some point in time. Your fourth quarter payrolls gonna look a lot different than your first quarter payroll. Your fourth quarter paychecks gonna look different than the first few quarters, so just be aware of that. And that, of course, is reflected on the employer side as well. So I'm gonna close back out of this. We'll take a look at these items on the reports now. So I'm going to go to the reports, Open up our standard reports will, like, take a look at the balance sheet. I'm gonna change the dates to the range that we're working in. A 10119 to 12. 31 19 That's the year we will be running. And as we scroll through the balance sheet, all of these items have to do with payroll. We hear looking specifically at the federal taxes. So we withheld federal taxes and we'd owed taxes. Over and above that are liabilities to us, which will be recorded here until we pay those liabilities. So we've taken some from the employees. Their earnings were whatever they earned. We took some from them with regard to Social Security and now have to pay it out. It's grouped in this account that QuickBooks sets up for us. As we said apparels, a default set up. We'll take a look at where that is set up and a possible different options for the name of the account. If we would like to change the name, they call it Federal taxes. 9 41 9 44 at their as the account. It's another current liability account type, which, of course, would make sense because that's what we owe. So then we're gonna go to the to the income statement. I'm going to duplicate this tab by right clicking on it, duplicating it great feature within QuickBooks online that we could have two tabs gonna pull the one from the left to the right balance sheet on the left new screen on the right. We're then going to go to the reports at the bottom and we then want to go to the profit and loss. So we're gonna take a look at the profit and loss report changing the dates once again. No one No. 119 to 12 31 19 and run that report. And then if we scroll down, we have to areas where the Social Security will be. It will be under wages because that's gonna be including the employees portion. This is what the most confusing piece of social security is. If we go into our wages, we'll see our wages. Here are the 4062. It's the same for these two employees because their earnings were exactly the same the whole time. Meaning, in other words, this is gross pay. You'll note that the Social Security that was withheld is not broken out. I mean, this isn't the net check that was given to them. This is the full check, including the Social Security that they didn't get. They didn't get that Social Security. And we still group the Social Security as part of their earnings grouped under wages or payroll expenses, not under another account called payroll taxes. Why? Because they're not our taxes. That just because we withheld them and pay them doesn't mean they're ours. They're not our obligation, although we're obligation to require the employees to do so but to take them. But in theory, there the employees obligation, which we are just obligated to enforce by withholding and paying out. So that's why they're not employed. They're not. Payroll taxes tow us. They're actually wages to the employees. So then, if we scroll back up and go back to our report, the other side of that is in taxes. This tax item free school into this tax item, we have, ah, the tax information. And this tax information includes only the employed er taxes the stuff that we are obligated for over and above what we pay or oh, or earnings of the employees so that the employee of the employees earned $1000. We have to pay over and above on their earnings, our tax. And that's what the payroll taxes are. Payroll taxes to us, the company or what we have to pay based on their earnings over and above what we actually pay them for their earnings, whether the money actually goes to them or whoever their obligations are that we have to then pay their earnings, too. So that's what that this is gonna be the other side of the payroll taxes. So we'll see this as we work through the example problems, and we'll see how this is populated more clearly. Now, if we go back to the balance sheet up top, you might be asking, Well, how does a group it to this federal income tax? And we saw that before, But just to look at these groupings, we saw it when we did the f i T tax, but I'll go back to the second tab right click on this tab. I'm gonna make another tab duplicating this tab. I'm gonna pull the one from the left to the right. So now we have a balance sheet profit and lost new tab. Gonna go to the cog up top this cog option. Your company files settings, we're gonna go to the payroll settings and then within the payroll settings, we're gonna go to their preferences on the right and then the accounting preferences down below. And then this will give us the accounts that are being used here. So these are these are gonna be the expense accounts that we could change, will show an example of that. We're concentrating down here on the taxes, so notice that the tax expense account are all employees are going into this tax expenses. Now, this is the employer taxes we may want to. Sometimes we could even want to simplify this. We may want to say I don't want to even break out the taxes and the employee wages. I want just one expense account. We could do that. We could change this to just call it payroll expenses, taxes and non taxes and just have one account. But it's more proper really to break this out and when we go into the reconciliation at the end of the year to try to figure out our reconcile or 9 40 ones or W twos and all that, it's easier if we break this out. So QuickBooks does that by default, and it's probably a good thing to do. If we wanted to change the name of it, however, we could do so we could go into our chart of accounts over here, change the name or make a new account and apply it to a different account if we so choose. So that's gonna be the options we have there. That liability account is here. Federal taxes 9 41 Note. We don't really have an option to make a separate liability account for, say, the F. I T. Taxes versus the Social Security. I'm sorry, the F I T. Yeah, tax liability versus the Social Security versus the Medicare. It's just the 9 41 so we have to group those in one liability count, which is probably fine. But then we break out these other liability accounts, and we could say, Hey, I only want one. We might just want to make this whole thing called payroll liabilities and put them all into one account, which we could do by setting up a new account, payroll liabilities, current liability account and choosing all of these liability accounts just to go to that one liability. What's the benefit of that? If we go back to our balance sheet, all of these accounts have to do with payroll. So that's a lot of stuff on our balance sheet. If we don't want all that stuff, obviously we can minimize it like this so that, you know we could. We don't have toe show all that information and then see more detail. So it's probably good to have. But it is a lot of detail that we do have. And if we wanted to just have one account that would group some of say these items together , we could have less accounts. And so those are just some options. We could have these air mainly the default options we have here going back to this tab. But this is where you could you could change those default options. Now we're gonna go down to the taxes tab on the right on the left, taxes on the left and they were in the payroll, taxes up, top the quarterly forms or where we're going to report this 9 41 information or the information for Social Security informed 9 41 and QuickBooks for the first quarter up top. We're gonna choose for our demonstration. QuickBooks is able to group this information, and this again is what we're really one of the huge things were paying QuickBooks for. It's gonna be able to group the information, populate the form. We're still going to need to know what it's doing. But the fact that it does this is great. We have down here the social Security. So here's the Social Security, and it was able to figure out Social Security and figure out the cap of our one employee that has a big Social Security amount, which means that the Social Security wages is different than the Medicare wages or the F I T wages, which starts to get quite confusing when that starts to happen, as payroll gets more complicated. Also note that we have a rate here, which is twice as much as we saw on the check, meaning when we calculated the withholding, we used the rate of 0.6 to 6.2%. Times two gives us this 20.1 to 4. And that is, of course, twice the rate. Because what this is calculated on this form is both the employee and employer for Shin together. So we're gonna have to think about that when we consider how toe group this to the W twos to the W three to the paycheck stubs. Because this, of course, is combining the employer and employee portion. We're gonna close this back out, and then, of course, we're gonna go back up top back to this back button in the payroll taxes and then if we go back to the payroll forms, will consider the annual forms now. So the annual forms that are related to Social Security it will be included on the forms W two and W three, which will be a compilation of the W two. So let's take a look at the W three. And if we want to view that form that's being for 2000 and 19 it also groups this information together. QuickBooks does, which is great. So now we have the social security wages here that should match the 4/4 on the 9 40 ones, which again that QuickBooks being able to calculate the 4/4 of the 9 41 and matching it up to what should be here is nice that QuickBooks will be able to do that and then calculate the Social Security, which this time is only going to be half of what is calculated on the 9 40 ones because this is only the employee withholding. So if I took this 168987.5 times, we'd be using the 0.6 to rate 6.2 to get that 4 10,077 So, in other words, this is only the employee portion of on the Social Security, because that's what's going to be on the W twos and the W threes, as opposed to the 9 40 ones which have employee and employer portions, their annual form that we want to take a look at 19. 40 Medicare Tax Calculation: in this presentation, we will take a look at the calculation for Medicare tax. Here we are, on the payroll register we have are two employees, Bill and Pam. We have over here the regular pay, the overtime pay and in the total earnings. When looking at the calculation for Medicare, we're gonna be looking at the earnings four Medicare, which could differ from the earnings for the total earnings. So remember, when we look at the total earnings, that's, of course, that regular pay and the OT pay when we started calculate the payroll taxes, Then we may have to adjust the earnings. For example, F I t is gonna be reduced, possibly by things like a 41 K plan or retirement plan and a cafeteria plan. The O A. S T. I. Or Social Security is gonna have a cap, which is the major component, as well as possibly being reduced by something like a cafeteria plan. The H I, which is part of fight gown, is going to be different than the O. A. S t i. Or the Medicare will differ from the O a S t I. And in this case, there's no caps That's the major difference between the two types of wages in for the fight kout taxes. So, for the h I wage, we're gonna reduce it just by the cafeteria plan. The difference, then, between the Medicare wages here and the total earnings up here will be the cafeteria plan. So in this example, then the 7 56.5 total earnings minus the five or 6.5 Medicare earnings is 250. That then would be the cafeteria plan here, like the health insurance type plan. So that's gonna be the major difference that could be there between total earnings and the H. I or Medicare earnings. Note that that's different from the O A S t I. Which has this cap, which is a major component of the O. A. S t. I or Social Security. Now we'll do the calculation. We're gonna start with the total here and calculate the total for the employer and employee portions of H. I or Medicare. And then we'll go back and calculate each individual component on and see that they will line up the same way. So first we're gonna take the total If we take the total h I 3009 10 35 times the rate 1.45% or 0.145 We get to $56.70 if we do that for again. For the, uh, the employer portion H I wages times 3.1 point 45 or 450.145 gives the 56 17. Then if we add those two up, we come up with the 1 13 40 So this is the employer and employee portion. We can come up with those same numbers. If we do this by an employee by employee basis, Bill and Pam, Bill and Pam, respectively. So we'll take the five or 6 50 times of 1.545 or 0.145 gives us the $10.97. 3004 03 85 times. The 1.45% gives us 50 to 98 that totals out to the 63 95 then the same thing For the employer portion, the five or 6 50 times the 1.45 gives us the 10 97 again. The 3004 03 85 times one point over for 1.45 gives the 50 to 98 the some of those being the 63 95. 20. 40.2 Medicare QuickBooks: In this presentation, we will consider the calculation of Medicare payroll taxes within QuickBooks online. Here we are in our practice payroll file. You can follow along with your own a business file, or you can use the free file provided by QuickBooks for a sample file by searching through your browser. Four QuickBooks Online test drive. We're gonna go down to the workers tab within the workers tab. We're going to scroll down to our three employees and note vet. As we set up the Medicare taxes, it will typically be set up by default in terms of the accounts that will be used and the calculations. Four. Medical care taxes are fairly straightforward. In other words, the calculation for Medicare is going to be more of a flat tax as opposed to federal income taxes, which is going to use a progressive tax system. So it's typically pretty easy to calculate the Medicare, although there could be bonus Medicare taxes that are paid over and above an increase in essence to Medicare taxes. Four earners that have a high income. So, in other words, if we were to see our employees and see Anthony and Beth, we would consider their Medicare what's going to be pretty standard for the whole year, Not much of a problem flat tax to calculate it. And so no problem. Although there is an employee and employer portion, which adds a bit of complication as compared to other types of taxes, which may only have an employee or employer portion. For example, F I t only has the employees e portion federal income tax as opposed to Medicare, which, like Social Security, will have an employer and employee portion. However, if we see someone like Judy Jones, we're going to say, OK, the income is gonna be high. So it's quite possible that at some point in time, we're gonna hit an area where we're gonna have to increase the taxes on it so the taxable earnings for Medicare will be much the same, but we'll have to differentiate the type of calculation for those earnings toe add on some added taxes after after they've reached a certain point. We'll see an example of that as we go. But we'll note that when we look at the 9 41 so there'll be a change. We've got to recognize when that change happens and say, You know, the taxes are slightly different. We may not even notice it, because it's not gonna be a big change or big amount compared to their paycheck. However, it will make a big difference in the look of the 9 40 ones when we try to compare from quarter to quarter once that happens. And of course, that's going to happen when you have employees that make a substantial amount of money that will then qualify for that bonus Medicare option to consider these. Let's take a look at some paychecks by going to the accounting tab on the left, and then we're gonna go to our chart of accounts is the tap or on. We're going to take a look at the checking account. This is where we have our payroll. If you have your payroll in some other account, then you can go to the payroll account. These are all paychecks for us. That's what we're considering here. We're looking into the paychecks. We will consider this paycheck for Judy Jones, where she's making a substantial amount here because there is a bonus included in this paycheck as well. This is gonna be our owner and we'll compare that to Beth and Anthony, who are going to be our salaried employees. Let's first look at Anthony, who's gonna have more of a standard calculation for the Medicare and then compare that to Judy. So we'll go up top and we will edit this item. This will take us out of the register and basically jump us over to the payroll area where we have the payroll data input screen. We have the hours times the rate, which will, in essence kit of the gross pay of 4060 to 50. Then we have the employee taxes, which was take what was taken out for the employees. We have the federal income tax, Social Security and Medicare. So Medicare is what we are concentrating on here Now. That calculation should be fairly straightforward. 4062.5 growth pay times the rate 0.145 And that should give us the 58 90 rounded. So it's 58 90 about so. Note the straightforward nature of that as compared to the federal income tax where we had to use the table. So this, in essence, is not really the complicated item. This is not really what we're paying QuickBooks for, to calculate the with holdings, however, in order to group this information and in order to deal with the cap, that may be applicable to some areas. And once we start to combine all these laws, that's what we start. Teoh need QuickBooks to compile this data for That's what we're really paying for in the pay payroll. The actual calculation right now, in standard for most people for Medicare is something that's not. He's not difficult to calculate and something that we can easily check and verify. As time goes by. Note that it might be the case that the rate will change but typically will have more of a flat type rate. And it'll be somewhat more standardized as opposed of a federal income tax, which, as long as it's a progressive tax, will be more difficult for us to to manually calculate, to think about how that number came about without going through a few more tedious type steps from a manual basis. Then we'll see down below. Of course, we have the employees er side, which includes the Medicare same amount, similar to the Social Security and this is the amount we're paying over and above. Remember that difference up top? This Medicare amount is paid obligated by the employee. The employee is obligated to pay this amount. This is coming out. This is being paid from the employees. It just so happens that we, as the employer, are required to force them to comply with their obligation to pay. So instead of us paying them and then they pay their obligation, were required to take the money directly from them and pay it. But in theory, it's their money that their pain down here. On the other hand, this is our payroll tax, even though it's calculated based on the employee pay, which is kind of funny. We're paying taxes based on earnings that aren't ours, their earnings of the employee. But we're have to pay over and above what they earned. That's what we call payroll taxes from an employee er standpoint. Now let's go back up and I'm gonna close this one out and we'll go back to Judy Jones, So I'm gonna go back to the accounting on the left side. We're gonna go to our chart of accounts we want to take a look at the checking account again, and we want to look at Judy Jones. Now we have this large check for Judy Jones. If we edit that check, we're going to see the detail for this one. This is the only difference here being that this is gonna be a substantial difference, of course, in the earnings where Judy may have gone over, of course, the cap and therefore have to pay more than the standard rate. And that's where we have to be kind of careful. So, for example, if we were to take this to 41 666.67 times 0.1 times 0.145 0.145 We'll see that the Medicare calculation here is going to be above that. So it's not gonna be a straightforward calculation. Once we're over and above that cap, we're gonna have to think about the bonus, basically, Medicare. That will have to be calculated now. That is something that it's nice to pay QuickBooks for, to see when that cap is reached. To make that added calculation, because the fact that it could differ from paycheck to paycheck when that bonus depreciation kicks in is fairly difficult, even though the concept as a whole is not that difficult. You've got to make sure that you hit it at the right payroll time period and note the amount that's going to be in that bonus time and calculate that. So that's gonna be something that QuickBooks conduce for us. We want to be aware of it. So someone asks us, Why did my paycheck differ from month to month, when my salary is the same or something like that? What is my net check? We have some concept and how to go about thinking about that, figuring out what is going on, and we'll see that as well as the foreign on the form 9 41 So I'm gonna close this one back out and we'll take a look at the forms now. So if we go to the reports on the left side, we'll take a look at the balance sheet report, and we'll run this report at the 10119 to 12 31 19 for 2019 and run that report. All this information is payroll related. The liability from what we withheld from the employee and the employer portion of Medicare taxes is in this number. This account was set up by default by QuickBooks. This is the liability account that they set up. And this is the, ah, the amount or the the item that's gonna be applied. Teoh for both the employer and employee portion them out. We took for the employees and the amount that we had to pay over and above that we have not yet paid to the governments who have. Therefore, it's a liability current liability, As you can see here that we're gonna Oh, in the future if we wanted to change this account If we just want to change the account name, we can go Teoh the chart of accounts and just changed the name. If we want to make some other account for it to be applied Teoh we would have to go to the preferences up top if we want to apply out the grouping of the liabilities in some different format. We took a look at that Those options with regard to F I T. And with regard to Social Security, they'll be much the same. So I won't go into that again. But you go into the cog up here, your company files and they're going up for payroll settings. And then you could take a look at a prior presentation for F I T. And Social Security to go from there. Now, let's take a look at the income statement. I'm gonna do this by right clicking on this tab up top, duplicating it, and then we'll pull the one from the left to the right. So now we have the balance sheet on the left. New tab on the right. We're going to go to reports down below. We're gonna take a look at the profit and loss or the income statement, The dates. 010119 12 31 19 and run that report. And if we scroll down, then we note that we have wages is the default that QuickBooks will set up and taxes, which are, in essence, payroll taxes. So if we go toe wages down here, we'll see that all these checks are the same for Anthony and Beth at the same earnings. This is the gross pay. The amount for the Medicare is included in these growth pay as it is for Social Security. We didn't break it out if the expenses here, even though we gave them a check that is less than this amount because the amount that we took from them, which we call with holdings, is still there. Money, which we call payroll expense, not payroll taxes, expense. It's payroll expenses, just their money that they owe, that we are given to someone else on their behalf. If we go back up top back to our reports, the taxes side, then we go into payroll taxes will include the employer portion of Medicare. They played the amount that we had to pay over and above the gross pay. That's what we, as the employer called payroll taxes, three amount that we have to pay over and above the earnings of the employees. Ah, based on their wages. So we have to pay this over and above their gross pay. So then, if we go back to our report, those gonna be the major two items again. If you want to group these somewhat differently, have multiple kind of areas where you were, you group the taxes or something like that, have different, then you could do so you could look into that at least within the cock, setting up top and change these accounts. If you wanted to call this account differently or group both of these items that relate to Medicare and wages toe one expense account to simplify it. You could look into the account settings over here changing the accounts and the concept top. That's those are where those options would be. I'm gonna make another tab up top, Will, right. Click on this tab and consider some forms duplicate this tab. We're gonna pull this to the right, and then we're gonna go to the taxes tab on the left. We want to go to the payroll taxes. We're gonna consider the quarterly forms. So selecting the quarterly forms selecting the form 9 41 This is where Medicare would be calculated. First quarter, 1st 3 months will preview that 1st 3 month time period. And this is where QuickBooks does a great job of of this. What we're paying for here for them, the basically group this stuff together for us and you'll see down here. Medicare is being grouped for that first quarter and ah, the Medicare wages are different than the Social Security wages, which are different from the federal income tax. That's because we have those large earners and some other kind of, ah benefits. They're making those differences huge benefit that QuickBooks tells us what those are, because once we get into those differences, it starts to get confusing. So and notice also now we have this five D, which we would only see if we had a large earner that went over the cap so that we had now the additional Medicare tax withholding. So now we have to have the Medicare wages, times that rate, plus the additional Medicare that we have to withhold. Also note that the Medicare on this form is being calculated with a rate that you might not recognize. Right. We have the 307 408.34 That's Medicare wages for all employees for the for that quarter. Times 0.29 Okay, so what is this point? 029? Well, the 290.0 to 9.29 divided by two. Is that 20.145 What we took from the employees, meaning this is the employee or employer. Half this is combining both employee and employer portion. In other words, the 9 41 will include both the employee and employer portion of Medicare. So if it closed that back out and we're gonna go back, then up top will go back to our payroll information. Gonna go back to the payroll tax center. Then we want to take a look at the annual forms, so we'll take a look at the annual forms and consider the W three. So if we consider the W three and then view the W three, we'll see the data for the entire year on the W three. And this is just the employee withholding. So here's the Medicare. Once again, it should be summed up all 4/4 of 9 40 ones should usually generally add up to the W three form in Box five. Noticed the Medicare wages are gonna be closest to actual compensation. It's the highest number between Social Security and federal income tax. This federal income tax up top not usually the best calculation or thought of what actually was earned because it's it's only being used to calculate federal income tax and some things have been removed, such as the 41 K whereas the Medicare is typically the largest number and therefore closest to actual compensation, although there could be things such as a 41 K matching and other benefits that are not included in this number. So I were actual earnings in terms of what value were actually getting isn't necessarily even reflected in this number. And we also note that it's not as straightforward a calculation here. It should only be this number over here should only be the employee portion, so normally it would be the 3194 to 0.84 times point over 145 and that would normally be this number. However, you'll know it's not twice this number, because eso it doesn't include the employer and employee portion. But there's that bonus calculation that bonus Medicare that's involved here, which we cannot easily see. So now, now the W three, in other words, is gonna be more complicated if we haven't earner who's earned over that threshold because we can't just have a straight flat tax anymore. We've got we've got that problem. That's one of the things we pay QuickBooks for. But again, you want to just be aware of that, or else you're gonna look at this and you won't be able to kind of figured out. If anybody asks questions about, you know, where does that number come from? On their W two, then Usually it's pretty straightforward because it only happens when you have the earner that's gonna be over that amount on their particular W two that you're gonna have that issue and you want to be aware of it. So you can just basically answer any questions and, you know, be comfort. Have comfort of mind that you have some idea of how these things they're all being tied together and formatted and calculated. 21. 50 Federal Unemployment Tax Act Calculation: in this presentation, we will take a look at the calculation for federal unemployment tax or food toe. We're here on our payroll register where we have our two employees. We have the regular pay, we have the total earnings, and now we're looking for the food to earnings. And we want to make sure that we know the difference between the total earnings and the different types of earnings that we could have, or the different adjustments to earnings in order to use them to calculate our taxes. For example, the F I T may differ. If there's a cafeteria plan, for example, the O A. S D. I. Or Social Security has this cap on it. So if anybody is over that amount, then it will differ from the total earnings. And the Medicare and Social Security could differ. If there's something like a cafeteria plan on it as well. If I t could differ. If there's a retirement plan, a swell, it's a cafeteria. The food toe wages will differ when we have this cap of 7000. It's important to note that that 7000 is very low, so this is kind of unusual tax in that case because it's a flat tax. But up to this very low cap, which most people will hit sometime, probably in the first quarter. So most employees will get to this cap at some point. So we need to be very careful when we did a payroll that when an employee gets to that cap , we don't go over it. Now, if we look at these two wages, we can see 7 56 and 6 3053 for this current time period. We can't tell from those numbers whether or not they've hit the cap, though, because we're in week 10 and we need to know cumulative wages, not just for this time period for this test of the cap. So to do that, we'd have to go to the earnings records. So in the earnings records, we can look at these first employees and we can look at the photo wages here at 6008 08 for our first employees. And if we do our subtraction problem, then we're looking here for doing 7000 minus 6808.5. That's $191. So that means if that 1 91 is less than the wages they would have gotten this time, period. Then we're gonna go with the lesser amount. The second employee here is clearly already over the 7000. So we're not gonna have anything included here for the photo wages. So we go back to our food of wages. Then we have 1 91 on Lee, even though the earnings were 7 56 50 And there's gonna be no food toe wages for our second employee. For Pam, that would give us a total of 1 91 The food attacks then will be 1 91.5 times 0.6 Now, remember, 0.6 is gonna be quite low. We've got 1 91 25 times 0.6 or 6%. Move the decimal, two places to the left. So that gives us about 1.15 And that's gonna be the total 1.15 Remember that this rate is pretty much the effective rate for most circumstances because most circumstances will have a state which will have a suit attacks which will lower the food attacks down to this percentage. So for practical purposes, this is typically the percent we will use if you see the food. 2% however, listed out or read the food 2% of looking up, then oftentimes you'll get the full food 2% minus of a deduction for Suta, which will then result in this number here. So just be careful when you're looking up the rates for food. 22. 50.2 FUTA & SUTA Taxes QuickBooks: In this presentation, we will take a look at the federal unemployment tax and state unemployment tax within QuickBooks online. Here we are in our test file. You can follow along in your own business file and or take a look at the free test file that into it provides QuickBooks provides by searching within the browser QuickBooks Online tests drive. We're gonna go down to the workers tab on the left side and we're gonna be in the employees tab up top. Considering our three employees, when we consider the federal unemployment tax, it will be something that will be set up by the default settings as we set up the paid payrolls. Therefore, the set up process of which accounts will be affected and how to go through the calculations will be fairly straightforward. However, we note that the federal unemployment tax is tied to in some regard to the state unemployment tax and therefore we want to make sure that we enter whatever state we are in the state unemployment tax correctly. It will change by region from region to region. Once we have that information, the focus that we have the federal unemployment tax then once we have a state settled will typically be the same for the entire country. All the United States. So we need the state information because that's part of the law that affects the federal tax. But as long as we are in a region that complies with the state tax, most areas in the country, then the federal unemployment tax will be straightforward and then standardized. The rules for the federal unemployment tax will be the same for our employees, and we don't have the same kind of issue with regard to the earnings that we saw with other types of taxes where we had the bonus earning for the Medicare or the Social Security, which has the cap. However, there is still a cap with the federal unemployment tax. It just happens to be a very low cap. And therefore, unlike the Social Security cap, it's one we're just about. Everybody will hit it and therefore the federal unemployment tax. For that reason and for the reason that it's an employee or only tax and therefore employees don't see it, we don't see it on our W two. It's it's a tax that most people don't understand very well It's also a bit confusing simply because it's tied to, at least from a legislation purpose to the state tax. In some ways, once we have the payroll set up, it's fairly straightforward to enter the data for a new employee for the food to tax because the food to tax will, in essence, be applied and standardised for all employees. And it will, in essence, be the employees having a flat tax rate for the employees er tax up to a cap, which will be applied to all employees. So it's gonna be standardised in terms of the data we need to enter for new employees. That's not that confusing thing about the federal unemployment tax. Really. The confusing thing is just knowing what the system will do, even though the rules are standardized to consider that let's go over to a pay check by going to our accounting on the left side. We're then going to go into our checking account. If you have your payroll out of some other account that you could go into your payroll account, we're gonna view the check register or the register these air, all paychecks. We're gonna look at a paycheck I'm going to go down to the first quarter of the paychecks. The first quarter paycheck will differ greatly than later paychecks, and that's really the confusing thing. We understand the rule. Then we'll understand why that is the case. Otherwise, when we look at federal unemployment tax, when we look at FOTA, it will confuses as we go from the beginning of the year to the end of the year. So let's look at Anthony's first paycheck. If we go to Anthony here's first paycheck and we edit that information, we're going to go down and look through the check. Amount. 4062. Now the cap is around 7000. I believe it's 7000. This is the first paychecks. Of course, this employee hasn't hit the cap at this time, but is close because we're paying monthly this. This employee earns $25 an hour, so it's not ah, high income earner, but still clearly will hit the cap very soon in the next paycheck. Most likely if we consider. So this is gonna be the gross pay the employee taxes. You'll see that Futa tax is not here, and that's because the federal unemployment tax is not an employee tax, it's not coming out of the Net Check. The state unemployment tax could differ from state to state. There may be a state portion to it, but it will also have an employer portion. We won't get too much into detail on the state tax, other than to note that we typically need some type of suit attacks in the state for the food to tax, to be kind of standardized for the entire country. So, in any case, the employee taxes doesn't chill photo. That's why most people aren't very aware of it. We're not very familiar with it because we don't see it in our paycheck stubs or in our W two. It's gonna be down here in the employees er side. And then here's going to be the The food attacks noticed. The amount is not that high as well. We got the 24 38 but it is something that we, as the employer, have to track and calculate over and above the net pay. It's being paid over and above the net pay. In other words, the employee is earning this 4060 to 50. We have to pay that amount above over this amount, not taking it out of this amount on. And that's why it's an employer attacks. That's why it's a payroll tax as opposed to something that the employee bait pays. So if we were to take the rate, then if we took this 4062 4062.5 times 0.6 I believe is the rate and that will give us the 24.37 And if we round that, we're gonna get the 24.38 So it's a flat tax, easy to calculate, which is nice. The problem is, however, that we're gonna hit that cap. And once we hit the cap, then we're not going to see the tax anymore. It'll stop at the point that we see that cap. So let's see that if we close this back out and we go back, Teoh our accounting tab and we're gonna go back to our checking account and we're gonna scroll down. We saw Anthony's for look for January. So this is January. Check for Anthony now. We're gonna go to Anthony's check for February and see what it looks like if we edit the check for February and we say that we want to see the detail. Same amount of growth pay. But if we go down, Teoh the food notice it's lower. Why is it lower? Because they hit the cap. Eso. You'll note that the two checks were the same, so there's a cap of 7000 minus the 4062.5. So only 9 2037 of this 4060 to 50 is subject to the food s so that times the rate, which is 500.6 gives us that 17.62 rounded about. So that's gonna hit the cap there. And if we go back up top then and we close this back out and we look at the the third check for Anthony and go to accounting and we're going to say, Okay, let's go to our check register our checking account, and we looked at first check for the first month and then Anthony second check we looked at . And now let's look at Anthony's third check. So here's Anthony's third check, and we edit that item to see what it looks like and we will see that. Ah, if same amount of growth pay. But now the Fouda is zero. So again, if you if you don't notice what's going on, that's gonna be confusing, of course. And the employee has no idea because it's not on their paychecks. It doesn't affect their net pay. So it's not something that many people really focus in on. And when they do see it when we start to process it, then it could be confusing. And we only really think about it closely at the end of a year. Maybe when either were pain, the amount of food or we're looking at the 9 40 which has to be reported not quarterly but yearly. So then we'll close this back out and let's take a look at one other paycheck for Goto accounting, and we're gonna go to our checking account. And let's look at our big earner now. Which is Judy Jones? Here's Judy Jones January paycheck. She made 8 21,052 so she's clearly hit the cap on one paycheck. So if we edit that item, we see that we have this amount. Uh, I'm sorry. That was the net. Yeah, this is the gross pay 41. And if we scroll down, we're going to say how much was taken out. Only $42.42 dollars was taken out of the gross pay being over around 42,000. Why is that? Because the cap is 7000 so it's 7000 times 0.62 She hit the cap on her first paycheck, so let's do that again. 7000 times 70000.6 And so she hit that on her first paycheck, so she only got $42 pulled out. So notice it's the same concept of a cap that we saw on Social Security. But the cap on Social Security is something that most don't hit. Most employees don't get, too, because it's it's over 100,000. So I only have employees that are making over 100,000 will hit that this cap. Almost everybody will hit. We saw Anthony making $25 an hour, will hit it, and this high earner hit it on the first payroll. Therefore, we will see this calculation of Futa on the in the first quarter, and it'll kind of disappear typically towards the end of the year, let's close this back out. Let's take a look at some reports. If we take a look at the reports, we're gonna take a look at our balance sheet and income statements. Selecting the balance sheet first will change the dates up top from a 10119 to 12 31 19 and run that report. We'll see the liabilities down here now. This is not something we took from the employees. It's an employee. Her portion and it's not included in the 9 41 which includes F I T. Federal income tax, Social Security and Medicare. But in this 9 40 that's where we've reported. So these two forms sound really similar, but because they're similar numbers, but the 9 40 we only generally have to process annually at the end of the year, and it's applied specifically to the federal tax of unemployment. So these two are going to be off. These are all federal taxes to F i t. Federal income tax. So security Medicare. But they broke out unemployment's separately and gave us the benefit of only have to calculate that or report it once a year rather than every quarter. So here's the liability. It's not taken out of a check, but it's a separate item. So let's take a look at the income statement. The other side. We're gonna duplicate this tab up top by right, clicking it, duplicating it, pulling the tab from the left to the right and then going down to the reports. We're going to go to the profit and loss reports. Change the dates up top from Owen a 119 to 12 31 19 and run that report and then we'll scroll down. It's not going to be in the wages tab as we saw before with F I T. Social Security and Medicare, there was F I T. All of it was in wages because it's included in the gross pay. Social Security and Medicare had a wages portion included that was taken out of it, was including gross pay and then had a A taxes portion which was paid by the employer. This one is all taxes. So if we break out these two items and this is one that is only an employer tax, it's purely a payroll tax from the sense of an employer payroll taxes that were paint over and above. The girls pay that we owe to the employees is part of food s. So we're paying this over and above if we select this item than these items here include the paychecks and include the portion for payroll taxes or employer taxes, including the food taxes. So if we scroll back up, we could go back up top again. If we want to change this taxes and say, I don't want a tax is broken out, I just want one payroll expense item or something like that. We could go to the cog up top and changed the settings to say, Hey, I just want all the taxes to be grouped in in just payroll payroll account so that we don't break out taxes and payroll. But breaking them out separately like this is nice. At the end of the year when we want to reconcile the taxes versus the wages to the 9 40 ones and the 9 14 that W two in the W three and all that great stuff, it's nice to have has those two broken out at that point gonna make another tab. I'm going to right click on the tab up Top will duplicate that tab again, will pull the one from the left to the right. And now we're in the duplicated tab. We're going to see where the 9 40 report would be made if we go down to the taxes tab on the left. This they're not quarterly's. The foods attacks, isn't it? Is not included in the quarter lays 9 41 It's only reported annually, and you might ask, Why would that be? And it's and it's basically, I would think, the justification I'm guessing here. But the justification is that it's not as high a money amount its board tedious for us to calculate this every quarter because this is just an information report. So because this is a lower dollar amount, the iris is nice enough to say, Hey, we'll just we won't make you report that every quarter will make you do it at the end of the year, kind of like we do with our income taxes with Warren 10 40. So that's here's the annual report. Then we would then be looking at usually the form 9 40 It's going to be on the 9 40 report , and we process this report because it's early in the year. We can't show you basically an example for 2000 and 19 but this is the area where it will be at the envy. That's kind of one of the restrictions of having on example problem for the entire year in something like QuickBooks online. Note. It won't be on the W two or the W three because those to reflect the employee taxes and this is an employer taxes. So it's not gonna be reflected there. It will be showing. You could see it, of course, on reports and payroll reports. We could go down to the payroll reports down here and look at some of them all. Look at the payroll details, and if you consider the payroll detailed reports, we'll run it for the first quarter. So we'll take a look at this for January through March, and we will run that report and will consider where the food of taxes notice it's all the way to the right because it's a food attacks. If I go down. The most current paychecks are at the bottom of this report. So if we go down here to January, it's going to be in the right. Here is gonna be the food attacks, for this is one paycheck for best miss first paycheck. This is the gross pay, the O. T. And then there's the food attacks not being taken out of the Czech not being included in the calculation from the gross. Check these two items to the net check, but being paid over and above. So here's Beth. Here's Anthony that has that first check in January as well. Here's the photo. Here's Judy Jones. The first check. Ah, much bigger check, of course in January. And then here's the food. And then we have Beth Second check. Now we're in February. Food says lower because she already hit the cap of 7000. Then we have Anthony same thing. And then we have Judy Jones no food toe on the second check because she had already hit the cap and it's only the first quarter. And then if we go to Beth on the third check, we don't have any food at all. And if we go to Anthony, no foods at all, if we scroll back down and look at the total, then a total data for food toe 1 26 Not a big number. And so it can't be another reason why people don't notice it. Ah lot. But then, if we go to the second quarter, it's going to go away pretty much completely because all three employees, even the ones that are at a lower wage, have already hit the food. Oh, so therefore, we're going to see something like food. I calculations in the first quarter, and then we'll see it basically drop off dramatically after the first quarter. So when you go to the end of you reporting and then go back into January for the following year, this thing will just pop up. You'll take others. What is this thing popped up? I haven't seen it for like 3/4 here haven't haven't dealt with it unless we had a new employees. So if you have a new employees that you bring it up the end of the year, then quick what you'll see. This photo will pop up as an employer tax and others. Where did that come from? I haven't seen it for months. Why? Because there's that low cap of the 7000. So not not a difficult thing to understand once you once you understand it very nice for QuickBooks to be able to calculate this for us, because the rules not that difficult, but again, when does it happen? When does each employee hit the cap? We have to make sure we got the right paycheck and the difference between that and when we hit the cap, QuickBooks can help us with that calculation. We just need to know what it's doing so we can explain it to ourselves and others. 23. 55 Employer Taxes Calculation: In this presentation, we will take a look at the employer taxes calculation. It's important to keep the difference and distinction between the employer taxes and the employee taxes win. Considering payroll taxes, this can be difficult because they are related. In some ways, there's some taxes that will look much of the same and because the employer really is the one responsible for actually making the employee pay the employee taxes, meaning the employers really the one that that is physically conducting the logistics of writing the check or making the payments for the taxes to the Fed and the state. But they're coming out of the employee paycheck. So the employers still making the payment or physically making the payment. But it's being paid by the employee e. In the case of employee taxes, as opposed to the employer taxes, where they're where they're not coming out of the paycheck, these air the taxes that are gonna be paid for payroll on the basis of payroll earnings, but paid out of the employers ah, wages or the employees earning is that wage of the employers earnings for profits. So we have here than the O. A S T I the h i, the food A and the Suta. These two look familiar when thinking about the employees side because they will be there as well. The O A S T I being Social Security, the h I being Medicare, these are gonna be the employer portion of them. However, so these are not the same amounts. These are not. Will there be the same amount? But they're not the same in that. They're gonna be twice the amount we're gonna have to pay it from the employer. And this amount isn't coming from the employee check. It will be coming out of the employer checking account. Then we have foot up, which is an employer only tax. So only the employer is paying food to federal unemployment tax, and then we have the state tax. We're not focusing in on the state taxes here mainly, but because Suta and food are so related, we typically will see Suta here as well. So Fouda is an employer tax. Suta is necessary to pay if we're gonna get that lower rate for food. Toe suit has typically somewhat more standardized from state to state than others. Taxes Because of the link between Fruita and suit. A book could still vary from place to place and business to business. So if we go through these in a little bit more in depth, we're just gonna do the same calculation for OSD I Social Security. It'll look the exact same as when we look at the calculation for the employees portion. In other words, we have the employee wages. We're just gonna take those wages times the rate 6.2% difference here being, however, that this is gonna be twice That is gonna be the same amount. But we're really doubling up the amount that it's coming out of the employee. Check this part not coming out of the employees check. And that's the other thing to remember. This component will not be paid out of the paycheck but will be paid by the employer. So we're gonna take this 6 4002.50 times 6.2 or 0.62 which would be to 51 88. Then we'll take this 44 28,024 times the 6.2% which would give us the 2 47 29 Then we'll take the 5004 09 50 times, a 6.2% to get the 335 39. Finally, the 35,000 times the 6.2% giving the 1 2070 a total. Then if we some of these up of 1 3031 55 and then we have the h I. Same idea. This is Medicare, and it's the employer portion. So although the calculation will look much the same of this portion of it will not be coming out of employee wages but out of employer earnings. So we've got the 4060 to 50 times the 1.45% or the 0.145 giving the 58 91. Then we have the 4 4024 times the 1.45% or 0.145 giving 64 15 and then we have the 5004 09 50 times the 1.45% or 0.145 giving the 78 44 then the 35,000 times the same, giving us 507 50 adding those up for a total of 708 99. Then we have the food. The food will be an employee, er, only tax. That's probably one we don't have as familiar in our mind. So the federal unemployment tax act, because it's not coming out of a paycheck for one so we don't may have not have as much personal experience. And two, it's a lot smaller, so it's probably not as noticeable as, well. It's gonna be that 0.6% or 0.6 much smaller. It is coming out of the employee earnings, not the employees out wages. Note that, of course, this 6.6% is linked to the suit attacks, so this, for all practical purposes at this point, will typically be the rate used. But when seeing the rate, it will typically be higher and then reduced. If we pay. Suta, which just about every state has implemented and therefore win, will use the lower rate for food off 0.6%. So the 4060 to 50 times 500.6% and remember what 0.6% is well, the one calculation and the calculators toe 4062.5 times 0.6 So 0.6 That's what we got there then The 4 4024 times 40240.6% or points OO six is 26 54 of the 5004 09 50 times, 2.6% or 0.6 giving us the 30 to 46 in the 7000 times 70000.6% or 0.6 providing $42. If we add these up, then we get to the total of 125 38. Then we have these suit, um, and again, this is a state tax, so it's going to be an employer portion to it. And it may just be an employer portion mirroring the Fouda or depending on the state, and may have an employee portion. It also may have a similar cap to it, or a different cap, depending on the state requirements. But many times it will follow the same format as food toe, and they're gonna be related. Remember, because we have to have some minimum standard for Suta if we want to pay the lower rate for food. So here we're just gonna take the 4060 to 50 times to eat 5.4% or 0.45 which is 219 38. The 4 4024 times toe point off the tense of 5.4% providing the to 38 90 the 5004 09 50 times to 5.4% or to 92 11 and 1000 times the 5.4% or 4 32 adding these up some into 1 1080 to 38. 24. 55.2 Employer payroll Taxes QuickBooks: in this presentation, we will take a look at employer taxes within QuickBooks online, and we are in our practice file. You can follow along with your own company file and or use the free sample file provided by QuickBooks by searching in your browser QuickBooks online test drive. We're gonna go down to the workers tab, toothy left and scroll down to observe. Our three workers were gonna consider here the employer taxes. And when considering the employer taxes, they will generally be set up. As we set up the paid payroll, QuickBooks will break out the taxes and assign which accounts will be affected by the employer and employee taxes pretty much by default and use pretty good options, which we will see as we go to the reports as we set up the individual employees. Then we're gonna have to set up the payroll. Information. The employer taxes again. Pretty standardized. Once we have set everything up in terms of the initial payroll process, set up the employer taxes being the employer portion of Social Security, the employer portion of sort of Medicare. Because these taxes have more simplified kind of calculation rules, they're closer to flat taxes as opposed to the federal income tax. They can be set up fairly easy for all employees and set up a similar set of rules. The other big employer tax for the federal taxes will be the Fouda federal unemployment tax , and it also has fairly standardised rules and therefore will be fairly standardised to set up through the payroll process. And a lot of the information for it will then be automated and being the default settings for QuickBooks. Therefore, when we set up a new employee, there's not a lot of added information that we need to set up for the food to tax the federal unemployment tax. Let's take a look at a couple paychecks and consider the employer taxes. Specifically, if I go into the accounting tab to the left, this is going to be in our chart of accounts. We're gonna look at the checking account. That's where our paychecks are. If your paychecks or somewhere else like a payroll account, you can go there. We're gonna view the register, these air, all paychecks for us. So we want to consider, of course, a paycheck. We're gonna go down here to the first paycheck for January. Take a look at Anthony's paycheck, selecting Anthony's paycheck and editing. It will take us from the register to the payroll data input screen for Anthony's check. So here we have the hours, the rate, the overtime hours and rate to give us the gross pay the 4060 to 50. As we consider this information, the amount up top the employee taxes. These are not the employer taxes these air what being pulled out of the employees. And that's the big difference. And it's really difficult to grasp for quite some time. If you think and mold over this for a while, it could be a little confusing on how the payroll works. But note that this is the gross pay. The employee taxes just mean that we're taking these out of the paychecks of this of amounts we take out of the paycheck. Now we mentioned Social Security and Medicare, and the reason those two are confusing is because there's an employee and employer portion , which makes it easy to confuse the two. Then we have a federal income tax, which is on Lee an employee e portion here. So then, if we scroll down to the employer portion. This is what we're concentrating on here. We have the Social Security and Medicare again. Those are probably the two that we think of most clearly because we have the most awareness of those two employer and employee taxes because they're also an employee tax. Therefore, we've probably seen them on our paycheck stubs as well as if we're processing payroll. And we may have an awareness that all we just have to need to know is that there's an employee and employer portion. And once we grasp that, wrap her head around the fact that there's an employee and employer portion, then this becomes more straightforward and we get toe have an understanding of these. The foods attacks is a little bit more confusing because a lot of times people haven't seen photo the federal unemployment tax at all, and it's on Lee Ah, it's not only on the employer side, so we haven't seen it pulled out of our paychecks. We don't see it in our paychecks. We don't see it on our w twos. We only see it on the employer side, and even then we only see it usually in like the first quarter because of that low cap of that 7000 cap. So this is the one that's often times confusing. We also don't even file for you. We only file yearly instead of quarterly. So this is the one that's a little bit unusual to most people in terms of the employer tax . These three are the major employer taxes. Note that Thies to Social Security and Medicare are going to be reported along with the employee tax, Uh, and the employees portion these to Medicare's and the federal income tax on Form 9 41 This one, however, is broken out, and that's another reason it's a little bit different. It should be easier because we only have to report it yearly on a form 9 40 So these are going to be a primary employer tax. Remember, the employer taxes are paid over and above the girls pay. In other words, we have to pay the employees this amount, and we're imagining that we came to their salary without considering taxes at all. Obviously, that's not true, but let's pretend we're imagining we pay them whatever without taxes at all, and then we're going to say OK, Now we have to take out these taxes. These air your obligation, your taxes as the employees were required to pay them directly. So we have to take them and take them out and pay them directly. These are employees taxes. They're not employer taxes. They're not payroll taxes from the sense of the employer. These are. These are items we have to pay over and above this gross pay of 4062. That's the thing we really have to wrap her head around. These taxes are paid over and above, and therefore our payroll taxes. Their payroll taxes that we owe that are not part of the pay of the employees but just happen to be based on the earnings of the employees rather than our net income. And we, of course, have our net income taxes. We pay as well, with our whatever filing we have at the end of year for income taxes. So that's this is really what payroll taxes are from an employer standpoint. Are these employer taxes over and above the gross pay? So if it closed this back out, then we'll take a look at a couple of reports reports on the left side, we will consider the balance sheet and income statement opened up the balance sheet first changing the dates from a 10119 to 12 31 19 and run that report. These accounts are going to be set up by QuickBooks by default, and they're set up here. We've got the federal taxes, and we have the federal unemployment, the federal taxes. That 9 41 account is a liability account and includes both the employer and employee portion. So when we process payroll, we have unemployed the portion that we took from the employees, which is really their payroll, which we now have their money that we have to pay for their taxes. And we have our payroll taxes, which we just oh, based on because we have employees based on their salary over and above their payroll. Both of those are included here. That includes Social Security and Medicare, so that liability is here until we actually pay it to the government. So that includes both employer and employee portion. The federal unemployment is broken out separately. The weight QuickBooks is set up, and that's in essence because it's going to be paid, usually in a different under different rules. And we only have where to report that separately on the form 9 40 both federal taxes. This However, this amount here is on Lee, a result of employer taxes, federal unemployment tax. So that's gonna be a liability here. Now, if we wanted to group these differently and put them both into just one liability account, possibly or something like that, we can change that without cog up here and go to the payroll settings. We've seen that in prior presentations, especially with the federal income tax in the Social Security. So you can go back there and look at those options thes air the default options, which are pretty good. If we just want to say, change the names of these items we can then just go to the chart of accounts and edit the names of them. Say we don't want 9 41 and we just want to call it, you know, payroll taxes instead of federal taxes or something like that. Then we can go to those settings and change those settings. I'm gonna right click up top and look at the profit and loss by right, clicking on the tab and duplicating it. I'm gonna pull the tab from the left to the right. So now we have the balance sheet on the left new tab on the right, where we will go down to the reports on the left and then open up a profit and loss reports . So here's our profit loss will change the dates from 010119 to 12. 31 19 Run that report and then scroll down in the profit and loss QuickBooks default settings is to break out the taxes. You notice that, just call them taxes. Here they're under really their payroll taxes. So you may want to go in. And actually, you could change the name and call it payroll taxes there under a subcategory of payroll, and therefore they just put taxes and wages here. But it's nice that they broke it out. If you want to just change the name, you could change the name on the account setting. These items are just the just the payroll taxes, the employer taxes. They do not include Social Security and Medicare. On the employee side, those are not employer taxes. This amount for the expense represents what we have to pay over and above the grills pay. In other words, if I select the wages here, this is the growth payment amount. This isn't the check that we wrote to these employment. This is the gross pay that that they earn, and it includes their payrolls of the expense of the employees. Payroll taxes are included in their earnings. And then if we go back to our report, this amount then is reporting an expense that we have to pay over and above what the employees earned over and above what they what they earned, including their payroll taxes, what we have to pay on top of their payroll taxes based on their wages. That's our employer payroll taxes. So what we consider payroll taxes as the employer of remember its payroll taxes to us as the employer only means the employer portion. And from the sense of reporting this information on the financials because the employee payroll is just their money that we had to pay to someone else to cover their obligations, we're gonna open up. Then another tab up top will go back up top right click and duplicate once again will consider another report on the left side, and we're gonna stroll down to the payroll reports. We're going to go down to the payroll details. So if we select a payroll detailed report and then consider the first quarter drop down, first Quarter Janu, February March run that report. And if we scroll down to the bottom, this will break out by paycheck. So we'll see the first paycheck down here for January, and we'll see the employer information being calculated on the sides of this side. Over here are the employer taxes, and we'll see them listed Food, Toe, Social Security and Medicare and in California. So, in other words, to read this, we have the net check that was given. This is that this is what they actually received. Here's the gross pay and the difference between the gross pay and the Net check is what was taken out of the employees check, which is? These are the employee taxes, F I t. Federal income tax, Social Security, Medicare and California taxes that was taken out. And then we have the employer taxes over here. So we have federal unemployment, social security again. But This is the employer portion Medicare again. But this is the employer portion. And in the California taxes, you'll see a similar set up in the summary data at the bottom as well. Now let's take a look at the taxes tab. We're gonna go to the taxes tab, and we're gonna go to the We have the quarterly and the yearly forms. So let's take a look at the quarterly forms first. These will be that 9 41 So if I select the 9 41 this is reported every quarter were in the first quarter, let's review this report now. It's great that QuickBooks allows us to do this. QuickBooks is grouping this information for us on the report, which is nice, making a little larger and note. What we have here is the Social Security and Medicare. The interesting thing here, the thing we need to understand is this amount is including this rate is what includes both the employer and employee portion. So when we had considered just the employer portion for Social Security, for example, we would have to take this number and divided by two. So this 9 41 includes Social Security Medicare and federal income taxes, both employer and employee portion. So that means that this number up here is federal income tax employees stuff. This is employee taxes. This number. Here are wages for Social Security, both employer and employee multiplied by a rate which is twice the employee or employer rate to give us the actual tax for employer and employee. Same with the Medicare. So these two items include the employer taxes. But when we reconcile it to, say, a W two or to the to the payroll items paychecks, paycheck, detailed reports, the financial statements, we've got to recognize that this includes both the employer and employee portion. If we go back up Tom and we go back to our items, we're gonna go back to payroll back to the payroll center. We then have the annual reports. If we select the annual reports, we have the W three report, and that's gonna represent the employee information. We also have the Form 9 40 the 9/40 specific just to federal unemployment tax, which is an employer tax. It's only reported yearly as opposed to quarterly, so it's one that that again, most people don't have a real familiar error tea with unless they're processing payroll a lot because this form will come up on a yearly basis. But we need to know about it, because when it does come up, we want to be able to reconcile it to everything else that's happening. It's on Lee for the Fouda Taxes for the 9 40 and then the W three, of course, does not have the employer information. So just to verify the form that goes to the employees, if we were to view the W two well, the W two goes to the employees. The W three is the summary document of the information form we give to the employees. So this is kind of like the sum of all the W twos notice. It does not have the employer information. So, just by contrast, comparing this to the Form 9 41 the quarterly form note that these Social Security and Medicare, if we wanted to compare it to the 9 41 like if we if we had the 4/4 for the 9 41 we could add up the 4/4 and it won't add up to these. It should be basically twice these in most cases, right, because this is just the employee portion. So when we have reconciled these reports, we need to be aware of that. Note that the federal income tax eyes gonna be on the 9 41 But it's not an employee er tax that's going to be an employee tax and therefore will be the same as the number on the 9 41 Because the 9 41 is that the F. I T. Is what it is. There's no employer and employee portion these to have an employer and employee fortune noticed that FOTA is not here at all the federal unemployment, not on the W three, cause it's an employer tax. It's also not on the 9 41 because the iris basically allowed us to have a separate form to calculate that only one time a year, as opposed to four times a year 25. 60 Employer Responsibilities and Processes: In this presentation, we will discuss imploded responsibilities and processes related to payroll. One of the things that the employer will need to do and we'll need to do whether they are a corporation or a partnership or even a sole proprietor is to get an employer identification number from the IRS that done with the former SS for So this is gonna be out just a reporting type of document that we will need to have. We'll need to use this employer identification number when we process our tax documentation . And, of course, any type of regulate ation body is gonna know us from a number. And in terms of processing payroll for the federal payroll, we need to have a separate number that being the employer identification number now, this number is gonna be important because it's it's It's more standardized in terms of just employment, meaning any type of organisation can get the money i n number. Even if we're a sole proprietor. Ah, partnership or a corporation. So that corporation, as we know, is a separate legal entity, and it's gonna have its own its own, um, corporate number when reporting income taxes. But the formats of a of a company such as a partnership typically have different types of reporting requirements in terms of the number one reporting income taxes and a sole proprietor possibly could be in a situation where they're using a cell security numbers. So we have a different type of format for reporting on a number basis to the I. R S for income taxes. So the the employer identification number can be used then to give the iris more of a standardised process when we're talking about payroll, no matter the type of entity that we will be using. The employer identification number can also be useful for sole proprietors if they want Teoh process 10 99 type forms and not have to use their cell security number in certain types of documentation as well. So even if we don't have any employees, in essence, it for a sole proprietor were kind of our own employees in some ways. And we may want to have some other number representing our business other than Social Security number, and that could be these. The employer identification number, the process for for applying for the SS fourth fairly straightforward, you can do it online and online application as well, or go to irs dot gov. I r s dot gov. And if you go to forms and go to the SS four, you'll find the application form and you can just go through the steps for the application form. It's a one page form. Ah, pretty quick form to fill out and get going Notice. Some of the key components will be the type of entity here where we have the sole proprietor, the partnership, that corporation. So we have all the all the different types of entities that we can have here applying for, ah employer identification number using the same form. That's part of the purpose here. And then we've got also the reason for applying. If it is it a new business, or did we have new hires? Possibly, um, that are better taking with me, and we're starting to have employees and therefore need an employer identification number. Once we have that, then we're gonna report that on our federal forms, that being the 9 40 the 9 41 payroll processes could change and differ. When we're talking about that, large companies and small companies, obviously the larger company is. The more complexities we have, the more legislative requirements We typically have oftentimes have to meet more legal requirements, and we need more internal controls to safeguard ourselves, as are our company grows. One problem with large companies is is we obviously have more employees. We have more time to track. We wanna have some system that can possibly be more Elektronik and served as having more accountability, even if we don't have the direct supervision as easily to track more people. So we're gonna have probably some Elektronik type of devices to clock in and clock out within larger companies, devices that employees can can use to log in and log out. Those methods are gonna need some type of good security system, including security secure. Log in so that we could make sure and safeguard against the proper logging and logging out we could safeguard against. We might have some type requirements to make sure that the person logging in is the actual individuals. Whether people can't log in for one individual and start start their time clocks that might have some individual identification methods, we could try to limit the Loggins by location as well, so make sure that it's not an online logging weaken. Try to limit the log into a specific location. We might have the time clocks that have to be punched in at a Smith specific location when we're talking about people in different locations. We could clearly have some type of online type process as well for people to log in over the Web, tohave the log in access and report their time. And then supervisors be able to collect that time over a Web based system. As we do that, we want to make sure we run into problems with cyber security to make sure that all of our information is secure as we're at, we're processing the payroll information we want to have, ah, more complexity in terms of the database system. Teoh to limit the types of people that have access to two different things. To be able to separate duties between individuals who are logging in ah and approving time in recording time in the payroll process. Therefore, to have that separation of duties, we we will typically have multiple types of divisions within payroll s the payroll department gets larger as we have different payroll. We're gonna have different divisions and different segmentation is that you will have access to within the payroll system to allow for the separation of duty to allow to reduce the likelihood of fraud or theft. Now, in order to deal with this type of complexity, payroll will often be outsourced. So payroll is becoming more and more something that many companies will specialize on. Companies like 80 p or paychecks. These air just gonna be a few ah type of companies that will specialize typically in just payroll, and they will provide. A lot of these types of resource is now. There's a lot of pros and cons, Teoh outsourcing or insourcing of doing you're doing your payroll within house or outside. One of the pros of outsourcing to 1/3 party, like 80 p or paychecks is that they specialize in payroll, and therefore they have the knowledge needed in order to process payroll and typically have hopefully, the ability Teoh keep up to date with new laws and regulations, as well as dealing with places in different parts of the company country, different parts of the world, some things we need to be careful of of course is that because we have ADP and Paychex processing, we still need to put it into our accounting records in some way or another, and so that could defer the way we do that could differ depending on, uh, what we want to set up, how we how we were going to set this thing up. So in somewhere another, the outside individual, I's gonna have to get that information and put we're gonna have to integrate that into our system so that our financial statements represent and reflect what has been recorded by payroll and pay checks. The other problem, of course, is that it is bringing in a now outside source that we are becoming dependent on. We're depending on payroll in paychecks in order to process a key component rather than having the full control over that processing. Ah, in house 26. 70 Payroll Expense Journal Entry: in his presentation, we will take a look at the payroll expense journal entry. In this presentation, we will take a look at the payroll expense journal entry. I'm looking at the payroll expense journal entry. We're gonna pull this information from the payroll register and the papal register will show the regular pay for our employees. We have four employees, These representing the data for the four employees totaling up to the total here for each of these columns, including the regular pay, the O A. S. D I or Social Security, the H I or Medicare, the F I T or federal income tax, the group insurance, the union dues, the 401 K or retirement plan. And finally, the net paid. So in essence, what we have here is what the earnings were. We're gonna be considering this in total. So we're gonna make this journal entry not per employee, but for total here. And we'll have the total earnings. Unless all the stuff that was taken out before we paid our employees less diesel security less the Medicare list. F I t lets the group insurance less the union dues. Let's the 401 K plan giving us net pay here 28 7 28 6 30 28 to 66 11. We're gonna use this information in order to create our journal entry. And to do that, if you think about the journal entry just in terms of the most basic type journal entry for payroll. If we Onley were pain, say this check amount and didn't have all these deductions or pain, let's say this check and mount and we didn't have to deal with all these with holdings. It would be just like paying any other expense would be very simple. So you probably want to start. We would start there and think from their meaning. Is cash affected? Yeah. Cash is going down or paying cash. Cash is a debit balance. We're gonna make go down by doing the opposite thing, which is a credit, and then the other side would typically be wages expense. So that would be our normal journal entry if we didn't have to deal with all the other payroll stuff we got to deal with. And then we have this All those other payroll stuff we've got to deal with with means we got to take out all this information from the paycheck and then the they're only gonna get this net pay. So to do that, what we're gonna do is create these liability accounts because we don't get to keep this money. Even though we're only paying them 28 to 66 they've earned 48 7 19 And whatever we don't pay them is a liability to us in something. We will then have to pay someone, typically the government. So we're gonna put these liabilities account, then one for O A S T I. Which is Social Security, one for H I, which is Medicare. These two are employer portions. That's why we don't see these. Here s so they're not gonna be on our on our register, and they're not going to be coming out of the paycheck. They will be in the paper roll entry for employer taxes, But we do have f i t federal income tax Ah, the group insurance, the union dues in the retirement. So that's what we'll pull out. And those of the accounts we will use very useful when doing a payroll journal entry, just like any journal entry. But especially for payroll to see the chart of accounts. And then we can see what accounts were we're gonna be using in order to record these liabilities, for example, the account might just have payroll taxes payable and group all these together or it might break them out in this way. It's nice to break them out because then we can see exactly what the liabilities are. Four and then make sure we're paying the right people. Eso That's what we're gonna have here. We're gonna build this journal entry then and we'll start off with our We got a payroll register. We said that the beginning number is gonna be that 48 18 96. And that's gonna be the salaries and wages and that's coming from here. Then we're gonna put all of these were just basically lining these right up from our register to our journal entries, starting with the O A S D i ORF ica away. SD I That will be a liability. Liabilities have credit balances. We're gonna make it go up by doing the same thing to it. Another credit. So that's that 3031 3031 than the H I here. 708 of liability. So it's a fight. Attacks h. I were increasing the liability with a credit. Then we got the f i t. That we're gonna have to pay 5 8099 13 It's gonna be a credit to F i t. 5 8099 13 Then we're gonna have the group insurance, 5500 that we will be removing collectively for the four employees. Then we've got the union dues. We're gonna take those out, too, So we're gonna take out the union dues will have to pay those to the union. So that's gonna be a credit until we do so to the liability increasing the liability. Then we've got the 401 k or retirement plan. We're gonna be increasing the 401 k retirement plan, that being in some way road back to the employers or to fund the retirement plan. And then finally, we're gonna have the net pay, which will be the 28 to 66 11 and that will be taken from the net. Pay here and you can also think of it. It's kind of like the plug formula that you need to make this work, meaning the debits minus the credits. If we add up the credits up until here, Calculator went away up until there and then subtracted out. We're going to say the credits before that of 3031.55 plus 708.99 plus 8599.13 plus 5500.1 plus 16 plus 2774.2 gives us the 20,000 before this 28 of the credits and in the debits are only 48 8 96 So if we subtract that out, then minus the 48 8 96 we have the difference of 28 to 66. 12. It's around indifference eso because this came from Excel. So it's off by Penny. But that's okay. We're gonna be OK with that. So that's gonna be our journal entry. And this will be that check that is actually paid. Of course it is consisting of four checks being paid. We took the total here to enter this data into our register or enter our general journal now it's post this to a worksheet and see what it would look like. Here's our trial balance. It's in balance. We can tell because the debit sequel, the credits or the positive numbers minus the negative numbers equals zero. We currently have net income of 500,000 which is this income? No expenses. So we're just gonna post this out. Then here's the salaries and wages expense. Here's the salaries and wages Expenses going from zero up 58 48,096 to 8 48,096 Here's the Fike a 40 a S d I hear the O A S t I going from zero up by 3031. 55 to 3031 55. Then we've got the 224 the h I hear the H II going up by 708 to 99 to 708 to 99. Then we've got the f i T. It's a liability. So here's the liability for F i t. Here. It's at zero. It's going up by 5 8099 13 to 8599 13. Then we've got the 2 45 the union dues payable Going up from zero up by are actually the group insurance our group insurance going up from zero up by 5501 penny to 5500 pay a penny . Then we've got the union dues. It's going to go from zero up by 16 to 16. Finally, the retirement plan going from zero up by 2007. 74. 22 77 2004. 20. And if we see all this own than the cash, of course, up top is going from 600,000 down by the 28 to 66 that check the net check. 25 71 7 33 18 9 Now, if we see all this together, this is gonna be the difference that we made note here that these, of course, are all the liabilities that we are later going to have to pay. So we only took this much out of the checking account. We had an expense of this amount. And the difference then, is all these liabilities that we will then have to pay at some point in the future. Note how this this journal entry mirrors the register mirrors the calculation. It mirrors what you probably see on your pay stub in terms of your salaries minus which is the debit minus all the credits that were taken out of the paycheck. Also note that the effect on net income is on Lee the 8 48,096 and not including all these liability accounts down here. These air liability accounts that this is the only expense account and note that were changing net income, not by the net check not by the cash, but by what was earned. So we changed it by what was earned. 48 8 96 was earned, even though 28 to 66 was all that is paid at this point on an accrual basis. Then we recognize what was earned 48. So net income went down by the 48 8 99 500,000 before 4 51 104 Now 500,000 minus the 48 8 96 Another confusing point that we want to make sure we understand here is that this typically the salaries and wages here will include all of the salaries and wages that were earned and, well, we will have a payroll tax expense as well. But it's not gonna include all of these payroll taxes that we're currently going to pay, which is confusing their liability accounts that were gonna pay. But we're not recording that payroll tax expense related to them. Why? Because these aren't our payroll taxes as the company. They're not our stuff that were pain from our checking account. In theory, they are coming out of the employees. Check these Air employees with checks, so the real expenses the employees earnings, this is the employees earnings. It just so happens that we're paying some of those employees earnings not to the employees but on behalf of the employees to the government. But then there is gonna be a payroll tax expense. But that's what we'll do in a separate presentation, and we'll look at the journal entry for our taxes, which will include our portion and our portion. I'm thinking of us as the employer, our portion of the O. A S T. I, and the Medicare, and then the food attacks, which we're gonna be employer taxes 27. 70.2 Payroll Expense Journal Entry QuickBooks: In this presentation, we will take a look at a payroll expense journal entry, comparing and contrasting a traditional journal entry type format for recording payroll to what is done in the data input screen and how QuickBooks uses that to create the financial statements and the reports for payroll within QuickBooks online. Here we are in our practice file. You can follow along in your own business file or used the free test drive filed by Google searching or searching in your browser for QuickBooks online test drive. We will start off by looking at a journal entry for the recording of the payroll and then compare and contrast what processing payroll will do within the QuickBooks system. Here's a traditional type of journal entry. If we were to journal ized the payroll, it's important to know this because when we explain what payroll does in terms of debits and credits or in terms of transactions, most people think of it from a G l perspective in terms of a journal entry in terms of debits and credits or the accounting equation, assets, equal liabilities plus equity, the balancing concept. And so here is gonna be the journal entry format of this which will balance. We have the debits Equalling the credits. You could also think of this in terms of the accounting equation. This is how we would think about it in terms of just the accounts that would go up and down for a typical payroll type of journal entry. What would we have then? We've got the debit for the payroll expense that would go up and then we've got the credit , which would be the cash or the payable would go up. If we haven't not yet paid it, that would be the normal. Just debit and credit would be just like any other expense if it was any other expense that didn't have taxes and with holdings and whatnot, and then all this other stuff that's happening within here are those with holdings, their liabilities that are resulting from us taking money from the gross pay, not giving it in terms of a check to the employees, but withholding it from the employees and then pain their responsibilities, meaning their Social Security, their Medicare there, F I T federal income tax and any other benefits such as insurance union dues. In this case, retirement contributions. If you consider this compared to the financial statements or what actually happens for the accounts, of course, that checking account here's the first checking account. It's gonna go down by this amount that the checking account went down, but it went down by the Net check. And then we have the expenses down here that are going up to the expenses are going up, and that's gonna be this item. So that item of the journal entries increasing the expenses, decreasing net income. So here was net income before that's income, not a loss. It's going down to this. So that's gonna be the expense noticed. This is the gross expense, and then we're taking all the liabilities out. So the liabilities are gonna be all of these items. So that's gonna be the the other side of it that's going to balance all these liabilities related. Teoh. The payroll tax is being withheld, and any benefits those are gonna be these items that will be removed Now, What we need to understand is when we go to QuickBooks will just process QuickBooks and we may not just see a journal entry format like this. However, we will see the activity in the G L account, which is assimilation of this column or something like a G L will see the G l activity that data within the General Ledger, which will be transaction reports within QuickBooks. That's what they call them, and we'll see the detail as we go from the financial statements to those transaction reports. We want to be able to go back and forth and kind of understand it in some format in both ways, because that lets us know the balancing concept unless that's be able to analyze. If we use QuickBooks online to process payroll, what is actually happening, and if we use some other system, then we can enter that into the journal entry weaken into the journal entry into our system and different formats. We could just enter one journal entry, possibly for all of paper or payroll or multiple journal entries. Note that if we were to do this journal entry, ah, one journal entry could summarize all of payroll. In other words, this could summarize every check that we have. We had five employees. We could summarize all five employees one payroll period being run with one journal entry, or we can have five separate journal entries and that would tie out there like the five separate checks that we would have similar journal entry. Then for each employee, we would have to have five of them so we can represent then payroll. If we wanted to express it to somebody in terms of just one group, when this is payroll as a whole, we can talk about it in terms of the increase or decrease or one journal entry for the entire payroll. That's going to be needed in some concepts when we want to just basically give the bottom line, not the detail. However, if we want the detailed by employees, then we're gonna have a similar type of journal entry here but for each employee. And that's gonna be that kind of break out that you would see on the paycheck stub So and note also that this is only the payroll employees Earth employees E type of journal entry. We're not talking about the employees, er, taxes, which will think about separately because we typically think of that as something different , at least from a journal entry standpoint. Usually we think of two separate journal entries one for the employee payroll, the second for the employer taxes. So if we then compare and contrast that to what we have in QuickBooks, if we go to the workers tab down below, we know that when we have we have our three employees here. What do we do in QuickBooks? We don't enter a journal entry. Of course, we run the payroll, and when QuickBooks runs the payroll, just like when it makes reports like when we do an invoice or when we do a bill when we write a check. QuickBooks has a journal entry. Does a journal entry behind that and it balances. That's how it figures out and makes the financial statements with journal entries with that balancing concept with double entry accounting system. So we need to be able to say, Okay, well, once we enter the payroll, what happens to the journal entry? Let's first take a look at a payroll report. So we're gonna go to the reports on the left side, and we're gonna scroll down to the payroll reports and we want to look at the payroll detail so we'll take a look at the payroll. Detailed reports I'm gonna look at their payroll detail for the first quarter for this problem because that's where most of our data is by selecting the drop down first quarter January through March and run that report now, we'll see this information, and it'll give us basically an idea of the accounts that will be affected by just giving us all the components of the payroll components. So if we could see this again, check by check or we can see it as a total. So in other words, we can think of this as a separate journal, ITRI. That would look something like this in journal entry format for each employee. Or we can group them all together. And we can see that here by seeing each check which we can think of as a separate journal entry that QuickBooks is going to do something with all of these items or the total at the bottom. We can see here we can possibly we could we could record this whole thing for each payroll or the whole thing for the hope for 1/4. If we wanted to do that and group everything together, we wouldn't have as much detail and we want to consider what the pros and cons would be to do that. But that is something we could do. Just a summarized data just depends on how much detail we want. So if we have here, for example, Beth, this is the Net pay. This is the gross pay. The 4 25 and 37. 50 of this is the amount that would be the expense account that would go to the expense. This would be coming out of the checking account. The difference between those two items are the liabilities. They include the federal income tax, the Social Security, Medicare and the California taxes at this time, and then we have the employer provided stuff were not really thinking about that right now , because that's gonna be the employer stuff. So these taxes over here are the employer taxes that's not involved in this journal entry, although it happens at the same point in time when we process the payroll. So if we go back over here, we'll see. So these taxes aren't what we're concentrating on. We'll think about that when we concentrate on the employer portion of the journal entry so we could do that again for each check and think about that for each check. So if we would have, for example, payroll done outside of QuickBooks and we wanted to enter it into QuickBooks, we could say, OK, what do we need to do? I need to enter each check and have a journal entry for each check. Why would that be helpful? Because then I can check it off and see each check, as I do the bank reconciliation. And that's one benefit to having a check to show that detail in the system rather than having it outside the system. Or do we just Can we just enter the summary data, for example, the whole quarter information where we have the same information? This is going to be the the total pay that we have here. This is the total pay. This is what came out for the 41 K that Medicare and ah, the H S. A. And then we had the federal income tax told security, Medicare with holdings that came out and again, this is the employer side on the stuff that's benefits over and above. We can think of that as one journal entry over here. What does this look like on the financial statements? So let's take a look at that. I'm gonna do that by right clicking up top on this report and will duplicate this report. And then we'll go down to the reports down below and select our favorite report. That being the balance sheet, selecting the balance sheet and changing the dates from 010119 to 12. 31 19 And run that report. So here we have the checking account, and we could see this journal entry once again so we could see it. It actually post in this journal entry in a similar fashion as we conceive these accounts affected. Over here, they're slightly different account names. These aren't the same exact problem, but we can see the similarity in terms of the accounts that are gonna be effective, starting with the checking account. It obviously going down by the net check. So if we select that item will see the journal entries that are happening here, for example, January. Note the detail we have. It's not just one journal entry, as we see here. This is one journal entry representing an entire payroll, which we could have done here. We've got three items because there's three checks in January. So we get to see that detail each of these items we could think of as group together and one item for the January payroll if we had less detail. If you want to enter it as just one journal entry, it's nice to have the detail because this will help us, especially for the checking account. Check off the information when we do the bank reconciliation because it's actually came out of the checking account. If we go back up top the other side, we typically think of on the profit and loss. Let's go there now. So I'm going to right click once again on this cell up top or in the tab, duplicated. Pull the one from the left to the right and then change or go down to the reports on the bottom and go to the profit and loss reports that will change the dates from a 10119 12 31 19 and run that report. And if we scroll down the other side, we would typically be thinking of in wages Now we have two accounts of wages and the owner wages, but we'll goto wages here. This is gonna be the employee wages. You'll see. We have to pay checks because the other ones in the owner wages. So there's gonna be three between the two accounts, so this would be the other side, and again we can think about it. This is the This is the total expense. So this would be equivalent to this number is greater than the check number, and we can think about it as either one transaction. We could have combined these together and said, This is the payroll for January and just have one journal entry here for the growth pay between these two and the other for the for the owner that will be in the other account. Or we could break them out with the detail and QuickBooks. Of course, if we run it and QuickBooks will break it out with the detail and that's great also can be confusing. If we have a lot of employees, that's a lot of details. So you're gonna go on, you're gonna be overwhelmed by the amount of detail. So just if you have an idea of what? What is in there not so overwhelming? Then and then we can take a look at the difference between those two. And by the way, the other side's in. The owners here said the other Judy Jones in January is here, so that's where the three payrolls are. And if we go back, then the difference between those two will be in the liability. So if we go back to the balance sheet, the liabilities then of course, are what we owe. The principal portion is going to be they with holdings for taxes. That's gonna be in in this case, the federal tax withholdings. If we looked at our journal entry, we have. We broke it out slightly differently. Notice we broke out Social Security and Medicare and F I t in their own accounts, and that's one option we could have. We could group all taxes together and one account and just call it Tax is payable or payroll payable, or we can break it out in a different accounts. QuickBooks default here when we go back to the QuickBooks default settings, is to put all the federal taxes, or at least at federal income tax, Social Security and Medicare into this account, which they called QuickBooks made this account as we set up the payroll, federal taxes. And so they're going to group those three here. And then they broke out the federal unemployment. If you want to change that, you could put them together and just call it you just call it one account. Call it payroll taxes. But this is QuickBooks default setting, and they grouped these three items together. So if we were to select this item than the checks for January once again will in part be that the fact that the difference between the checks that we're that we're actually going out in the checking account and the expense that's recorded on the income statement and again there in three separate checks But we can think of them as one check if we wanted to . If you want to run that report, try to post it with one check. We could think about it as one check Now. Note. Also, this is gonna include the employer and employee portion. Where is this journal entry? We only have the employee information, so and that's another thing. It's a little confusing about payroll because if we were to think about it with journal entries. Traditionally, it's easier to do if we record two separate journal entries one for the employees activity , because this reflects what's on basically the pay stub and then the other for the employees , er, taxes. When we go to QuickBooks because of the way they're breaking out the detail, which is nice, it gets a lot of detail. And if you did it differently, it would have either too much or too little. There's no perfect way to do it, but the way it's breaking out, it's putting both the employer and employee portion here. So when you think about the actual journal entry, it's a little bit confusing to go from the journal entry back to here. This is combining basically what we would think of as part of two journal entries, because this has the employer and employee portion and is breaking out not by employer and employee portion, just by paycheck. So just keep that in mind as you as you think about possibly the journal entries. Financial accounting, financial just entering the journalist you go and then going back to here so and then anything else that with withheld, such as a 41 K plan California taxes, dental insurance, vision insurance are garnishment health savings account. Those, then would also, if they were taken out of the check, would be recorded as a liability. They're not required to be in separate accounts here. We could just have a new account called Employee Benefits or employees with Holdings. So this is the fact that we have all these different breakout accounts is QuickBooks decision? Because these are the default settings within QuickBooks. We could change those. We could use other accounting software, and the default settings would be different, possibly. But in the account, names would almost certainly be different. These air not all standardized account names, but the fact that they would be a liability and grouped in some format would be would be similar. It would be the same, and no, if we go back to the report here, this report might be something that you might get if you had the payroll done outside of QuickBooks, meaning if you had it done by an 80 p or paychecks or something like that, they might actually give you a report if they're not integrated within your accounting system within QuickBooks or whatever accounting system you have, and you might then get a report that's like something like this of long, detailed quarterly report that has the information. And you still need to put that information than into the system so that you can have it into your system, recorded the expense that you have and also to be able to communicate with employees. And one way to do that is to take this total data in this format and then create the journal entry. Which look would look something like this on the employee side. And then we'll take a look at the employer taxes, which we can think of as a separate journal entry. 28. 80 Payroll Tax Expense Journal Entry: In this presentation, we will take a look at the payroll tax expense journal entry focusing in on the employer portion of payroll taxes. To do this, we will have a worksheet for the payroll. Tax expenses will be using numbers from a registered type worksheet, but note that the payroll taxes for the employer portion are typically thought of as it worksheet outside of the register. In that, in other words, the register is going to give us that information to get Teoh net income from regular pay. And that is gonna be that type of worksheet, which will help with the journal entry to record the payroll taxes for the employees portion that they owe but not the employer. Taxes or the employer. Taxes will typically have a separate worksheet where we will calculate the employer portion , which will be similar in some cases, and defer and others. So let's take a look at the register. We're gonna have the normal pay that total pay. We've got four employees here represented by these four totals. We're looking at the total for the employees, and we're gonna be recording this information as a net some rather than four different journal entries for each employee. Then we have what was taken out. O A S T i of the wages for the employees, the H I, Medicare, Social Security, Medicare F I t federal income tax group insurance union dues for a one K net pay. That's what was taken out on the employee journal entry. Now we're looking at the employees, er, tax journal entry, where we will also have again O a S t I our portion of Social Security which will match the employee portion and no, when I say our abortion were and we're going from the perspective that we are the employer here. So where the employee error? This is the employer portion our portion here, which will match the employee portion. Same for the h i or the Medicare. This is gonna be the employer portion that is due which will match the employee portion. So those two there's gonna be an employee and employer er portion note that this is coming out of the paycheck, whereas this will be the same amount, but not coming out of the paycheck, and it will be coming out of the employer checking account. And then we've got food A and Suta food is gonna be an employer only tax. So this amount we don't see appear were probably less familiar with it. It's not coming out of net pay. We don't see it on our pay stub. When we get the catfish ins for our net pay, it will be coming out of the employer side. And then Suta will differ from state to state. But they're related. Will typically have. It will have an employer portion to it, and it may have an employee portion depending on the state. State laws could differ from state the state. So this is the one we're gonna use in order to create our journal entry here. If we go Teoh this worksheet and start to build our journal entry based on a trial balance , what's gonna happen is we're not gonna pay cash. Our first question is cash affected? Not yet. We haven't yet paid it. Were incurring this expense as payroll is being processed. So we will have a payable account. I mean, an expense account for the payroll tax is payable and the other side of it will be that liabilities what we owe. So we're gonna Oh, away ste I h I food test suit that we have not yet paid them because we haven't. We haven't gotten to pain them yet, so cash is not affected. We have a payable. We are incurring an expense. So here's the expense. This is gonna be a debit balance. Expenses are going to go up in the deputy direction. So the first thing we can see is that expense. Now, this is summing up these four. I'll get to this total at the end, I will summon up again, but just note that it will be an expense here, increasing this amount. Also note that this is the payroll tax expense which will be part of the payroll process but is different than the salaries and wages expense. And this salaries and wages expense includes the payroll taxes that are going to be paid by the employee. In other words, this number that we're calculating for payroll taxes on lee is the employer portion of payroll taxes does not include the employee portion. Then we're going to put a credit for everything that we're gonna Oh, those will be liability accounts. So we've got accounts to 15 which is the O A S T. I. Or Social Security, which will go up then we have the h. I or Medicare that we're gonna increase the liability for. Then we have the photo federal unemployment tax, which we're gonna increase our liability form. These coming directly from our worksheet here to increase the liabilities. Then we're gonna have the SUTA, which will increase for the liabilities. We'll take a look now at the General Ledger, so we're going to see this data now posted to the General Ledger. So here's our journal entry. And if we look at the Geo, we can see a little bit of detail, and it's interesting to see some of the detail to some of these accounts. So if we were to look at the payroll expenses, we see that the payroll expense started at zero, and then we're gonna debit it. So we're taking this debit down here, 7 4033 48 it's gonna increase it to that balance of 7 4033 48 And then we've got the 2 15 which is O A S D I, which we are crediting 3031 55. Here's the O A S D I. Before this journal entry, it was at 3031. 55. We are increasing it by 1 3033 55 in the credit direction to 6000 63 10. Note that these two represent the employee portion. The portion were not put in here on this journal entry and then the employer portion. So we owe a total of the 6063 after the employee and employer portion. But we're focusing here on the employer tax calculation or the employer journal entry. Then we've got the h I 708 same situations. Medicare. So it was at 708 99. We increased it by 708 99 in the credit direction to 1004 17 98. So these two represent once again the employee portion and the employer portion. Then we've got the photo which is going to go from zero up in the credit direction by 1 25 38 to 1 during 25 38. And then finally Suta, which is going to go from zero up in the credit direction by 8 67 56 28 50 67 56. So those are gonna be our components now, these two, of course, Onley have an employee portion. So we don't see this doubling up as we do with thief. I cut taxes, these two only having one component, that being the employer side. So if we go back to our trial bounce, we can see that we are in balance. We can see that the debits and non bracketed or positive numbers minus two credits in bracketed numbers will equal zero. That means debits equal the credits. The effect of this journal entry then, is this increase to the payroll taxes expenses that went from zero up to 7 4033 48 So note that's gonna be different than the salaries and wages expenses here, which were recorded in the prior journal entry. And also note that this 48 8 96 for the Employees Journal entry the one we're not doing here includes the employee payroll taxes. So this is not the net check. This is this is total check. When we look at the payroll taxes, then the only thing that's gonna be in the payroll tax expense will be the employer portion that we paid for the payroll taxes. So that's an important thing to note. Commonly commonly mixed up, we can see appear that we have the away S D I, which is going to include both the employee and employer portion, these being liabilities that we will then have to pay to the Fed in the future. We've got the food A and Suta, which are just coming from this journal entry. They're not twice that journal entry because they're just coming from the employer portion only. 29. 80.2 Payroll Tax Journal Entry QuickBooks: In this presentation, we will take a look at the payroll tax journal entry within QuickBooks online, comparing and contrasting the payroll tax journal entry in the format of debits and credits to the transaction that would be recorded and is recorded by QuickBooks as we process the payroll and then QuickBooks then creates that journal entry to post and create the financial statements with Here we are in our practice payroll QuickBooks file. You can follow along in your own business file, or you can use thief free test drive file with QuickBooks online. We're gonna go down to the Workers tab on the left side. We're gonna compare and contrast the journal entry to the processing of payroll within QuickBooks. Well, first, take a look at a journal entry from just a financial accounting standpoint. What would the Journal entry? It looks like this is going to be important, because when we communicate the journal entry or think about the balancing concept, we have to think about that balancing concept in some way, either in terms of debits and credits or in terms of the accounting equation, assets, equal liabilities, plus equity, or in terms of the balance sheet. When we think of recording journal entries for payroll from a financial accounting standpoint, we typically think of two journal entries, one for the recording of the payroll information that would coincide, in essence, to the pay stub that an employee would receive, giving the Net check amount, the growth check amount and the with holdings. And then we typically think, as a separate transaction of the employees, er side of things, because this is the side of things that is not gonna be on the paycheck stub, because it's something that is not being paid in theory by the employees but by the employer. And therefore, it's easy to think of that as a separate journal entry or better or more useful to conceptualize that as a separate transaction, although they happen at the same point in time. So if we consider that, then we can clearly see in a journal entry. The second component, this is the employer taxes now know what we have here the payroll expenses. But the payroll expenses here only include the employer taxes, so that includes, in this case, the Social Security that Medicare, the food two attacks in the suit attacks federal unemployment tax. And this is the state unemployment in this example. Now, what's not included are these taxes noticed that that's in different from the taxes up here . These taxes up here are not to be in recorded as payroll tax expense. They're being recorded as salaries and wages. They're part of wages. The debit or the increase on the expense side is wages. The credit is a liability. They're going into the liability because we took those from the employees and are paying the employees obligations. These down here are kind of like our obligations there, not the employee's obligations. They're our taxes over and above the gross pay that we owe based on just for having employees. So it's based on the gross pay, but it's our basically payroll taxes. So this payroll expense, then, is just our payroll taxes. And if you think of it as two separate gentleman trees, it really helps to conceptualize that more easily. So what would happen here? Then? It's We have to debit in terms of the accounts of the balancing system. What's gonna happen to the accounts? What's gonna happen to the financial statements? Well, the payroll expense is going to go up. The payroll tax expense we can see is increasing. That's the taxes, not the payroll expense itself. But the taxes the payroll taxes are going up by this journal entry and then the liabilities , which we could group into just payroll tax liabilities. But or we can break out. In this case, we broke out the Social Security Medicare into their own taxes. So that's gonna be Social Security, Medicare and the food A in the suit, oh, noticed that Social Security and Medicare have both an employee portion going into it. That's this journal entry up top and an employer. We have a repeat of the liability because this liability is a result of the employees owing the money, which we withheld and are gonna pay for the employees. This is the amount of us the employer, owing the money, the amount that we over and above that these taxes, or at least this food attacks, is solely an employer tax. It's not in the employee journal entry. It's Onley in the employer journal entry. It's only our tax as the employer. If we break these two out, it's actually easier to conceptualize. Let's see how this information will be in the QuickBooks system. Also note, before we go there that this journal entry could be recorded checked by check for employee by employee to give us more detail. Or it could be recorded just simply as a total for the entire payroll period or an entire quarter. This is being grouped together for an entire payroll period in this case, rather than check by check, let's take a look at what happens when we process within QuickBooks. If we go to QuickBooks and scroll down with sea, we have three employees. And if we've run the payroll, that's what will trigger the entry of the data into the system. If we're running payroll within QuickBooks, of course, QuickBooks will then generate the journal entry and format that that detail and make the financial statements with it. If we have some outside person such or company like like ADP or paychecks processing payroll for us, we're gonna have to enter that data into QuickBooks in some way, possibly with the use of a journal entry in that format. So let's take a look at the reports on the left side. Now we'll go down to the payroll reports, we're going to scroll down the payroll reports and we're gonna take a lengthy payroll. Details payroll Detailed report. I'm gonna look at the detail in this case for the first quarter. That's the data that we have. Any quarter will work any time will work for demonstration purposes, however, and so we'll go to the first quarter and run that report, and you'll note that we have the paycheck detail here. So we've got each check coming out here. So here's each check. Here's, for example, Smith Beth Smith's check and we have the details of that check, and we have the total detail So we can think of this as checked by check recording each check for each employee for each pay period. Or we can think of this as grouped together in the summary data for the full quarter here. So, for example, if we had a DP or paychecks giving us the details or if we were explaining payroll to somebody else, we wouldn't break it out. Check by check. We would just say, Hey, here's the bottom line detail and try to explain this, which is complicated enough or for entering the data from paychecks. We would just take this possibly might be enough to enter the data into our system and then use their their stuff, their detail for the detailed information when needed. So that's just why we need to know kind of both of these. If you look at each check, you know, this is the Net check. This information is what was withheld from the Czech. Here's the gross pay. Here's what was withhold held from the employees in thes items. What we're considering over here is these items on the side. These is the second journal entry, So the food A on the employee herb, federal unemployment, the Social Security, it's It's doubled, right? This is the employee. This is the employed er portion that Medicare and then the California taxes. These items over here are what we would use to make this transaction make the expense and the related payables note. No cash has left yet we haven't paid it at this point. It's a liability. So if we go down, we can also think of that in terms of the total quarter. By thinking about this at the total pay for the total cold quarter And then the withholding seizes the employee information. We're over here, then on the employer. Information were concentrated here on the food of the soul. Security in the Medicare. We could think about recording this as one transaction, one journal entry. Let's take a look at the financial statements and see what QuickBooks actually does to do that. We're gonna right click on this tab up top. We're gonna duplicate that tab. I'm gonna pull the one from the left to the right, and then we're gonna go down to the reports and take a look at our favorite reports. One being the balance sheet report will take a look at the balance sheet, changing the dates up top from a 10119 12 31 19 and run that report. Now, if we scroll down the checking account isn't affected by this transaction here because no, we haven't paid it yet. It's a It's a liability that were incurring by the fact that we have employees. We oh, well, taxes because we paid employees. So that increases our tax liability. So it's gonna be down here. In the liability side, most of it will be included in the 9 41 items here. The federal taxes, what's included in this line? Item four QuickBooks. This is the default setting for QuickBooks is federal income tax, Social Security and Medicare. So note that all three of those air broken out. We could have broken them out separately, as we did hear Social Security and Medicare are broken out separately. We don't have federal income tax here because that's an employee tax. But QuickBooks groups them together as the default setting, which is fine. It's just different. Different default settings can be used, so then we have those atoms. Now, if we go into this item and we just look at January, we've got these three checks for January, so we're breaking them out by employees by check. We could think of them all together, as we did with this journal entry, and consider him all as payroll for January, all as on increased to the liability or a credit to the liability for January. Also note it's a little bit confusing to go from thinking of journal entries to here because QuickBooks is not breaking out between ah Journal entry for the employees portion. What's on the paycheck stub and the employer portion. They're breaking out instead by check, which is nice. But again, it could be a little bit confusing the way the detail works because of all the data within payroll, in different ways, we could format it, so it's nice to have the detail by check, but we're not really breaking out between what is the employee tax in the employer attacks . We can't see that separation. The items that are here for Social Security and Medicare are being grouped together, and this whole account includes federal income tax, Social Security and Medicare, which which means that it includes both employer and employee taxes, kind of grouped together. Which makes sense to some degree because that is what's going to be reported on the form 9 41 But on the other side of things, it doesn't make sense in terms of the journal entry to try to nicely break out the employee and the employer taxes that are being paid. So just keep that in mind. As you think of the journal entries or explain the journal entries were thinking about these taxes vs recording the Journal entries for Go back Up top and go back to the balance sheet the other side of this is going to be. And then and then note that the other other account is gonna be the federal unemployment, which QuickBooks broke out here and they broke it out this way. Clearly, Teoh tie out to the Form 9 40 which is a different form a year in form. So this this account, this amount is only going to be in the employer taxes. There's no employee taxes will see in this journal entry. The food A is here. It's not up here. It's just an employee or attacks, not an employee e tax. Then the other side's gonna be on the income statements. I'm going to right click on this up top again, duplicate this tab. We're gonna pull the one from the left to the right and then go down to the reports. Take a look at the profit and loss reports changed the dates up top from a 10119 to 12 31 19 and run that report scrolling down. You'll note that the expenses are broken out. QuickBooks typically will have a default of two tabs one wages, wages, expense. The other called taxes. Payroll taxes. And that's usually that's like the proper way to break it out. That's how we broke it out in this journal entry that gives us the detail that nicely shows us. Hey, this of the actual earnings by the employee. These air the taxes that are in the employer, taxes paid over and above the earnings. So this is nicely broken out. Sometimes some people might Brooke put him together. QuickBooks desktop actually puts them together by the default, so it's nice to be broken out in this format is probably the more proper way to do it. You may want to change that the names of the accounts if you would prefer to have it called payroll taxes expense or something like that or some other word that wages, but it breaks them out nicely. If you go into here, then we'll see for January. We've got our checks, so we've got our checks and our check details, so it's breaking out the checks in a little bit different way. It has a new adjustment amount. If we look at February, we'll see our three employees and we'll see the nice three. Check three amounts for the expense amounts related to those three employees, so it's breaking them out by check once again by employees given us that detail, however, if we were to explain this to someone else in terms of a journal entry, what's the effect on the expense? We could, of course, combined these items and think of it as one journalist. You one transaction for the payroll period of February for the month ended of February. Now, if we go back to our report on the left side, note that if we were to use paychecks or ADP, we might get a report something like this, and we would have to enter that data into our system in some way, whether it be QuickBooks or whatever accounting system we're using. If it's not being automatically input into our counting system, we would have to input it. We could do it checked by check, but that would be a bit tedious to do. We could also I'm gonna put this back to 1/4. We could also do it by the detail so we could say, Hey, what? Just give me the quarterly numbers and we can actually do a journal entry and enter that data in wouldn't give us the detail. We'd have the detail from the company doing the payroll, and that would at least give us the expense amounts that we can then record and have our financial statements correct recording them or in just a summary journal entry. In other words, we would be taking this data and, in essence, making a journal entry such as this to summarize the data, not checked by check, not employees, but it by employees but by journal entry. Note that if we were to do that, we'd have to be careful that when we reconciled the bank accounts, however, that we have the were able to check off that the checks and tie them out to the journal entry that we have created because we're not going to see a separate check for each each employee if we use a journal entry to enter. But you know we can reconcile that and figure that out shouldn't be too difficult. Those of the pros and cons of the detail and not the detail the pros and cons of using QuickBooks to calculate and the more detail you get from that which has a benefit also a cost. It's confusing to have the more detail versus having someone outside do it and possibly entering that information. And how do you do that when you could summarize it or you can enter it in with more details in there as well? 30. 90 Pay Payroll Tax Expense Journal Entry: In this presentation, we will enter a journal entry related to the payment of payroll taxes. Before this point, we have recorded payroll taxes for both the employee and employee or portion. Now we're gonna work on the payment of those payroll taxes. The recording of the employee and employer portion of payroll taxes came from the register , as well as a worksheet for the employer portion. In other words, we have four employees here for employees represented by this set of numbers. If we some those up, then this 48 7 19 is the regular pay for the four employees we took from that. The O A S T I Social Security, the H I, the Medicare, the F I T Federal Income Tax Group Insurance Union dues for a one K plan to get to the Net pay. This information was used in order to create the journal entry related Teoh the employee payroll. Then we used this worksheet in order to create the journal entry for the employees er portion of of the taxes, including their portion our portion at the employer of away sdvi Social Security H I Medicare food to have federal unemployment tax and sue town State unemployment tax. Then if we look at the result, then on our trial balance, which is always nice toe have a trial balance. When recording journal entries, we'll see that we have the food. M o A S t I hear 6063 10 the ah, this is this is the faker away? Yes, the I Social Security and in the fight for the H I Medicare, the food of federal unemployment tax, the suit, a state unemployment and the f i t federal income tax. These, then, are what we're going to pay now. These are liabilities. They include both the employer and employee portion of the taxes. So, in other words, this so security and Medicare includes the tax, both from what we took out of the employee wages and what we owe for the employer half as well. The food and suta on the food. It will be an employer tax, and the suit up for our case will be an employer attacks. The F I T federal income tax for employees is just an employee tax that's gonna be here. We're not paying any f i t. It's all coming out of the check of the employees. So if we build this journal entry, then what we're doing, in essence, is we're just saying, Hey, these are the things we oh, we're gonna make payment for them notes that if we made payment in practice, we would probably have to group the payment in terms of federal taxes and state taxes. Probably we're gonna group. Then the O A S T I and the Social Security or the H I. Meaning the soul. Security and Medicare would both be going to the to the Fed, which we made group in one payment we may have into separate payment for FOTA and a separate payment for suit because it's going to the state. Um and so just note that the groupings of the payments as to how we're going to write the checks and the groupings of the payment could differ. But the point is that after we have these liabilities, we will be making the payment. In the future. We're gonna record the journal entry related Teoh making the payment which will be similar to any type of payable accounts such as the accounts payable, meaning the liability goes up and now we're paying hits him. The liability goes down as well as cash goes down. So it took to create this. We're just going to say Okay, we had to 15 account to 15 for OSD. I credit of 6000. 61 10. We need to make it go down to zero because we're gonna pay it off. So we're gonna debit it, do the opposite thing to it. 6061 10. Same thing for H I. We have, uh And then if we post that as we go, apparently we're gonna post that as we go, it goes down to zero. That's what we want to happen. So we're gonna make all these go down to zero, then the h I and the Medicare. Same thing. We're gonna say it has a credit here. We're gonna debit it, doing the opposite thing to it. And if we post that as we go, it's gonna make it go down to zero. That's what we want. Then we've got the food, um, has a credit in it. So we're gonna debited for that same amount, then if we post it, it's going to go down to zero And then we have these Suta, which again is gonna be debited for that same amount. Then if we posted, it's gonna go down to zero, and then we have the f i T. Which is gonna be It's a credit here, so we're gonna debit it for the same amount. And then if we posted, it's gonna go down to zero. Then if we add all these up, it should add up to what we're gonna pay, which will be the check here. So that's gonna be the credit. So what are we gonna actually pay if we have pull up the old calculate here? Six So 63.1 plus one for 17.98 for Medicare plus 1 25 38 for food toe plus 8 67.56 for suta and 899.13 for F I T. That gives us 3 9073 15 and something must have going wrong. There was trying one more time We're gonna say six So 63.1 Plus that 1417.98 plus the 1 25.38 plus 867.56 and the 8599.13 gives us 17. 73 15. That's how much we're actually gonna pay. So that will come out of cash. Cash is a debit. We're gonna make it go down by doing the opposite thing to It's a credit bringing the balance down to 554 660 74 cents. Now, if we see the whole thing, then here's our journal entry at the end are what happened here is the cash went down and the liabilities have no now going down because we've paid them off in a similar fashion as any payable type accounts similar to how accounts payable would be note to no effect on net income. Just like when we pay off accounts payable, we haven't incurred the expense at the point in time that we paid the cash we incurred expense prior when people worked and when we recorded the journal entry at that point. So when we pay off the payable no effect on these accounts down here No, These are all liabilities, accounts and an asset account. No revenue and or expense accounts If we look at the G l, it could be useful to look at the GL to see how with this all ties together. So here's our journal entry. We posted the fighter away. SD I here. Before we did that, we had 6063 in it. That was the employee portion of FICA Social Security and the employee employer portion bringing us to 6063 10. Then we paid it off. That's gonna be how this payable account should look and how most people count should look if it's a nice even payable, meaning the liability goes up. So it's gonna be the employee and employer portion every time. And then at some point later, a little bit later, when we make the payment, it goes back down to zero. And then if we do the same for a child or Medicare, same thing it was at 1004 17 98. We paid 14 2004 17 98 bringing it down to zero. So same pattern. It's gonna go up by the employee portion up by the employer portion and then we pay. It goes down to zero. Fouda we have the food over here. It was at 1 25 38 Then we paid 1 25 38 goes back down to zero. Note. There's only one portion on Lee the employees er portion. And then we paid off the employer portion. There's no matching there. We could see that in the Geo. And then if we go Teoh the F I team So we have the f i. T. Here, and it started at it was at 8055. 99 13. It's going. We paid it. Then it goes down to zero. Note again. There's only one entry here, and the reason there's one entry isn't because is because it's an employee portion. Meaning this is not an employer tax. It only comes out of the employee paycheck. So this is an employee tax that we paid off No matching hitter. Then we have the suta, which is the state unemployment tax, and that's gonna be it was at 100 67 56. We brought it down 20 We're paying off the suta again. Typically in our problem, it's on Lee a Employees er tax. It could have an employee portion, depending on the state. But that will depend on the state we're gonna mirror here, in essence, the employer function of it, and many times it'll it'll mere kind of the food, and the Suta will be similar in and the way it's constructed, often times depending on the state. 31. 100 Form 941: in this presentation, we will take a look at Form 9 41 employers quarterly federal tax return. Here's a copy of Forme 9 41 This is the 2018 form. You can find this on the IRS website at i r s dot gov. These are gonna be the components of the form. We're gonna focus here on the calculation of the form. We note that up top, we're gonna have the e i N number the name and then the address. Then we want to know which quarter we are talking about. So remember that when we think about the quarters, of course, three months in 1/4 there's 12 months in the year divided by 43 months per quarter. We will indicate what quarter we are talking about here. Remember that this is a quarterly form which is different from the yearly form. And there was a yearly payroll tax form called 9 40 we don't want to get those two mixed up . They can seem similar, but they're gonna be different. The 9 41 is really the main form, and it's gonna be calculating the f i t federal income tax for the employees, the Social Security, both employer and employee and Medicare, both employer and employee. Because these air larger amounts or this is my guess as to why we need a quarterly form rather than a yearly form because their larger amounts and important then we have to have added lead level of reporting meaning, For example, if we take a look at our 10 40 for individual tax returns that we've report at the end of the year for individual reporting, we do that on a yearly basis for the 9 40 ones for the F I T for the payroll taxes, the soul, security and Medicare. We have to do that on a core elite basis. So that's what we're doing here. The 9 40 then similar form to what we're working with here but will be for Fouda, which is a much smaller tax. So it's actually it's actually still a federal tax, but it'll be a much smaller one when filling out this form week weaken. Pick up this information. This is part one of the form line one says number of employees who received wages, tips or other compensation. So whatever the number of employees are in our case, we have four employees at at this quarter. Then we're gonna and note the days. So this is the actual day within the quarter that we can pick up the number of employees and then we have the wages, tips and other compensation. This So we got to be careful on, because when we look at the wages, total wages, then in our case, this is coming from our register numbers up here was 96 9 73 But this wages here is really trying to pick up the F I T wages. Note that line under it has to do with federal income tax. So really this line to it, where we want the F i t wages, which can be reduced by things such as an insurance or ever retirement plan. So this number is 91 for 25 10 in this case, calculated as the total earnings 96 9 73.5 minus those items that could be reduced. You can think of him when you fill out your form 10 40 or what? What will reduce the G I. The 401 k is not something that will be taxable his wages for adjusted gross income as well as if we're participating in a group insurance type plan. Now, in this case, if this was a cafeteria plan, we would be reducing it. But in this case were saying that this is not a cafeteria plan and therefore will not be reduced from the total earnings to get to the F I t. Earnings. So we're just going to subtract for this example of the 5548 point for giving us that 91 for 25. So we just want to be careful. And keep in mind that the F I T wages could differ from the wages for the total wages. So here's total wages. If I t wages are going to differ, then we're going to calculate the federal income tax withheld. And here we have to just pull this basically from our table what we withheld from. So this is what we withheld in accordance with our register. That's the number we're gonna use. It would be nice if these two numbers were related in some way, meaning it would be nice if we could derive this number by some calculation from this number, but we can't do that because the f i T. It's too complicated. So although these not this number is kind of used when we break it down to an employee by employee basis, that rates will differ because each employee has a different number of allowances and a different number of possibly for a one K plan or retirement plan, which could change those calculations as well as BIA's in different tax brackets. So because we have a progressive system and a fairly complex system in terms of the federal income tax, all we can do is say, Hey, this is the total wages that were we withheld on in total for all of our employees, and this is what we actually withheld. There's no way the IRS can say, Let me look at that number and derive this number, but we'll give both of that data to the iris. Then we've got the Social Security wages and the Medicare wages. These are going to be a bit more straightforward. Will pull this from our table as well. The Social Security wages the 96 9 73 that matches this 96 1973 50 up here. Note that this, too could change or be different from total wages. If, for example, there was a cafeteria plan in this case, there's not so that they're the same. Or if somebody had hit the cap of 128,400 in which case they would be lower by by the amount because of somebody hitting the cap. So then we're gonna take this 96 9 73 50 times 0.1 to 4. So if we do that calculation 96973.5 times 0.1 to form, we get 12,024. 71. That's gonna be the 12,000 Ah, 24 71. Now you might not recognize in this rate, and that's because it's twice the 6.2. So when we take the 6.2% times to that gives us the 12.4% or the 0.1 to 4 we're using here . So note that this is including the employer and employee portion. In other words, if we're taking this total that was taken out of the paycheck for F i t. 6012.36 Social Security F I t. Times two. That's gonna give us the 12,024 71. Notice how nice and easy that works, and that's because it's a flat tax. So in this case, we are able to take the aggregate amount here and multiply times a flat rate, and that should be equal. Teoh adding up all the information that we took out of each individual check at the same rate. So then we're gonna do the same thing for the Medicare. So here's the Medicare. Now again, this number could change. Be different Medicare wages from the total earnings. If there was something like a cafeteria plan in this case, there's not. But it won't be different due to there being a cap. In other words, there is no cap on the on the earnings for Medicare, so that's something we don't have to worry about. So it will usually be higher than or if someone hit the cap for Social Security that Medicare wages will be higher. In our case, it's the same amount, so we're gonna take once again that 96973.5 times 0.29 given us 2008 12 23. That's gonna be this 2008 12 23. Again, we might not recognize that number that 230.29 and that's because it's the employer and employee portion. Or, in other words, it's 0.0, 145 times, too. So there's the 1450.29 and this amount that's 2001 12 can tie into our worksheet by taking the H I 1406.12 times two gives us the 2812 23 24. Rounding difference here. Then, if we add those two up in this line five e says, add column two from lines five a. Five B, five C and five D. So what we are doing here is we're gonna be these two numbers. I tried toe get the calculator there and did something crazy. So we're gonna go 12 24.71 plus 2812 point T three. That gives us 2 14 8 36 94 That's the total fight. Cut taxes then. So if we add that number plus the federal F I t federal income tax, which is 1703.26 The 31 8 40 20 is gonna be the total taxes that we're gonna Oh, for F I t Social Security and Medicare. Now, we already paid him. I shouldn't be. I shouldn't say what we owe. That's gonna be the liability related to this quarter. Then if we go up to the second port or down a couple lines here we've got, we're still on five e. This is the total fighters, Social Security, Medicare. And then we have in line six total taxes before adjustments. And that's our 31 8 40 20 that we just added up, adding up line 35 e and five F. Then if there's any adjustments down here, like if we're off at pennies because of rounding, they allow us to adjust for that, which is nice. So we don't have to write a check for, like, a penny. We can just say our adjustments off by a penny. So or a few pennies less than a dollar, hopefully and then we're okay. We're not gonna deal with them with eight or nine for current quarters. Adjusted for six pay sick pay current quarters adjustment for tips. So we're gonna remain in line 10 total taxes after adjustments. 31 8 40 Then we're not gonna have any qualified small business. So in our example, we just have line 12 total taxes after adjustments and credits. Still 31 8 40 20 cents. Now we gotta pick up our deposit. Sideline 13 says total deposits for this quarter, including overpayment, apply from the prior quarter. This is typically the most confusing part of calculating this form because note that this number here should be the same as this number. But this number of top it represents the liability. So we've re calculated the liability. If we were to interpret what we're saying to the iris, we'd be saying, Hey, this is our recalculation of F i t. So security and Medicare liability for this quarter this then, should be a calculation of what we have paid, meaning it should have already been paid similar to our 10 40 that we do on the end of the year for individual taxes. In other words, we create the 10 40 We didn't we come up with a number that says, Hey, this is the liability that we owe for the year ended and then we say, withheld from our wages, meaning what we've already paid is this amount. Typically, then we have a refund for most people if their W two employees, and that's because we paid a little bit more. That's how the desist systems designed. It's impossible, almost pretty much impossible for all practical purposes. For most people to have the 10 40 with holdings match exactly what will be withheld. So it's designed to have a little bit over and then get a refund here. However, because it's more of a flat tax, we can know exactly what will be paid and this is just a information returned. Then we're just saying, Hey, this is what we owed. This is what we already paid In order to get the supporting information for the amounts that already were paid, we could go back to the check register, would go back to the G l and see the checks that were paid In our case, we're gonna go back to the journal entries, so we had this check with paid going out of the checking account. This cheque was paid and these two dates are on 9 15 and 10 15. Which you might say This one happened in the third quarter and this happened in the fourth quarter. Note. What happened here, though, is that these two payments are still both applied to the third quarter. And that's something that can be confusing with payroll. Obviously, we made the payment here in October, October, November, December being part of the fourth quarter. But we should have applied it to the liability incurred when the payroll period ended in the third quarter. So we're gonna add these up now, when we look at this information, we did it all with one journal entry for all of the all of the tax liabilities, which includes what we need then of the O A S T i, the h I still security and Medicare, but does not include the Fouda and Suta those they're gonna have to be paid when we do the 9 40 calculation or accounted for when we do the 9 40 form, not the 9 41 and we need the f i t. So, in other words, we're looking for these amounts for these two payments. If we add these up. These are the amounts that we have already paid. They've already coming out of our checking account. So if we take out the calculator and see if we can add these up properly, we've got the 6063.1 plus the one for 17.98 plus the 8599.13 plus the 5961.61 plus the 1394.25 and the 8404.13 given us the 31 8 40 20 cents. So if we go back to our form than 31 8 40 20 cents matches the liability, So just note that this one here is the liability which were getting mainly from our register up here, our payroll information to calculate the liability. This down here should match because we've already made the payment. But we need to support this information by going back to the journal entry, uh, or the or the register in order to see what has been paid 32. 100 Payroll Controls and Documentation: In this presentation, we will talk about payroll controls and documentation exempt and nonexempt employees. It's important to know these terms because the regulations will differ depending on whether an employee qualifies as exempt or nonexempt. So, in other words, the employees that are exempt are not subject to the Fair Labor Standards Act, F l s a wage and hour laws. So, amongst other thought things in particular, the overtime calculation would not be present or not being needed or required for employers , given the employees who are exempt. So if they're exempt from that status, then they aren't required to have, amongst other things and overtime calculation based on the the federal law, the Fair Labor Standards Act. Now, why would that be the case? Well, if someone is exempt than typically, we're dealing with highly skilled workers, managers, executives, individuals who we would we would assume have their own basic negotiation abilities. Whereas the overtime calculation is typically there in order, Teoh, or one reason it would be there is in order to make sure that advantage isn't taken of workers who do not have a lot of other options and therefore I would have less choice in being able to are required to work long hours without added compensation, so exempt workers then would be workers that were typically be salaried employees. So we typically think of the higher level employees that manages the highly skilled workers to be salary based, Whereas the nonexempt workers were typically thinking of workers that would often the hourly based now it's not required. That may not be that necessary distinction. And there are some instances where someone has a salary based where we'd still want to calculate their hourly rate because we need to calculate overtime. But as a general rule in the rule, we will typically follow here. If someone is a more highly skilled or an executive, then they would probably be exempt and they would have a salary income. If someone is needing to be calculating overtime on and required to cap it over time and is not exempt, then that would typically be an hourly worker. Some other differentiations is the exempt workers typically going to have a college degree or possibly be more educated, possibly have more say or ability to make judgment calls within their employment within the profession within their job payroll records that the employees and needs to receive these, we're gonna be records that the employees required to receive from the employer. That's gonna be a copy of the time card and a copy of the pay stub. There's gonna be items that the employee needs to be provided with when we talk about the pay stub. Note that we could get paid with a check, a physical check or electronic Lee. In either case, the pay stuff will typically have information more than just would be on any type of paycheck are in normal type of check stub, including the Usually it'll have the net pay the growth pay for the time period, and it will have the deductions that were withheld so that the employee can get all the information of their of their time that they can see how much did they earn growth, How much was taken out, what was it taken out for? And the net check that they are actual receiving. They also typically will have on the pay stub of that information in terms of the year to date number, as well as just the number for this particular pay period when considering payroll internal controls. We know that they will differ from company to company will have more internal controls as company to grow because we'll need more controls in order to safeguard the payroll process , a process that can be subject to fraud. One of the major internal controls we always want to think of whenever thinking of internal controls is the separation of duties. We want to have some separation of duties so that if there is some type of fraud taking place that it should be more likely to be caught if the papal process has, ah separation of duties, not one individual who is in charge of the full payroll process. We also want to make sure that their documentation verifying verification of employees duties and that's gonna assign responsibility to the employees. We want to make sure that we can hold individuals accountable by well defining their task and then having them sign off on the task so that we can see and verify the task have one happened and to who is responsible for those particular tasks. Those should be documented. Common errors that a good system of controls can prevent are gonna be things like continued payment for terminated employees, or even a system where employees that are no longer there were fraudulently still getting a paycheck and possibly being deposited in a similar named type of account. If there's a separation in terms of the entering of the payroll data and the distribution in some way of of the pay cheques, then that may be a way to to help, to find out these problems, meaning, if we don't, if we have some type of verification in the distribution process of the payroll, as well as the entering of the payroll and the data input side, as well as stolen paychecks still on prior to distribution. So these were gonna be just a couple of things that we want to be able to safeguard against . And again, some problems could happen with payroll in that payroll being processed for employees that don't exist or prior employees possibly being deposited into bank accounts with similar names, those types of fraud that could take place, as well as just errors with the payroll never removing someone from the payroll records even after they have been terminated. Payroll documentation and retention. When considering the payroll documentation, we really want to make sure that we're holding onto the payroll documentation for a good while, probably longer than many other types of documentation, because we want to make sure that if anything happens later on in terms of payroll, we have that documentation. It is very possible for something that happened in the future and US toe have toe look into the payroll documents. It's also something that has a bit more complex city. Given the fact that we are withholding information and pain various sources on behalf of the employees, we want to make sure that we are in compliance with that obligation because if we're not, then we have a problem not just with not paying payroll taxes, but with possibly being charged with, um, taking money from the employees and not paying their responsibilities like we basically are required to dio. So we wrote, We want to be very careful with the payroll tax records. Now the taxes basically mandate a seven year recommendation, which a statue show statute of limitations for many other types of documents is like three years, possibly five years. So seven years is an extended period of time. It might be recommended to even hold payroll documents longer than that. And if there's a case of fraud, we should note that the iris would require documentation basically indefinitely at that time. So we definitely want to make sure that we're retaining the payroll records in a secure way for, ah, good time so that we can safeguard against any problems in the future. When disposing of papal records. We want to make sure we do it in a safe way in a secure way. And typically, that would include shredding or incinerating the payroll records to make sure that they don't said someone doesn't get ah hold of sensitive payroll information, including Social Security numbers and other sensitive data that can be used against employees, are in a harmful way. If we have the information in a database program, I want to make sure that once we get rid of the information that we have purged the database and completely I got rid of the information. So once again we can be certain that that sensitive information is not being taken, buy or stolen 33. 100.2 Form 941 QuickBooks: in this presentation, we will take a look at the form 9 41 within QuickBooks online. Here we are in our practice payroll test file. You can follow along in your own business file or take a look at QuickBooks free test drive practice file. We're gonna go down to the workers tab on the left side to consider the payroll options. Note that the payroll will typically be run through here. We've got our three employees set up within payroll. The process of running payroll is up top as we run the payroll. QuickBooks will then create the journal entries, create the financial statements and then create the quarterly forms That being the form 9 41 before we process the form 9 41 let's first consider the reports. So we're gonna go to a payroll report by going reports on the left side scrolling down to our payroll reports. We're gonna go to the payroll detail report, will select the payroll. Detailed reports. We're gonna look at it for the first quarter. The first quarter, which will be January through March. Run that report and this will give us a detail detail of check by check information, and it will also give us the quarterly information down below. So this is going to give us a summary off that quarterly information. The 9 40 ones will then group this information for us. It's gonna take that payroll processes with process on a check by check basis. As we can see here, we could see that detail. Each check is being processed for each employee. This is on a monthly basis for those three employees. It will also be able to summarize this data in a summary formats such as this, such as this report, and be able to summarize this data. Also in the quarterly reports deform 9 41 This is really what we're kind of pain for. One of the major things we're paying for when you purchase QuickBooks payroll because it's it's useful to be able to group this information, especially when we have some things that are gonna be a little bit more complex in terms of the payroll processing. So it's now open up the 9 41 We will do that by right clicking the tab up top. I'm going to duplicate this tab so we can have both tabs open at the same time. Pull the one from the left to the right. So now we have the two tabs and I'm going to scroll down to the taxes tab. So the payroll taxes on the forms, the 9 40 ones, will be in the taxes tab. Then we're gonna go to the second tab, which is payroll taxes as compared to the sales taxes. And then we're looking for the quarterly forms. The 9 41 is a quarterly form, will select the quarterly form, and we're looking for the 9 41 were considering the first quarter. So that's January through March. So every three every three months, every quarter of the year we have, the report will run that report. QuickBooks will then compile this data for us again. Very nice process that QuickBooks can do this for us and compiled this data. We've got the employer identification number up top the address, and then we're gonna have the quarter that we are in were processing the first quarter here January, February March, it being indicated by the except top. We're gonna go then down to line one. You'll note that we have three employees, but We didn't process the payroll for the 3rd 1 in the last period. So that's why there's like to being showing here in Box one. It'll group that information for us based on the payroll that has been processed, and then we have the line to which is gonna be the wages come for F I t. Federal income tax wages. So this is the F I T wages, and then we have a federal income tax and this is the actual tax. It's been calculated here. We can't derive it from this number because each employee has different amount of with holdings and exemptions. So we just This is just a information report again. Great that QuickBooks can compile this information because we can't verify this number. All we can do is basically say that this is what we took from the employees. In other words, we can't verify it with a simple calculation of a flat rate based on the total wages for F . I. T. Because there's multiple employees that have multiple different conditions. Answer. Complicated tax. In that case, the Social Security wages are gonna be down here, and then we have the rate. Now, remember the rate is both the employer and employee portion being calculated here. This is the Social Security tax. Then both employer and employee portion the Medicare wages down here times the Medicare great, which, of course, again both employer and employee portion gives us the actual tax, both employer and employee portion. And then we have the added Medicare because we have that one employee in this case going over the amount in where we would need to calculate the added Medicare. And so yet we have added Medicare. Note that this number, this number and this number all have to do with wages, and they are all different. And that's because we're talking about wages as compared to as they relate to specific taxes, not as they relate to total compensation. You'll note that all of these numbers are different. Then the number If we go back to our report, the number for total compensation here. This is regular pay ot pay salary Bonus. The S Corp. 4000. This is the total wages here 3 11 708 and that number doesn't match any of these numbers here. It's higher than all of these numbers here, so note that on QuickBooks own report this report here we have wages for the quarter that aren't on any of the wage numbers on the 9 41 None of the numbers on the 9 41 for actual wages are equal to each other in this example. And not only that, if even if we go back to the highest number, which is on this report, this doesn't even show total compensation What has actually been earned by the employee? Because we may have benefits over and above the girls pay even being reported here, included in this case. Ah, for a one K plan that is employed, er contribution. The employer, not the employee. This is the employer contribution, plus anything that might be a benefit over and above the girls pay. In this case, the medical insurance was a benefit paid over and above the gross pay. So in other words, it's not being included in this number. So just realized that when you talk about compensation with it, employees and you say how much we earn in, you certainly can't take, you know, f I t wages and say, hey, which is this number of the amount that would be reported on the W two to the and say, That's what you're earning. And even if you take the Medicare wages, which is on the W two as the highest number, that's still not with the total earnings that they're making are because there's some things that could be decreasing the Medicare wages. And they may be getting compensation, such as a 41 K plan over and above that, as well as other type of benefits over and above that. So it's important that kind of realized that one just for the discussion about your own payroll payroll with employees and to just to realise the complexity of this form. Now, if this was a very simple form, if we didn't have anybody making over the cap for Social Security, for example, then the Social Security and Medicare would probably be the same at that point. And that's over 100,000 you know, well, over 100,000 to hit that cap. So if we didn't have anybody making over that amount, these two would be the same, and we wouldn't have this added number here. And if we didn't have some benefits, including a 41 K plan. It's quite possible that these three numbers would all be the same. So we'll talk about some of the things that will differentiate these numbers as we go through and will actually work through this problem and see these exact differentiations and go into more depth in terms of what the actual differences are a lot more depth in terms of what those actual differences are. But just note that it's all these laws that we're gonna put in place. None of them are complex in and of themselves, but you can see once they get compiled together, we start to see that a complicated picture just because of the so many different factors that are involved. No one factor being difficult. All the factors put together, however, means that we need to basically be able to piece out all those factors and understand why these, for example, three numbers, which are all wages, are different. So, QuickBooks, that's what we're paying QuickBooks for, So that's gonna be great that they can basically break that out. We want to basically understand it so we can explain it to ourselves and others. And then, of course, we have the total of, ah, that these here service is gonna be f I t Social Security and Medicare. And then if we go down below, we had to record this in another schedule, the schedule B, which is gonna report by month. So here's the monthly activity for the three months. If we add that up when we get the 1 22 to 35 this is not the deposits. These are the liabilities per month. And then if we scroll back up, you'll see that that number is going to be this number. Here it's off by two cents. We had a rounding, so there will be a rounding errors because we're going to pennies. So it's all by two cents over the iris. Allows us to put in that rounding. QuickBooks does it for us, which is nice. Then we have the liability here Now, normally, we haven't processed the payroll that payments in this example. Typically, the payments should already have been processed already. Make the payments by the time we process this form. And in that case, then this form should over Nothing we should already have the payments being made hasn't been done in this example, but for the payments would typically be made. And this would just be an information form similar to the 10 40 where we would just, basically, if the 10 40 was done perfectly our individual tax return at the end of the year, we shouldn't oh anything and we shouldn't get a refund. We would have paid it perfectly. The problem is, it's too complex. The taxes are so we don't know exactly what to pay until we actually process the payroll. So we try to overpay and get a refund here. We know exactly what to pay. We already paid it. If we're doing things properly and this is just an information form to say, here's a recalculation of our liability in a couple different formats, so you can see it clearly. Here's what we paid. It should tie out exactly because it's not some complicated system, as as is the yearly 10 40 tax is where we have no idea what the actual tax will be until that time period. So we paid exactly what we paid, and this will just be an information form 34. 110 Form 940: In this presentation, we will take a look at Form 9 40 which is the employer's annual federal unemployment or photo tax return. Here's an example of the form This comes from the I. R s website, which you can find at I r s dot gov. We've got the 10 40 currently for 2017. It has the same information up top that we see in the 9 41 which will include the E i N number. Ah, the employer identification number, name, trade and address note Over here. However, even though we have a similar looking box, it's not the same as we see on the 9 40 ones, because this is a yearly return rather than a quarterly return. So this box includes stuff. If we had to amend the returned or some other special circumstances like it, it's like the last return or something like that. Then we would select the appropriate items here. But this isn't a quarterly return that the thing we really want to remember here They sound very similar, of course, one because of the numbers and to because it's a payroll tax form. But the 9 41 is actually the quarterly returns that 9 40 if the yearly return. So it also seems kind of funny that the 9 40 the thing we do at the end of the year, has a number that's before the 9 40 ones that we do on a quarterly basis. Note that they're not related in many different ways. The 9 40 at the end of the year. In other words, it would be makes sense for us to think that the IRS would want us to make a 9 40 return 9 41 return quarterly for 4/4 and then re sum up that data again in the yearly return in this form. But 9 41 That's not what it's happening, however, There are actually two different types of taxes that we are dealing with for the 9 40 ones and the nine forties. In other words, really, what's happening for the 9 40 once is it's reporting our main taxes, meaning it's reporting F I t. Federal income tax, Social Security for the employer and employee side and Medicare for the employer and employee side. So my guess is the reason that we need to record that on a quarterly basis rather than on a yearly basis, is because of its significance. We're recording the main taxes there. The 9 40 on the other hand, which we only have to report at the end of the year, is only reporting the food attacks, federal unemployment tax, which is a much smaller tax. So, really, what's happening here is the irises saying, Hey, we're gonna give you some pity here and not make you report this on a quarterly basis, but instead just on a yearly basis. But we do want to see that quarterly taxes for the F. I T. So security and Medicare. So, in other words, this one lines up closer to what we think of and know of with our personal taxes, like the 10 40 that we have to file at the end of the year. That is also an information return that we would basically say, Hey, this is how much we owe. At the end of the year, we should have already paid it, and we file that one time. That's similar to the 9 40 here that we do for the federal unemployment tax. We go down to the calculations, then we got our registered data up here. That's gonna be our data from outward register. We will use then to fill out this form 9 40 were here in part one. So the 1st 1 says, if you had to pay state unemployment tax in one state only we're gonna pick the Nevada. Just pick a state here. Note here that you might think, Well, why do I need a state? Because it's a federal tax. Aren't all states equal win considering federal taxes? But notice that the food attacks is the law got kind of mixed up with the state taxes, meaning the food attacks is lower If you paid suit attacks, in other words, the state would have to have a suit, a tax law to pay the suta to get the lower rate for FOTA, which most states did and therefore, in essence, will have a lower rate of food. So when you think of food, we really are applying a lower rate, pretty low rate, but it's only applicable if we're paying suta taxes generally. And that would only be applicable if the state had a suit attacks. Which because of that requirement, most states do So we're just gonna pick a state here. That's why we need a state on the B. Says, if you had to pay state unemployment tax in more than one state, then we'd have to make sure that again. We kind of paid the suit attacks to calculate the food at the lower rate. And then two says, if you paid wages in state that is subject to credit reduction, so we're not gonna deal with that here either. So then we have the total payments to all employees. This is going to come from our earnings record. So we have the 2 41 206 from the earnings record. It's not gonna differ than, in other words, we may have different types of earnings wages. If we're talking about F I t earnings or for talking about O A S T I earnings, it could defer. We're just gonna take that total earnings, typically here for the Fruita earnings. Next thing says payments exempt from fruit attacks. In our example, we don't have any exempt payments from food to tax. Line five says total of payments made to each employee in excess of 7000. This number can be confusing because it's often not the number that we have calculated when we're calculating our payroll calculations. In other words, we didn't really calculate the amount that would be over the 7000 for each employee and therefore not to be used within the calculation for the food taxes, we calculated the number that would be included, in other words, the wages for food. So then we can use that to calculate what the food attacks would be. So we would already know the photo wages, and we would actually know what the food attacks was based on those fruit toe wages, which would be the food of wages, times the food rate. So what we're gonna do is actually skip down to what we know, and then we'll back into this number. What we know is this number line seven total taxable photo wages is 28,000. That means that this calculation these wages were the food a wages for all employees who reached that cap of 7000. So this is calculated as you keep on increasing the food toe wages until you get to that cap and then you stop calculating food or wages so note the photo wages will be much different than total earnings. It will be much lower. Most employees will reach that cap. The only reason they would not is typically or the main reasons they would not is if they were laid off sometime in the year and never reached 7000 or if they were hired towards the end of the year. Other than that, most employees will reach the cap. In our example, we had four employees and they all reached the cap of 7000. So we just have 7000 times four employees. 28,000 is our wages. Then we're gonna most by that times, the food to rate. And that's where we already have the food to calculation here. So in other words, we know this number already. Then weaken back into this number. If this is the future wages and these are the total wages, then all the wages above the food to cap is just the difference between the two or 2 41 2 of six minus 28,000. So that's 2 13 206 So then we'll kind of back into this number 2 13 to work six. So the iris wants is going to read it this way. They're going to say that we have to 41 206 minus 213206 to get the photo wages that we're actually going to use. And we calculated it this way. We basically said, Hey, we already already found that food, toe wages and we didn't know how much was over photo. So we know these two numbers 2 40 2 41 206 minus 28,000. And that gives us the 2 13 2 or six. Once we have that then line ate, says food attacks before adjustments. We're gonna take that line seven times 70.6 So we'll just take that calculation 28,000 times 0.6 That's the 1 68 and we would already have. We can already probably have that on our worksheet and knew that this will be a worksheet. Not part of the register register shows the net pay the gross pay to the net pay. And this is an employee er tax on Lee and therefore we need ah worksheet. That would probably be included. Teoh, the register calculation. So there's are 1 68 if we continue down to Part B or Part three that there's nothing import . Three. It's as if all the taxable food toe wages with you paid were excluded from T State unemployment tax. Multiply line seven by 70.54 In other words, if there's an issue where we didn't play state Suta tax, we would have to pay more Fouda tax because Fouda is tied to Suta. So if if we paid the state tax than typically we have this nice lo fu tau rate. If, on the other hand, for whatever reason we did not pay Suta tax, then we're probably gonna have to pay more for food toe. We're not gonna deal with that. In our example, we have been lying 12 food attacks after adjustments which will remain the same at 1 68 Then we have the deposit amount and just like the 9 40 ones, we have to make sure that we know the difference between this amount, the liability calculation and this amount which will be the amount we actually paid. They're going to be the same, but a number, but they're coming from different sources. This is us recalculating food, telling the Irish Hey, this is our food a liability. And we should have already paid it in a similar way that we already have paid our taxes when we report our 10 40 individual tax return at the end of the year. In this case, however, it should be exact because it's a flat tax, easy to calculate should offer to be paid. This, in other words, is just information return, not a return that's gonna tell us Hey, this is how much we owe and write a check for. So we're gonna get that from our payroll register and in this case are journal entries. So we're looking at a journal entries. This is when we paid payroll, we paid 17. 30 17,073 15 and then 3 16,048 um, for these two journal entries and we're picking up just the food portion in this case, which is this portion. So it's gonna be a smaller amount, of course. So it's the 1 25 38 the 40 to 62. If we were to pull out the trusty calculator and add that up 1 25.38 plus 42.62 We get 1 68 So that is our 1 68 And that's gonna be the amount that will go here on our food to return . It will match. It will be the same and therefore we won't owe anything. But we want to make sure that if we get audited, if they double check on that that this numbers are payments that we can go back and see if they have been paid. We can also see if they have cleared if they cleared that the the bank and therefore no if the if the IRS has deposited those amounts. 35. 120 Form W 3 & W 2: in this presentation, we will take a look at form W three and form W two. Here's a copy of a form W two from the I. R s website, which you can find at I r s dot gov. This is just a demonstration form. And of course, the W two is a form that most of us are most familiar with. A form that we see a form that we get as employees at the end of the year. Ah, form That tells us how much we've earned and the with holdings we have so that we can then use it in order to fill out our responsibility. Our individual form 10 40 at the end of the year. If we go through this from an employer standpoint, it's important to note what the form W two is saying to us and what they're doing on their side. One. It is, of course, reporting to us, our wages and what was withheld from us and therefore I form that can be used to fill out our tax return. That's one major purpose of the form. It's also form that they're going to be sending not only to us but to the I. R. S. And that's important to note as well, because the iris is really not dependent on us to report our information. In this case, for the W two, they already have it. They have a copy of the W two, which is given to them by the employer is required to be given to them by the employer. So whenever you get a W two and 10 99 for that for the same which is similar, you gotta note that this is not only telling us what we've earned, it's also telling us Hey, this information is reported in this format to the IRS. If you report something differently, even if you believe it, be correct as different. You're gonna have an issue with it because the iris is really just matching what you report to what we report here. So that's the first thing T note with the WTI that we want to make sure that we have a good understanding of if we go through the components of the W two. We, of course, have the employer identification number. The E I N number needs to be recorded every time we have some type of payroll information for the IRS. We got the employer's name address. We've got the control number. Then we have the employees, first name and initial last name and the employees address. Then we go through the points where we will spend most of our time looking at the actual reporting of the numbers. We're most familiar, probably with the first box, which is wages, tips and compensation. Note that this box, however, is not the best representation of total wages because it will be reduced by things such as a 41 K plan and possibly a cafeteria plan. So when we look at the total wages, when we try to say, how much do we earn throughout the year, most of us will go here and look at Box one, but it's not the best representation because it's probably lower than what our total earnings are because they've been reduced for the calculation of taxes by things that are not including the gross income for tax calculations. So we'll look a little bit more of that when we put the numbers here in box to, of course, is the federal income tax withheld. We have withheld taxes. It's been withheld from US, meaning we've made payments throughout the year for the employees now. We didn't actually write the check, but the employer was responsible for taking the money out of our wages and pain for us. Then we have the Social Security wages, and this could differ than from Line one, and it could differ based on hitting a cap for Social Security. And it could be differ based on something like a cafeteria plan. Then we've got the Social Security tax withheld, and then we have the Medicare wages So the Medicare wages could differ from lines one and three based on one if there's a cafeteria plan and to there's no cap. So this one Line five is probably the closest to our actual wages of the three wage categories. So if we're gonna look at the W two and try to figure out what we actually got paid, what we're actually earning Line five might be the best or closest to. It Still might be low by, say, the cafeteria plan. If there is one and then we have the Medicare tax and then we have the sole security tips. What? We're not gonna get into too much as allocating tips. What? We won't be dealing with tips here verification, code dependent care benefits, non qualified plans. And then the, uh, the whether or not we have a retirement plan here. So line 13 is whether we have a retirement plan. Box 12 We're gonna go over. Some of the things that could be exempt typically are kind of things that could be in box 12 including things like a retirement plan that would be coming out of box one and a reason that Box one would differ than, say, Box five. And we could have a cafeteria plan that would be reducing pretty much all three of these items if it was qualified to do so that we would indicate down here that would be an informational format or informational purposes down here. Then we've got the employer state I D number, which we're not gonna spend time with here because it will differ from state to state. But then we have to state wages, state income tax, whatever the state law is, and it could mirror the format that the Fed has, or it may be typically a little bit more simplified than the Fed s, so it could probably be similar or possibly more simple, simplified up sometimes. But if changes from state to state and in local wages and local taxes note the W three, in essence, has the same stuff here. So we've got lines 1 35 to 46 wages. So security wages, Medicare and then federal income tax if I t. So security tax and Medicare tax. And that's because the W three will just be summing up all the W twos. So if you think of all of our employees like is one big conglomerate thing of oven employees, then they then the W three would basically be reporting all of their stuff all of their wages in one group. So it's going to sum up in other words, the W two's. That's mainly what we want to get on the W three and is gonna leave the W three at that. We'll do a little bit of a calculation for this now. If we had the earnings records for it in this case, four employees here Anthony, Cindy, Jill and Judy. Then we're gonna take this data and create the W twos from it. So this earnings record will have one for Andy. We got the total earnings. We've got the O A S T i earnings, which in this case, we're gonna be the same except for Judy, which differs because Judy reached the cap and the cafeteria plan is not There's no cafeteria plan reducing these, So they're the same for her and other employees. Then we've got the FOTA wages, which isn't gonna be on Fruita is not on the W two because it's an employer tax suta as well Food and suta. And then we got the OSD. I we've got the actual amounts that were taken out of each employees checks And then we've got the H I Medicare taken out of the each employee's checks and f i t the amount taken out of each employee's checks insurance, which is not a cafeteria plan not qualified to reduce net income taken out and then union dues and the 401 k which will be a reducing federal income tax and then the net pay. So these are our totals. We're gonna then go through each of the deputies pretty quickly. So here's just a copy of a W two. That's kind of like a simulation form, and we would take that information and fill out Box one. Wages and compensation, which would differ in this case from Box three, is different from Box three, in this case from the retirement plan that was here. So the difference between the 20,008 12 50 the 19 7 16 96 85 can be seen in 12 a indicated by a code, which should be the retirement plan. And it's also indicated here that we have a retirement plan now. If there was a qualified cafeteria plan, it could be down here with a D D, which would, which would be just an informational piece as well. But ours isn't a cafeteria plan. It's just a note that, uh and then we So we've got the Social Security, and then we've got the Medicare wages. These two are the same because this employee hasn't hit the cap, and therefore these two will be the same note that this number's probably closest to the actual earnings of this employee, then the federal income taxes. Based on these wages, the Social Security is based on these wages note. The F i T can't be derived directly from these wages because it depends on the amount of exemptions and all that, which will be calculating on the form 10 40. This one, however, should be, ah, flat tax, so we can actually see that the 20 81 20,002 810.5 times 0.62 is this 1000 to 90 and we can see that this 20,000 for Medicare Times 0.145 should be the 103 78. So these two, we can actually re calculate this one. We cannot. And so that's gonna be the first employee second employee Similar. We've got the wages in box one differing from Box three for Social Security and Medicare. Because Box one is being reduced by the 401 K plan, which we can see in box 12 A then sold security and Medicare will be the same because this employee did not reach the cap. F i t. Federal income tax being calculated based on box one. But we can't see a direct link because of the complexity and the f i t. Federal income tax, Social Security 6.2% Medicare, 6.2% of box three and box five, respectively. Same thing for our third employees. Fox one differing from Box three due to the retirement plan in blocks 12. And it being this box three, same as box five. Because this employee didn't match the cap. Same calculations box 24 and six, then our last employees a bit different. This is our high earner here. This is Judy Jones. Uh, she has wages in box one, differing from box three. Social Security wages differing than total compensation one because Box one has the 8000 7 50 for the amount that was in the retirement plan but also because she hit the cap, which is at 1 28 400 So if we start to see higher wage individuals, this one's just going to stop at whatever the cap is. In this case, it's 1 28 400 So, notice of these three numbers, they're all differing. The Medicare is probably the closest to what the actual earnings are because the Medicare does not have a cap and is not being reduced by something like the 41 K or retirement plan that if we were to add all those up, then this would be Box one wages. If we were to add up all four boxes for our four employees, this would be boxed three wages. Social Security wages for four employees, Medicare wages for four employees, federal income tax for four employees, which cannot directly be tied to this number because it's too complicated. Social Security, however, and Medicare can be calculated on ah total basis as well, meaning the 1 94 66 times 660.62 gives us the 12,065 57. And if we were to take the 2 41 206 times two point over 145 we get the 4 3097 there, so these two we can calculate because they're nice, flat taxes. 36. 120.2 Form W-3 QuickBooks: in this presentation, we will take a look at form W three within our QuickBooks online. Here we are in our practice payroll file. You can follow along in your own business style or take a look at the free test drive file provided by Intuit provided by QuickBooks. We're going to go down to the workers tab on the left. This is where we would typically process the payroll. We currently have three employees as can be seen here, strolling back up top. We see that running. Obviously the payroll is how we typically run the payroll. That will trigger the information that QuickBooks will generate, which will be the creation of the reports that entering of the journal entries the financial statements, the payroll tax forms. We're gonna take a look at the payroll tax forms to W three, the year end form. But first we want to take a look at the report. So we're gonna go to the reports on the left. We're going to go down to the payroll reports and we're gonna look in the payroll reports looking at that payroll of detail reports, and then we're gonna do the report for the entire year this time. So we're going to say this report will be for this year. So we then are going Teoh, run this report and now we'll have the detail for the year. And this is what QuickBooks is great at doing. Where this what we're paying for. We're taking all this information, which is not too difficult paycheck by paycheck. But when we put it all together and start to group this in different ways, then it becomes kind of confusing him. And if we have the summary detail down here will have the summary of the years information thus far. This is the information that we're gonna group together. All the payroll check detail that we see up here up top for all payroll for all periods will then be calculated out and create the total for the year. We can then compare and contrast this total report, the financial statements that quarterly reports and the year end reports, which include the 9 40 the W three at the end of the year and see if we could tie all that stuff out. So we are now going to take a look at the W three. I'm gonna do that with another report by right clicking on this up top, we are going to duplicate this information, and then we're gonna go down Teoh the taxes tab so the taxes tap or where the forms will be Were in the payroll taxes tap as opposed to the sales tax. We're gonna go down not to the quarterly reports. That's gonna be the 9 41 We want the annual report. So we want to be on the annual rewards. And that will include the 9 40 The 9 40 is going to be just the year in report for federal unemployment tax. Then we have the W twos, and the W two's will be the most familiar report for most people. It's gonna be the individual report. The W three is gonna be a less familiar for most people, but very easy to comprehend because it's basically gonna be this summary of all W two information. In other words, if we think about all employees kind of groups together to one employee, that would in essence be the W three. That's it will take a look at here. We're gonna consider the W three if we select that item. We're looking at it for 2019 and we will then a view that record QuickBooks will then generate this W three report and all the W two reports. This again is what really we're paying QuickBooks kind of to do here to group this information, fill out these forms for us at the quarterly, and especially at the end of the year. That's when everything all comes together for payroll. That's when we really say, Oh, did we do this right or not at the end of the year? Because that's when you have to reconcile everything, make sure everything is tile tying out and looking correct. So this should look familiar. This is going to be similar to the W W two form. We're gonna have our number of employees over here, and all this will be populated for us. We've got the wages for the F I T wages and that then giving us the federal income tax. We got the Social Security wages, the Social Security tax, the Medicare wages and the Medicare withholding tax or the Medicare tax. And then 12 a is gonna be the 401 K plan that withholding from the employees e not the employer contribution, but the employee contribution. And then we have the state information down below. We're not going to spend a lot of time on the state information. It will, of course, differ from state to state the W three filling out the W three. It's fairly straightforward, however, it can get complex very quickly as we add even a few employees. It can get complex. And as we have employees that especially have higher dollar amounts or we add a few benefits, they can get more and more confusing. In other words. For example, if you look at your W two oftentimes you if we may have box 13 and five being the same number because they're all a form of wages. Box 13 and five. If we had a low income employees or midsize income in, you know, it would all be the same number here, or if we didn't have any other benefits, such as the 41 K these would, in essence be the same number you'll note here. Although these are all wage numbers, they're all different, and that's gonna be a bit more complex when that happens, that means there's something a bit more complex going on. For example, the Social Security. That would mean that someone hit the cap here. The Social Security wages are lower, so someone is making you know well over 100,000 that hit that cap and therefore there's no Social Security. That's what that would indicate. The Medicare is gonna be the highest amount because it doesn't typically have that same kind of cap limits. The F I T federal income tax will typically be lowered by. A few different things could do so often times. The difference between this number and Medicare will be this number here, which is gonna be the 41 key contributions. So if we have a 41 came that in and of itself can add a good deal of complexity, and it's something that we would want to have some kind of retirement plan. But it could add a good deal of complexity to just processing the payroll, so we just want to keep that in mind. Also note that if we go to our payroll report on this first half and scroll down that this is our total paid number here for the year. So we had regular pay ot pay salary pay, sick pay, bonus pay as Corp A will talk about these payments later, but that's the total pay. That would be the total compensation. And that number. The three, the 3 23 895 and we go back to this report is not here at all. It's higher than any of these numbers, so just be aware that we were thinking about compensation. We have three reports here. We've got this report were going to reconcile this to the financial statements, and we also have this report and none of the wages numbers fill out. 13 and five don't match each other. They don't match what's on the payroll report in terms of gross wages so that once things get a bit more complex, no, in particular rule is that complex within payroll. But when we add them all together that starts to get a little complex. Why would that be? We'll talk more in depth about what that will be Later. We talked a little bit of why it would be the Social Security cap, the things like the 41 K being a deduction for the F. I T will explain this exact problem in these exact differences in detail as we go through the comprehensive problem. Also note that if we go back to this tab, this is the highest number of all the all the compensation. And even it is not total compensation because it could be the fact that there's an employer contribution for a one K, for example, or some other benefit that's not being included in the gross wage at all. And those would be these items in this case, and that would mean that the actual compensation would be higher than even this number. So when we're communicating with employees about what your benefits, what do you earn in or what are we earning when we're thinking about our compensation? We were typically going to go to our W two and look at Box one, but that's low. That that number is not exactly right. So when we're trying to consider our compensation, Box five is probably the better box toe look at because it's actually closer to the rial compensation. What we actually earned, even it is going to be low if we take a look at that number and the actual report, I will note that it's it's lower than this number here. We'll talk some reasons why and even this number is low because we might have other benefits. And these benefits are huge because their benefits that are not being taxed, that's the point of having them. That's why we have them as a separate line out of we don't want them to be taxed. So this creates some confusion not only with the processing of payroll which, of course makes it a little bit more difficult to process table because we have to break all this out. But it also makes it difficult when we try to communicate compensation to ourselves or to employees and try to negotiate what would be a fair compensation, because we have to basically break out and say, OK, this is what actually is being received, even though this is what's being reported kind of as wages on the form that you would typically go to to think about wages. So to really get the true number, we have to consider everything in the picture. When we think about wage hump compensation, when we actually calculate the information. We have to realize that Box 13 and five are looking at wages solely from the standpoint of what do I need to calculate the taxes on the taxable wages for the federal income tax, Social Security and Medicare? Note that these amounts should also tie out to that 9 40 ones the 4/4. So if we add up the 4/4 we got the wages. Social Security and Medicare wages. Box 13 and five should tie out to the 4/4 typically most of the time on the form 9 41 However, the Social Security and Medicare tax should be half of what's on the forms 9 41 the 4/4 because this is the only the employee side and not the employer side. So just keep that in mind as we tie out the end of the year, we'll look at that more in depth later, and then we've got the F I T tax, which will be the same as the 4/4 on the 9 41 because it's just the employees of portion. There is no employer portion. It's only employees portion on both this form and the forms 9 41 because that's all there is 37. 130 Reconciling Year End Payroll Forms: In this presentation, we will reconcile our year end payroll forms and, in essence, double check vet. They've been filled out correctly, So we have here our forms 9 41 and the W three. These are the two forms that we can use to reconcile each other and make sure that the two forms have been filled out correctly. We can double check, in other words, our quarterly form by tying it out to the W three and vice versa. Check the W three to the quarterly forms. Remember what the's quarterly forms are doing is there are calculating the three main taxes , which are the F I T federal income tax for the employees, the Social Security tax for employees and employer, and the Medicare tax for employees and employers. This is gonna be done on a quarterly basis. So we've got January, February, March, April, May, June, July, August, September, October, November, December or quarter for work, or 3/4 to quarter one. The W. You three, of course, is just a yearly form that will be reported at the end of the year. Summarizing all the double YouTube is that we send to both the employees and the I. R s. So what we can do is double check these forms because we can see here on the totals. Here we have the total wages, soul security and Medicare wages, as well as the calculations for federal income tax, Social Security tax and Medicare taxes, which have been withheld. So to do that, we're gonna try to match these out. Now, what we don't show here is the 9 40 than that form 9 40 which is the year in form. And that's because it's reporting Fota, which is just a tax for it's an employer only tax and therefore not reported on the W three . It is possible for us to kind of compare the food of wages, but we still have to do some reconcile ing to make sure that we're picking up the correct wages on food on the food, a form which is a yearly form the form 9 40 So common misconception would be that the quarterly forms that 9 40 ones. The iris wants us to report everything quarterly and then summarize that same information again on the yearly form. 9 40 Not necessarily the case that forms 9 40 ones report the three main taxes, the big taxes, the F I T federal income tax, Social Security and Medicare, which the IRS wants to see on a quarterly basis. Whereas the Form 9 40 reports attacks. That's usually a lot smaller FOTA federal unemployment tax and therefore the iris is happy or content enough, I guess, just to see that reported on a yearly basis rather than on a quarterly basis. So they're actually two different things. We're reconcile ing there. So if we look at what we have is we have quarter three and quarter four in this example, we only have 2/4 rather than 4/4. And that'll make it a little bit easier for us to show how this reconcile in process would work. If we had 4/4 of data. Then, of course, we were just at of the 4/4 of data. So in the 19 forties, over here this box box to is the wages and tips box and these are really wages and tips for F I T. Calculation. Meaning this and this for the 2/4 should add up. Teoh this box one. So if we were Teoh tie this out to double check everything. At the end of the year, we're gonna say, OK, but 914 to 5 point wound plus the 135909.9 should add up to the to 27 +335 and you might even have been subtracted. Sometimes two to seventh UH, 7335 minus That should go to zero. So that would tie out. And then we're taking a look at the federal income tax withheld Box three should tie out to the federal income tax box to on the W three. Now again, you can't tie this number to this number because it's too complex because it'll change by employees, but we can sum them up and double check that way. So again, it's not flat tax, so we can't do a simple calculation from the wages to the tax. We can take the 17 of over 3.26 plus the 25212.4, and that should give us to 42 to 15 66. If we subtract that 42 to 15.66 back to zero, then we'll take the social security wages. So we have the social Security wages here and here. Vecchia tile to sell security wages here on the W three. So if we're Teoh had the Social Security wages up, we're adding the 96973.5 and the 97632.5 to get the, um 1 94 6 So six. So if we subtract out what we have 1 94 6 So six back down zero and then we're looking for the Social Security here. Now, this is where it gets a little bit complex. This is the actual tax. And, uh, this could differ from the tax that we're going to see over here. So let's see why we're gonna add up the one to go to 4.71 and down here, the 1 to 1 of 6.43 And that's gonna different. It will always differ, by the way, the 12,065 57. Why? Because we multiply this by twice the amount. This, in other words, is not 570.62 but 0.1 to 4 or twice the wages. In other words, it's the employer and employee portion. So if we take this amount and divide by two, we'll get just the employee portion, which is what Sport reported on the W twos in the W three. Same is gonna be here. So this is the Medicare taxes on these two lines. If we add those two lines were going to say, That's the 96973.5 plus 2144232.5, giving us the 2 41 60 to 41 206 So if we subtract that out 2 41 206 back down the zero and then we're going to the same calculation for Medicare wages. So we will add those to, uh okay, So that's going to be and hit some funny there in Russia to 812.23 plus the 4182.74 That's the 6994 97 again, that's going to differ from what we have here, because we see this rate of 0.29 which is really twice the rate that we typically what probably no 0.145 because it's both the employer and employee portion. Therefore, if we take this number and divide by two, we're gonna get there 4 3097 which is the number we want the 4 3097 These are the numbers that weaken generally reconcile. In most cases now, there may be some reasons why these numbers would differ. And if there were, we'd want to make a reconciliation and know exactly what the differences are. So when questioned, if questioned, which we quite possibly could be by the IRS in terms of some type of audit, we could give responses to any kind of differences between the W three and the 9 40 ones. Remember once again that we're talking about. We only had 29 40 once here because it was our first year of operations, our first year of payroll, and we only had 2/4. If we had 4/4 we would have to add up the 4/4. Then we're having the Form 9 40 which we can't tie out as neatly with with the other forms the W three and three W two's. Why? Because the W threes and the W twos are employee taxes and this form is an employer tax, and they don't tie out also to the quarterly forms at 9 40 ones. Because those report different taxes, they report federal income tax. So security and Medicare. So but 9 40 ones do report some employees, er taxes that are portion the employer portion of Social Security and Medicare but doesn't report the employer attacks of Fouda. This is the only if tax form that reports the employer attacks of photo. We can, however, look at the total payments for all employees, the total compensation, and try to reconcile that in some way to the amounts that are on the W three and UH, 9 40 It may not reconcile exactly Teoh any particular box. It be closest to box to the Medicare box on W three, but it could differ by a cafeteria plan, but we can reconcile that difference and know what the difference would be. Between the total payments here and the Medicare calculation on Box three of the W ah twos in the W three and Box three of the W twos. And the W three would, of course, also reconcile to adding up the nine forties, which we just did on a Box five C in part one 38. 315 Payroll Calculations: in this presentation, we will take a look at payroll calculations. We're gonna start off with the comparison of annual salary to hourly salary. This could be important when discussing and considering what type of salary to have and the comparison between the annual rate and an hourly rate. If we're given something like an annual rate of 50,000 year and we want to break down Okay , what is that? In terms of basically an hourly rate, we can take the 50,000 and then divided by. And this is the key 52 weeks in the year. Rather than doing something like trying to divided by 12 months, remember that 12 months is gonna be a little bit less accurate. And just because of the way timing is, it's not perfect. That's why we have the calendars a little off. Got the leap years a little off. Ah, but 12 months is gonna be more inaccurate than using that weeks in a year, which would be 52 a bit more accurate. Teoh. Use the 52. We do want to know that number for payroll calculations. There's 52 weeks in a year that would give us the 961 54 per week Note that this is rounded typically gonna be rounded toothy penny when we're talking about payroll Ah, and s so just be careful of that when you have it in Excel Excel will even though you see it rounded to the penny use whatever number is actually in the cell when making calculations. So be careful there if we then take that and divide by 40 the 40 hours in a week and that would give us the hourly rate of $24.4. Now, of course, if we had any kind of calculation where we had a $50,000 a year and we were agreed to work some other a number of hours other than 40 like 35 hours or something, then we can divide by 35 we get our hourly rate in the similar fashion. So, of course, the calculation 50,000 divided by 52 weeks in a year, gives us 9 61 53 8 right, rounded to 54. If I used this ungrounded number and then divide by 40 hours in a week, I get 24.384 blah blah, 24.4 So just be aware of that rounding. Now we'll take a look at a commission. That situation. I remember that a commission basically just means that we're gonna get paid based on sales , typically. So our sales number, whatever the sales number is, we will typically get a percentage of that. And the point of the commission will be to try to get people, of course, to be more motivated to create sales. So there's going to be pros and cons to a commission based system. Ah, the pros are gonna be that more people are motivated to spend their time more productively to make sales if they're going to get paid based on a commission basis. The downside to that is that we could have sales situations. Where are more sales driven and people feel more pressured. So if you're in a type of industry where customers don't want to feel pressured or think the sales fourth, maybe to pressuring or having problems between sales individuals, then the commission based can't have some problems there. So pros and cons with the commission also note there's pros and cons in terms of how do we deal with that minimum wage again in terms of commission? Because if we don't have the hourly salary, we need to make sure that, in essence, we're over the minimum wage. Through the commission, Teoh comply with minimum wage requirements. But the Commission is pretty straightforward. We will take the sales amount times. Whatever the commission rate is, if it's 5% if we're gonna pay 5% Teoh whatever sales were made by an individual, then that would be 3000 in this case. Now we'll take a look at a pay base based on piece rate pay, and that's gonna be the concept that we're not gonna pay people based on just hours. We're not gonna be basing on the sales because if they're not in the sales area, but we may still want to base our sales on performance. And one way to do that is to say, if we're making things how many things were made, we will pay by the units that were produced, So that's gonna be ah, pretty traditional type of payment method. How many units were produced will pay by units produced so units completed. If we have 50 units completed, whatever the rate then per unit for saying it's $12 per unit 50 times 12 would give us the 600. Then there's pros and cons to this kind of pay rate. It only really applies. Given situations where we're actually producing units and typically units that are all the same, we want units that are all the same in nature. If we're dealing with areas where we're have more creative type of units or the quality could defer ah, lot within units, then this method could have problems. The downside being that people will try to produce more units of lesser quality to try to get paid more, that's gonna be the type of incentive. So if we're making all the same units that have to pass a similar type of quality assurance thing and they're all the same, then this method could be a useful method. The benefit of it, of course, is that if we pay just hourly, then the tendency, just the incentives that are there are for people to spend less time being being productive because it doesn't pay anymore to be productive. Eso the pro the benefit. The gold here would be Teoh. Have people spend their time being productive and pay the more productive people more money through this system? Another problem, of course, though, is that since we're not paying just on hourly rate, it's difficult to apply rules and regulations like the minimum wage. So once again, we have to be careful here to make sure that we still need to track, in essence, the hourly rate so that we make sure that they payment is qualified and over in compliance with minimum rate wage requirements, which are not going to be based on units we produce. Because that's gonna differ from company to company, the minimum wage will typically be based on traditional our hourly type of pay. 39. 320 Overtime Calculation: in this presentation, we will take a look at overtime calculations were first gonna look at a time calculation to consider the fraction of ours. Time seems like a fairly straightforward thing to calculate, however, because it's based on 60 minutes in an hour. We have to have that conversion in order to do many types of calculations. In other words, are rates in payroll are usually not in terms of rate per minute, They're typically in terms of rate per hour and therefore any types of minutes. If we have fractions of hours, we have to convert them from minutes to fractions of hours. So to do that, if we have an employee that worked 45 minutes, for example, if we had that 45 minutes, we divide that by the number of minutes in an hour. 16. That 45 divided by 60 would give us the percent of your time, which would be 75. That would be the percent of an hour. So 7.75 oven our now. This, of course, is important because when we haven't rate, we don't want to take our hourly rate in multiplied by 45 minutes. That won't work. We have to multiply it by 450.75 hours. Now, if we're considering overtime rates, then typically we aesthetic of overtime. That normal overtime rate would be a time and 1/2 time and 1/2. Now, when we consider time and 1/2 we have to consider what that means. So if we're saying that we pay someone $10 an hour times time and 1/2 we could calculate what that is is basically a 50% increase. And over time you can think of you got a 50% raise so you could calculate that times 500.5 , another 50%. And that would be $5 plus the $10 that would be $15 time and 1/2 the other way. You can think of it, of course, if if you have to $10 times 100% which would be 100% or one and then another 50% which would be 50 so 150% or 1.5 or time 1.5 0.51 point 550%. If we move the decimal two places to the right, that gives us our $15 so time and 1/2 150% of the original pay rate. That's what we're gonna get. Typically, that's the typical overtime calculation. Other rules can apply to overtime in that the federal law basically means that we can't go over the 40 hours. Anything over 40 hours, in other words, would typically be considered over time. If the employees is subject to overtime wages. However, many states also imply or impose of law that says that anything over eight hours in a day needs to be paid overtime wages. And let's just consider that rule eight hours in a day s O that we can see how over time might be thought of. It's pretty straightforward. Teoh. Look at it in the individual case. But again, if we start to accumulate a lot of data, they start to get more and more complex. So, for example, on Monday, if we had hours worked, 7.5 hours worked in the day, then we're just gonna say seven point for it. Five hours is all regular hours, and there's no overtime because we're not over eight hours Tuesday for saying that they worked 8.5 hours, which would be eight hours and 30 minutes. If we convert, you know 0.5 to how many minutes? 30 minutes. We're going to say that that's eight hours of regular pain and 0.5 hours, 30 minutes of overtime that would have to be paid at the overtime rate that, if we had Wednesday, were saying nine hours. That, of course, would be eight hours of regular pain. And then one hour of overtime Thursday were saying eight hours. All of its gonna be regular pay. No overtime. We got Friday. We work total of 9.5 hours. According to the time sheet, we're gonna say eight hours of it is regular 9.5 minus eight would be the 1.5. So that would be the totals here, then the 7.5 plus 28.5 plus the nine plus eight plus the 9.5 gives us 42.5. We know that the regular pay is that 7.5 plus eight plus eight plus eight plus 8 39.5 and then the overtime is the 0.5 plus the one plus the 1.5 or three hours, we can calculate that in two ways. We can, of course, take the 20.5 0.5 plus the one put 1.5 for the three, or we can take the 42.8 minus the 39.5, meaning this is our total hours. This is our regular hours. These then will be our overtime. Or, in other words, that regular hours 39.5 regular hours plus the three OT hours overtime gives us our total hours of 42. Now again, we're applying on eight rule a day type of limit. Hear anything over eight hours a day would have to be paid time and 1/2. That's our assumption. If, on the other hand, we're just talking about a 40 hour work week, meaning anything over 40 hours would be over time, then we would just take the 42 5.5 minus 40 to get 2.5. So you just got to be aware of what the overtime regulations could be. It could be on a weekly basis where we would take the the total per week I'm subtracted from the whatever requirement would be and in this case, 40 to give us the 2.5 overtime or if we haven't some type of daily requirement, whatever that daily requirement is. And it can be note that companies do have a decision if they want to pay overtime as well. So they have to comply with the minimum regulations, which which would be federal regulations and typically the state regulations being some type of higher limit. And then they can apply whatever they want in order to incentivize people to work overtime and it So it could be whatever the overtime law is, so just know the theory of it and then be able to apply what if ever it Maybe it might be a weekly rate, which can be nice because some people would prefer and you can give options. If you are an employer and you have something like a 40 hour weekly rate and then anything over that would be over time, because then you can tell people Well, how about you only work a few like less days a week, four days a week at a higher number of hours, more than eight hours a day, and you get to that same 40 hours, whereas So if you work four days a week for, like, 10 hours a day, then instead of five days a week, you get a whole another day off and put four days at 10 hours. Many employees might like that better, even if they don't get to paid the overtime. So it's note that, huh? A daily limit. While it could help people to not be working too many hours in it in an individual day, it can have some detriments as well, by basically preventing employees from possibly having options to work different type of pay schedules that they would enjoy working. So there's pros and cons, whatever that. Whatever the payment structure is, though, note how to put that in place. Note that the daily method is a little bit more complex as well. It's not that hard in any individual day, of course, but as we start to compile data for long periods of time for an individual employees and long periods of time for multiple employees, it could start to be more complex. Next, we want to look at a standard type of rounding system. Note that if we're paying someone hourly. Typically, they're gonna be logging in and out of the system, and the system will just time stamp whatever they log in and out of it. So if we have a digital system or some type of time clock, we can imagine the old time clock with a punch in. Or if we have a time clock, that's online. Then we check in and out. Clearly, it's not gonna be exactly on the hour. So if we if we, for example, going at 903 a. M and punch out at 105 p. M. Well, what do we do with those those minutes? Typically, we're going to round two like, Ah, 15 minute type of estimates. So every 15 minute type of vestment, because that'll make it nice and clean for us to do our payroll calculations. So here, basically around nine Teoh around one would be four hours burnt 9 10 11 12 1 And then, if we are going back from lunch, 1 30 about 1 29 1 30 then we leave at 5 25 Then again, this is close to If we round this up, Teoh 1 30 it's gonna be close to 5 30 So we're typically going to say that that's gonna be 1 30 to 5 30 and therefore four hours now again, different companies might have different types of conventions. And you could argue, well, that if this is the case, people have an incentive to come in, you know, a few a few minutes late or leave a few minutes early. But typically, if we're talking about a few minutes, it's not gonna affect behaviour too much, and therefore, that's typically going to be the rounding type of convention we can use in our time sheets when calculating number, amount of time at the end of the time period in order to calculate our payroll. 40. 330 Payroll Register: in this presentation, we will discuss the payroll register and what is included in it. The payroll register is gonna be one of the most important types of documents that will be used in order to track record and accumulate payroll information. It will include broadly broad categories, including the wages, the growth pay growth pay being paid before the deductions. So, of course, that's not the Net paid. Not what we actually receive as paychecks then will record the deductions in the payroll register and then the net pay what we actually receive as a paycheck and disbursements. So the payroll register is gonna start to show us some of the complexity in paid role notice that no one component of payrolls that complex whenever we think of payroll laws and types of laws that relate to payroll taxes. When we think about it in an individual case, it doesn't seem too overwhelming. We could say what we can apply that individual law in an individual employee for an individual payroll. But when we start to apply ah, lot of different sim fairly simple laws to payroll, we can see that it does start to build up the complexity and the calculations in just the amount of data that we need. And we start to see that when we build the payroll register, so we'll go over just some of the data that will be included. And then when we work a problem, we'll see that the payroll register and how to do some calculations with it. So first we need the marital status. Why? Because the marital status is going to be needed in order to calculate federal income tax, which is a progressive tax system in a marital status. Married or single is one of the components to that number of with holdings are gonna be what also gonna be needed for federal income tax calculations, salary and hourly rate. So clearly we will need the rate there so that we can calculate the wages that will be there for if their salary or hourly number of regular hours worked. So we're gonna need the hours worked in the hourly rate in order to calculate the regular rate, and then we need the number of overtime hours worked, however, that be calculating whether it be based on a 40 hour work week or a 40 hour work week and an eight hour day. We need to break out the overtime, our list and the regular hours. Then we can calculate the regular pain, that being the regular pay rate times the, um, regular pay hours. And we can calculate the overtime pain, that being the overtime rate, usually time and 1/2 150% of the regular rate times the overtime hours. Then we want to the growth pain, which will include the regular pay plus the overtime pay. Do you get the gross pay? Meaning the amount we would get, if not four deductions, including taxes and other types of deductions. Then we have the federal income tax. That's what we're gonna have to with hold on. So and that's gonna be a bit difficult of a calculation that are working probably the most difficult calculation in our worksheet, because we're gonna need to know marital. There's a few things to take into consideration. We need marital status, We need the number of exemptions and we need the pay period that is involved. Is it monthly? Bimonthly? Is it weekly? And then we need to look up based on that information. What the federal with holdings will be now. Of course, the computerized system can help that process a lot. But as we look at the manual process, what's actually happening? It's It's a pretty complex system to do by hand. At least then we have the Social Security, and also not just to do by hand. It is a lot easier to do with a computer, of course, toe. Look up this information, but to explain it, to be able to understand it for an employee to know what's going on, then it helps to to see the actual process, what's actually being used. So we'll take a look at those calculations. The most complex thing will probably do. Social Security taxes, then, is something that we need to withhold, and it's a lot more straightforward. People probably don't understand Social Security as well as federal income tax, because whenever we think of taxes, we typically think of 10 forties and income tax. That type of withholding and the soul security is another form of tax, but it's going to go into a separate fund. It's still going to the Fed separate fund the taxes a lot more straightforward, however, because it's gonna be a flat tax, in essence, So we're just in for the most part, is gonna take the wages. The growth pay times a flat rate. Generally, it is currently around 6.2, but percent. But the rate doesn't matter. That's not really what you want to memorize as much as the process, the rates easy to look up. What we need to know when with regard to taxes, is what type of tax is being applied and then just look up the rate and apply the tax that is being applied. And this is more of a flat tax. Medicare with holdings will have to with calculate that as well, based on grows paid times, Medicare. Same thing. It's more of a flat tax that's easier to Dio will just take. The girls pay tens the rate, which is currently, I believe, 1.45%. But again, the percents not as important, you need to know Well, it's just basically ah, flat tax based on the gross pay. So whatever that rate is easy to look up. We just take a flat tax much more simplified than doing the federal tax, which is a progressive system. And then we have the estate income tax withholdings that will differ from state to state. Now, if we're in a different state or even a different country than all we need to know is what ? What is that state applying again? There's no new taxes under the sun. Typically, the question is, Are they applying some type of progressive tax rate where we have to look at the tables and take into consideration different factors or they apply in some kind of straight tax rate? Ah, flat tax, where it's a lot easier. We just take the gross pay in, multiply at times with holdings. So whatever they're using, usually the state won't will either copy the Fed in some way. Ah, and you use a similar system or, um, use a simpler system of flatter tax, other state taxes, local taxes. Again, These will change from state to state and location, toe, live location. Ah, for a one K or other retirement plan, this is gonna be a benefit now. So, um, these air things that a company may choose to offer or UN employees may choose to participate in or not. But when we give the growth pay. Of course, when we give the pay check out, we have to subtract this out because we're gonna pay into the 401 k for the employees and give them the net check. And that's kind of like a benefit to the employee, as opposed to you might think the taking the self security in the federal tax and the Medicare is a requirement. So offering the 401 k and offering to take it out of of the check and put it into some type of retirement plan for the employees is a benefit. Those are good things for the employees and not necessarily mandated. Like taxes are insurance deductions, same type of concept. If we have insurance that is being taken out of the check I out of time period again, that's usually a benefit. That's usually a good thing, that the company is doing that for the employees as ah has a choice, and we have to take that out and the register. Garnishment and levees may not be considered a good thing, but again, it's something that's gonna be required by law. So if there's some type of garnishment that is given by a court order. Something happened. And then they're garnishing the wages, taking money out of their wages directly, rather than, uh, you know, waiting for the person to pay there the legal fees they're taking over the wages directly from the employer again putting the emphasis on the employer. Now the employers responsible for making the payment in the form of a garnishment rather than the employees being the one responsible Teoh make the actual payment. Union dues are something that could be taken out again that will apply only in cases where there is a union involved and then any other deductions that we're gonna take out. So there's gonna be a you know, a long list of stuff that we're gonna put into a worksheet. And some companies may not include some of this stuff, some of these other type of deductions, especially over here. State taxes could be similar or different. But ah ah, money. Many of these things will apply here, and we'll put this together when we start to put together a worksheet. If we were just looking at work sheet now and we don't go through the calculations, it just looks like a a lot of members on a worksheet, so it's best to really build this register step by step and concentrate on each calculation . And then when we see the full product, when we see all the employees on it and we see just a bunch of numbers and this calculations of all these things, if we can then focus in on one individual thing like, what is the marital status? What is the number withholding? What is the salaries? Why do I need it then? It's not that complex. But if we look at a completed payroll register with with multiple employees and state taxes and especially if we have some of these other deductions, it's usually more intimidating. Then it needs to be if we break it down piece by piece, so that's what we'll do. Going forward will start to create the payroll register. We'll look at it piece by piece, and we'll do a problem where we calculate these calculations in a payroll register 41. 410 Fringe Benefits: In this presentation, we will discuss fringe benefits. French benefits are important within payroll because, in essence, they're going to be a form of payment. Their rewards for services done, however, and that's just like any type of payment. Their rewards for services, however, they're typically going to be non cash compensation. And when we consider non cash compensation, the question is, well, do we need to include that in wages? Even though we didn't get paid cash? Is it still wages? And a big implication of that are a big problem with that, Or a big concern as to whether it is wages or not? Is, is it subject to taxes? Is it subject to federal income tax, state income tax, the self security and Medicare tax? So that's gonna be a big component. Now there's gonna be different reasons and incentives why an employer might want non cash compensation. They may be providing just just types of benefits through their business, further employees as perks of the job that are non cash compensation. But clearly there's also an incentive to try to plan for non cash compensation in the areas where it may lead Teoh compensation that cannot be. It wouldn't be taxed in other words, and employees who was either to receive cash, which then would have to pay federal income tax, state income tax, all security, Medicare or was to receive some other kind of French benefits. Some other type of, in essence compensation. And even though it's not cash, not as liquid possibly not is preferable in that, for that reason could still be preferred because if it were not subject to taxes, so that's gonna be a big issue now. Of course, most things if they're going to be something that's just non cash doesn't necessarily mean it's nontaxable. Most things are, in other words, so if someone received some, like a car or something for a compensation or some other type of type of reward, that would be a costly type of thing, or a vacation or something like that. Typically, that would still need to be included in income. That's a form of compensation. Typically subject Teoh taxes on it, so there's questions in terms of words. Are those limited things possibly that could be received by employees and reduce the payroll tax not need to be included in the payroll and one is going to be de minimus benefits. And that basically just means small benefits, minimum benefit, small, small type of things that if an employer gives small French benefits and you know, you kind of think of that in terms of accounting terms, it's something that's in material meaning there kind of your basically saying, We're basically saying they're too small to manage to matter about there, not something that, uh, when someone goes to work somewhere there, they're gonna take into consideration as part of their compensation package to influence their decision as to whether to go one place or another. So that's one type of French benefit we don't typically need. Teoh include education assistance is often, ah, benefit that can be provided by the employer and be a really great way that an employer can give incentives for an employee to continue toe skill up and improve themselves, and show that that you value the employees and give some tax benefit there. If they're able to basically reduce the growth wages because then that could reduce taxes on it. Ah, employee discounts. So and there's gonna be another type of area where, if you're in a particular industry, and there's discounts than within within limitations. You can basically apply the discounts and as a bonus for working in certain industries. And of course, certain industries have different types of discounts that could be available within that industry. Meals, meals gonna be something that will again within reasoned the determined as to whether it should be calculated as as wages or not. Is it part of travel? Is it part of? Is it basically is it for the benefit of the employer? Or that something that's gonna be extravagant for, um, the employees? Those are gonna be some concerns as to whether or not it should be part of compensation or not moving expenses. Reimbursements It could be. It could be something that would be beneficial to the employee and the employer transportation benefits and again that the questions here are whether or not it's it's a benefit to the employer typically, or the employee asked of whether it needs to be included in payroll taxes or not. So we're not gonna get into a lot of detail on the fringe benefits. We're just gonna point out here that there are there is a concern, of course, that if wages are typically given in terms of cash, then or check or direct deposit, then there is, ah, an incentive for for companies and employees to try to find compensation in other ways which possible, or look for ways that would not be included in payroll for compensations that would not be included in payroll taxes to look for those types of things. Now, most things the default will be that compensation is compensation. And if you get paid in something, if you get a car or some other kind of equipment or or a present or something like that, if it's over, you know a certain value that's not de minimus and value, then typically, we would have to find the fair market value of it and included as wages. But there are some types of things that could be beneficial, and those are things that are nice for a company to look into, because they can have some advantages in some effect. In terms of giving the employees MAWR through these types of compensation, French benefit types of compensation 42. 415 Deductions From Gross Pay: In this presentation, we will take a look at deductions from gross pay when considering deductions from growth pay. We may 1st want to look at what is growth pay? Gross pay is going to be before we have the deduction. So growth pay is going to be what AARP April would be if we did not have deductions, including things like taxes. So we're getting from growth pay, in other words, to the end result, which would be the Net pay and deductions then are gonna include things like mandatory deductions, which are federal and state income taxes, deductions by law, deductions we have tohave. So remember that the business is, in essence, required to make these types of deductions. It's important to note that the federal income taxes we're talking about here that are coming out of growth pay are the responsibility of the employees. In other words, there the employees taxes now that the employer is responsible and required to take them out by law. But they are these taxes related to the employees and again that concepts a little bit confusing because who's who has to pay the taxes? The employer is the one that's actually write the check, but the money theoretically is coming from the employees. It's coming out of their paycheck. So we're taking this money out of the employee paycheck by a law because we're required to do so as the employer. And then we're paying it. Teoh the state or the Fed the government on behalf of the employees. Then we have the Social curium Medicare. Same type of idea here. These air, both federal and or this is a federal income tax in federal income tax, Social Security and Medicare, Federal income tax and we are once again taking that out. Were required. Teoh. It's not a payroll tax that is necessarily in this context for the employer. It's being paid by the employee. Now we'll talk more about who pays which taxes, the self security Medicare is gonna have an employee component and an employer component. But when we look at our pay step, when we look at what's being pulled out of our paste home, that's of course what we theoretically paid it came out of our taxes. The reason I say theoretically is because we could debate in terms of, you know, what's the employer actually going to do what happens to the market when we when we impose taxes, what happens to whatever the negotiation will be? Four pay in terms of the negotiation. So from an economic perspective, you can kind of have a question as to you know, who's really paying the tax based on what happens in terms of markets. But what happens in terms of the actual paycheck calculation is that we have gross pay. This is going to be Social Security and Medicare that's being taken out of growth. Pay for our check, and then the business will have to pay their portion. They're a portion of soul security, and Medicare is something that we don't see on the pay stub not coming out of our check. That's an added piece that is actually payroll taxes to the employer. This piece, these things that are being deducted aren't really payroll taxes to the employer. They're just part of wages. They're part of what the employee has earned and therefore the employer. All the employer is doing is just taking it out and pain some of our bills for us. Ah, and that's what's really happening here. The payroll taxes to the employer will be the employer portion of Social Security and Medicare and some other things like photo, federal unemployment tax. So then we have the voluntary deductions when we get from growth pay and we're working our way down to net pay, and those are gonna be things like retirement plans and that these are These are good things, these air voluntary detections. So note they're similar because when we talk about federal income tax and Social Security, those air really the responsibility of the employees. Theoretically, we have to pay them as good citizens were supposed to pay our taxes And the, um and we can think of the business has kind of doing us a favor by taking him out of our paycheck directly so that they make the payment for us. It makes our lives easier. But of course, these are mandated to do so, and the main reason they are mandated is because the iris trusts and has more leverage over a company to force them to to comply. Then they do over individuals. So therefore, these air mandated now voluntary is the same kind of idea. If we have a retirement plan, well, the the company is providing that retirement plan in some way, and they're giving us the option to participate in it and the option then to take the money directly out of our paycheck and put it into the retirement plan. And that's typically a good thing. So that's gonna be a good option. Same kind of concept, however, that we're still just taking money out that belongs to the employees and pain it to some other area. In this case of retirement plan for the employees retirement cafeteria plans, usually some type of insurance plans are another type of benefit, typically that can be offered huge benefits and note that if you work in somewhere, ah, deductions that are mandatory don't tell you a whole lot about the culture of the employer . But if they're giving the voluntary deductions than those air things that do, because those are gonna be things that the companies deciding to provide as part of their benefit package. And so those are the things that are really differentiating one company from another company. So other types of insurance voluntary deductions could be included as well, so Section 1 25 plans Section 1 25 being a section of the Internal Revenue Service code, the iris code and under the Section 1 25 plan, we typically have plans dealing with medical expenses so they're typically going to be benefits related Teoh medical expenses. So pretax deductions Healthcare eyes typically what will be covered under the 1 25 plans. And, of course, the goal here is going to be to incentivize and hopefully make the medical plans or health care more affordable for employees. 43. 415.5 Mandatory and Voluntary Deductions QuickBooks: in this presentation, we will take a look at mandatory and voluntary deductions within QuickBooks online. Here we are in our practice payroll QuickBooks file. You can follow along in your own business file or take a look at the free into it, or QuickBooks, test drive file. We're gonna go down to the workers tab on the left side. We're in the employee tab up top. This is typically where we run the payroll. We currently have our three employees here. We're now going to take a look at a payroll check and take a look at the types of deductions within it. To do that, we're gonna create a new tab of top when you go up top right click on this tab and duplicated this tab, and then we're gonna go back down and take a look at a checks I'm gonna go to of the accounting and we're gonna go to the chart of accounts up top. We're currently in the checking account. Within the checking account, we will view the register within the checking account. Then we have all of our check Now. This, of course, is the checking account with just has payroll. So all of these checks air payroll checks. But we're looking for a particular payroll check or any payroll check in this case to take a look at the With Holdings within. It will actually go back up top of look at Anthony's payroll checks for May, so we'll look at that. We're gonna open this up by editing it, so we can then see the detail. QuickBooks will bounce us out of the register and take us to the data input screen for this paycheck. As we can see, we have the regular pay and the overtime pay to give us the gross pay. This is for the current time period. Then we have the employee taxes. The employee taxes will, of course, be mandatory. So these air taxes that are paid by the employee and were required as the employer to withhold those taxes from the employees. But of course, those are going to be mandatory items that we have to with help withhold, and that includes the federal income tax for the employees, Social Security, Medicare and any California or any state tax type obligations. How do we set this information up? QuickBooks will typically set this information up as we process the payroll. So much of this will be set up by the default settings in terms of which accounts will be affected. How do we create the journal entry when we process the payroll? The F I T information then needs some added information as we enter the data for each individual employee, that being from the W four. That includes things like the marital status. And obviously we have the pay periods, how often we pay that employee and the number of exemptions. The Social Security and Medicare are pretty straightforward in terms of the rules and therefore just setting up the payroll. QuickBooks will typically set those default settings and they will be fairly standardised. And we won't have to do too much more in terms of the set up process. Other than basically the running and setting up the payroll in and of itself, the state will, of course, change from state to state. QuickBooks is getting better and better, however, at knowing the rules and regulations for its states and locations. Then we have the other types of deductions down here, and many of these would be the voluntary type deductions these they're gonna be the things that oftentimes, an employer may offer to the employees as benefits. And the employees then has that the choice as to whether they want Teoh. I take those benefits or not, and this is a great thing to have from the employee and employer perspective, because oftentimes these air areas, they can save the taxes for the employee and employer portion. And it can show that the employer is doing not just what it's mandatory but is looking to give more benefit to the employees and the employees quit, of course, hopefully value that as well, so that that would include the 41 K plan, possibly a dental plan, any other kind of medical insurance, vision insurance, these air types of voluntary deductions. We can add these items as we set up new employees. So to take a look at those Adams, we're going to go back to this first tab back to our employees. So and we're in workers and employees and as we set up a new in fluidity or if we wanted to change the settings for an employee, we can go into that particular employee. We can edit the employees if we're going back into it or go through the same screen, if we're setting this up and then scroll down and we're looking at these items here, so these air going to be the types of deductions. This is where will typically find the voluntary deductions on and some or of basically mandatory deductions. We might have something like, Ah, garnishment, which is basically a mandatory deduction, could be a court ordered type detection that we have. And then we could select Mawr types of deductions here. So we have the dental provider. These are the ones that we have already set up if we wanted to set up a new one. So we have dental, we have I. We have the health savings account, medical insurance by the provider. And then, if we want a new item, then we could set up a new item that we could set up, for example, and other deductions item and then look at the types here for the other deductions so we can go through this process to set up these items, and that's basically how easy it is to set up within QuickBooks. QuickBooks will then use this information to generate which accounts will be affected as we process the payroll. So let's take a look at that now by going back to the reports. So if I go back to the second tab that registered tab and we close this one back out and we take a look at the reports by going to the reports on their left side, and then we open up the balance sheet report and we changed the dates from a 10119 to 12 31 19 and run of that report. You'll see that in the liability sections as we run this, some of these voluntary deductions will be here. So we got the 41 K plan. We've got the dental, We've got the eye. These are areas where we ran payroll. We took the money out of the employees check, and now we owe it. QuickBooks then set up these liability accounts for us as we set up the payroll items. Now, if we wanted to change these, we could go into the payroll settings up here, as we saw with the F I T tax and the Social Security tax, we won't. We won't go into a lot of depth here, but we could start by going to your company file, and then we go to the payroll settings to set up where the settings would go to for those items. You can also change the name of the account if we would like to change the name again. We actually entered these names as we entered the new items. You can change those by going to the accounts and changed the names of those particular accounts as well. We will, of course, be setting these items up as we walk through the payroll problems, so we'll see each each of these items in detail as we walk through our comprehensive payroll problem. 44. 420.5 Retirement Plans QuickBooks: this presentation, we will take a look at retirement plans. Options within QuickBooks online. Here we are in our practice payroll file. You can follow along in your own business file or take a look at the free test drive filed that is provided by QuickBooks and into it. We're gonna get to go down to the workers tab on the left side. We're in the employees up. Top the employees tab. You'll note that we have our three employees. We're now going to consider the options for setting up a 401 K plan. Just from a logistic standpoint. Where would you go to set up the different types of four months of a 401 K plan? Once we have the payroll set up, we can do so by going into the the employee options. So we're gonna go down here into a particular employee option, will take a look at Judy Jones. So if we were to set up Judy Jones, we can go into the edit within the edit tab. When I scroll down to where we see these numbers, we got 1234 and five. We are considering number three. This is where the deductions are. You know, we have this option set up already in this particular case to set that option up, we would go to add a new deduction. So we're gonna add a new deduction if we select the items up top. Is it a deduction or a garnishment? We're going to say it's a deduction contribution. Then we'll have our options here and within these options were going to say it's a new deduction contribution. These air items we have set up already within this file. If you hadn't set up any other items, then you'd have less options. Here. We're gonna set up a new deduction, and then we have the deduction. Contribution items is in hs a retirement plan, other deductions, health or flexible, saying we're gonna have the retirement plan. So we're gonna consider the retirement plan. Now the 41 k isn't the only retirement plan. Of course, you want to think about the different types of retirement plans, what would suit your business best to set them up logistically within QuickBooks? Then we would I test these items. And these were some items that the retirement plan, the format of the retirement plan could take. So a 41 K for one k catch up. Simple 41 K the simple foreign catch up the 403 B. And so you could take a look at all these options. We have basically much of the retirement plan options are covered with in QuickBooks, and you have to basically determine which retirement plan would be best for you and then choose the appropriate option here. Logistically, we put in the option of the 41 K just as a familiar option that most people have the most understanding with not necessarily the best option for, say, a small business. It has pros and cons. So this is this is just looking into the logistics of how to set that information up. So we're gonna go ahead and say, Close this back out and you'll note once again if I go back into it, we have the 41 k item here. Once you've set that up, QuickBooks will set up which accounts to be affected as you process the payroll as we go so quick books will then fill out that information for us. If I take a look at this item. Open up this for one cave. Note. This 41 k has an employee deduction, which we put in as a dollar amount as a posting gross pay, and it has an employer contribution. Again, these items will differ depending on our plan. This is all the data that we need within the system, and then QuickBooks will process this information. Once we process the payroll, QuickBooks will pull it out of the paycheck, and we could take a look at Adam and it closes back out and we'll go to the accounting on the left side. We'll go to the checking account up top and view the register, and then I'm gonna go down to Judy Jones is check for January. Here's Judy Jones. Let's take a look at that check and edit it so we can see the detail of this check. And so here's the gross pay. If we scroll back down, we can see within the deductions. There's the for a one K being removed. This is the employee portion, and then if we scroll down here, here's the employer portion. So it will do that for us With that simple data input just put it in the employee and the employer portion by employees. It will also set up the accounts on the financial statements. So if we close this back out, we'll then see on the financial statements. If we go to the reports and go to the balance sheet, that report will sail. Select the balance sheet report changed the dates up top from 010119 to 12 31 19 And we, of course, will set this up in our practice problem in details that you can see this step by step set up process of the 41 K and the effect on the payroll checks as we process them. But if we go back up top, we'll see the the liability account for the 401 K This will include both the amount that we pulled out of the employees check that is now owed to the 41 K plan and the amount that we contribute over and above. If we have a contract contribution over and above what was pulled out of the employees pay , then we're also gonna look at the income statement. So let's do that by making a new tab up top, going to right click on this tab and duplicate it Full the one from the left to the right for the balance sheets on the left. New report on the right. That report's gonna be a profit and loss. We're gonna go to the reports down below to find it, and then we'll open up the profit and loss, changing the dates up top from a 10119 to 12 31 19 and run that reports scrolling back down . Then you'll note that the other side of that item that came out of the paycheck is going to be port of Wages. So part of the item for the 41 K will be included here. This was Judy Jones is the owner. So port of that item was pulled out and is included in the girls pay that we took from the employees to contribute to their retirement plan. And if we scroll back up and go back to the report, we also have port up here. The retirement plan up here. This isn't all of the retirement plan. If I go back on this just for January, we have that 7 1050 That is only the employees er portion that's being paid over and above the girls pay. So the employees took some out of their girls pay and put it into a retirement plan, which they get a tax benefit from. And we put more into it over above their gross pay, which they don't even need to pay taxes on if we can qualify for that, which is a huge benefits. So this amount of the extents up here isn't the full contribution. It's just the the amount that the employee error is contributing and the QuickBooks sets all this up just by entering that data into the employee information, it sets up these accounts and process it in this format. This is basically the default settings of how QuickBooks will process on this. Information will see this information step by step, this example probable. Make it in our example problems so you get to see it in detail, will analyze each check as it's being created and what the effect is on the financial statements and the reports 45. 425.2 Post Tax Deductions QuickBooks: in this presentation, we will take a look at post tax deductions within QuickBooks online. Here we are in our payroll problem Test file. You can follow along in your own business file or take a look at the free test drive file provided by Intuit provided by QuickBooks. We're gonna go down to the workers tab on the left side. As we stroll down the workers tab, we see that we have our three employees were going to consider the post tax deductions related to these employees. Let's start off by looking at a check first. So we're gonna look at a payroll check process as we process the payroll up top. We're gonna go to the accounting tab on the left to do so we're gonna look at the checking account and view the checking account. This is where we processed our payroll checks from. If you have a payroll checking account to process the payroll checks, you can take a look at that item. We're then gonna select a payroll check. So we're going to select Anthony More up top and select the payroll check and edit the payroll item that will give us a detail. We're gonna jump into the payroll input screen for this check. We've got the gross pay up top, and then we're looking at the employee taxes. The employee taxes, of course, aren't what we're considering for post tax deductions, these will be the actual tax that was deducted our goal. When we're considering the post tax deductions. What we're considering is what are those things that are gonna be deducted from the pay that have no effect on these items? In other words, that the things that are gonna be taken out of the pay and not reduce the amount of federal taxes, Social Security and Medicare or increasing But typically, we're thinking about things that would decrease him. So we may think most of the deductions we have, you might think, Well, why do we have a deduction? Normally we have a deduction because it's going to have an effect on these taxes. For example, the biggest deduction there is a 41 K plan. Typically, that's one of the biggest benefits we can have. Even if there's no matching or some type of retirement plan, even if there's no matching, we want to put money into that retirement plan not because it's labeled retirement plan. That's not why we do it. It's going to be restricted money that we can't get to it as easily. It's gonna have restrictions. We don't want to put the money in there. Unless we get something. What do we get? Typically, we get the federal income tax to be reduced. That's why we put the money into the retirement plan, even if there's no matching for it. So in that case, it would be something that would be affecting this plan. Many of the deductions we think about that's the that's the reason for them. The reason we're having of the deductions, the benefits that would be provided or because they're going to be affecting the taxes were now considering those types of deductions that may not be affecting the tax to and the questions Well, why would that happen? Why wouldn't we have a deduction? Why would we have something come out of our pay, not get the money for it unless it's going into something that's gonna help us reduce our taxes. And it might just be at a convenience. It might be out of something that we can get a cheaper kind of group rate. So, for example, if we were to take something out like a health insurance, then it might be the fact that if we do the company health insurance, we get a better group rate, even if we don't get any kind of benefit of reduction of our tax of our taxes to put the money into the health health insurance. So we may or may not, in that case, depending on the type of health insurance that we're putting into get the tax benefit. But we still might get a benefit. Or it might just simply be the convenience of having it taken out of our paycheck. If we're gonna take it out of our paycheck and say, Just pay it, pay it for me. And if you could do that service form and pay this monthly bill and I don't even have to see it, and that would be great than it might just be convenient to do, though To do that and in some cases we might have required deductions, likes union dues or like something like a garnishment that has to be taken out. They've got to take it out, and it's not gonna help out our taxes, the garnishment, they're gonna take out the garnishment just as a requirement to make sure that we pay whatever the court mandated thing, it was that we're gonna have to pay. So those types of deductions are These are the deductions that are going to be down here. There's no easy way for us to see that. I mean, there's nothing here on the deductions that basically says, Hey, this is affecting taxes like this 41 K is being deducted. There's nothing telling me here that this this is not a post tax deduction. This is a detection that is affecting the 41 K We just kind of have to know that that's kind of a tricky thing about these deductions. And that's the thing that really throws things off in a way so that the 41 K is something that's gonna affect the taxes. The dental provider and I. It really depends on how we set up those items in the list. What what we qualify for we have to determine first of all, doesn't qualify as something that we could reduce taxes for and then entered into the system as either something that will reduce taxes or as a post deduction item. So these are the items down here. These deductions from the paycheck are the ones were considering, as possibly being post tax deductions. But when looking at the detail, the paycheck stub waken tell that they're being deducted from gross pay. But we can't tell typically, just from looking at this item, whether it is or is not a post tax deduction, whether it is or is not reducing this amount, we have to know from basically the settings when we set up these items. So let's go back and now take a look at those settings and consider them. So if we close this back out, we're then going to go back to our workers tab and let's then go to. We were looking at Anthony's. Let's look at Anthony more and let's take a look at the settings so we'll go to the pay settings up top and then if we scroll down. Here are the deduction items that we had a 41 K plan. We had the dental provider, any of dental and the I. So let's take a look at these two items, the dental. If we select the dental and we look at the options for the dental, I will note that down here it says, Is it taxable or free tax? And this one says it's gonna be a taxable insurance item. This is just the logistics of it that what we set it up in the system. That way we set it up as a as a taxable item, which means it is, ah, post tax deduction. It's not something that, in other words, is going to reduce the taxes, and that's just we would have to see if it qualifies for something that reduces taxes. If not, it may still be a benefit because we might get some kind of group rate on the dental plan and that would be great. And we would basically take it out of the employees pay. But it wouldn't be something in that case that would be reducing their taxes. So those would be a kind of the pros and cons there if I close this one back out and we then take a look at the vision, so let's edit this again and compare that to the vision. If we go down to the I. That's another type of insurance we had. And this one was free tax, which means that it is not a post tax deduction item. It's something that is affecting the taxes. Both of these items, in other words, are coming out of the gross pay. So they're all being picked. They're both being paid by the employee, but one is deduction is deducting the taxes to its reducing the amount of tax to at least the federal income tax, possibly Social Security and Medicare. The other is not. It's just coming out of gross pay, not reducing any taxes. So those that that's kind of a difference between those two and again, that's kind of the tricky area for us to understand. Those differences between whether or not whether it is post tax or not is what really kind of complicates our reporting a lot of times in terms of the 9 40 ones, the W twos and what not. So if we select these items to set that up, of course we can add a new item here, And if we were to select a garnishment, that would definitely be a post tax deduction item It's not something that's going lower, our taxes that's gonna come out of our paycheck or the employee paycheck, and it's not going to reduce the taxes. And then we could select an item here. We could have things like a health savings account. If we qualify for the health savings account, it could be something that reduces the taxes. Depends if it qualifies. Thean sure inst. Of course, as we've seen a few examples of the insurance, like the vision and the dental, we could have medical insurance. If it qualifies, it could be something that would lower the taxes, and that would be great. If not, then it would be something that we could still possibly benefit from by having a group insurance, and we have to see what we qualify for and then select the proper format in here. We'll see different formats as we work through our comprehensive problem. And then if we were choosing some other kind of deduction, we can go through a retirement plan, typically a retirement plan. Of course, the employee portion is going to be something that will typically reduce the taxes, the health savings plan. Hopefully it reduces the taxes That's one of the major purposes of doing it at the health insurance again. Hopefully we can set it up so it will reduce taxes. That's one of the major purposes. Other deductions. We can set up just about any type of other deduction that the employee wants because it's their money. So any other deduction and it could be something like union dues would typically be a post tax deduction that we would take out of a check and paid directly. But it could be anything that they want us to pay. We could pay their their normal monthly expenses if they would not want to, and it wouldn't be something that we would be reducing their payment by. But it might be a benefit to them because then we could make the payment directly out of the check and give them the benefit of that. If that would be something that would be beneficial for them, for us to just pay whatever monthly pay would be necessary. We can do that and we could set up some other deduction for the employees in those cases. We will take a look at these options when we process our comprehensive problem and we'll do this in a very scientific way will compare and contrast these options and look at the differences from them. What the differences will be instead, ing them up with the differences will be in the paycheck stubs what the differences will be as they report the financial statements and what the differences are on. The reports included the 9 40 Once in W two's W threes. 46. 505 Net Pay Calculation: in this presentation, we will take a look at the net pay calculation within QuickBooks online. Here we are in our practice payroll file. You can follow along with your own business file or take a look at the free test drive file from Intuit from QuickBooks will go down to the workers tab on the left side, the workers tab and in the IMF, Louise, tab up top. This is where we typically run the payroll. We have our three employees down here as we process the payroll. QuickBooks will then generate the net pay calculation, which, of course, will be the net check. So let's take a look at a net check now, by going to the accounting tab on the left and then we're gonna be in the checking accounts . We want to select the checking account or the payroll account the payroll checking account . If you have a separate payroll checking account, we're gonna view the register and then consider one of the paychecks and the detail of that paycheck. Note that the paycheck amount is gonna be the net check. That's what the employees will receive will be the net pay. How do we get to the net pay from the gross pay. One way to get there is to look at the paycheck stub. We can do that by going to a check. We're gonna edit a check and select one of the payroll checks, and then this will give us the payroll detail. So this will give us an item that we can then look at the Net pay from. We've seen this in the past. This is going to be the gross pay and then the employee taxes and the deductions. If we take those items that gross pay minus the employee taxes and the deductions that should get us to the Net pay. We can also see that if we go down to the print check item at the bottom. So if we select the print check item will see the paycheck stub. So here is actually the paycheck stub, and if we scroll down, this will get another calculation of that net pay. Here's the actual net pay, of course, the actual paycheck amount, and we'll get a break out of what will be included in that amount, which will include the total pay minus taxes minus deductions to get to that amount. The total pay is gonna include regular pay, overtime pay and any other type of bonus we have, which will be this line item up top the taxes, then, are what are taken out of the employees. Check just the employees e taxes here. Of course not the employer taxes. So if we go back over here, we got federal income tax, Social Security, Medicare and any California taxes. For this particular check, those items will add up to five or 3 63 And then we've got the deductions, which include the 401 k just the employees e portion of the 41 k the dental from the dental and the vision, which are health insurance items for dental insurance. InVision insurance. These items being deducted from the employee pay here to get us to that net pay calculation . As we consider this note, what is not including here as well as we go back to the prior tab, we know what we see on that paycheck. Step to get to the net pay. We see the gross pay, we see the employee taxes. We see the deductions from the employees. What we don't see are the employer taxes. So the employer taxes are what being paid over and above than the gross pay. And then we also don't see any contributions for items that aren't going to be included in grills. Pay to get to the net taxes, something like the employer portion contribution of the 401 K That's not something that we have in the girls paid to get to the Net pay, but it is a form of compensation to the employees. In other words, as we consider the paycheck stub, note that the gross pay would be the actual earnings that have been received. The Net pay will be the check. The taxes are going to be the mandatory taxes that we had to withhold for the employees. The deductions air typically benefits. All these are the 41 K the dental and the I. But even this total pay the 4060 to 50 in this case, the growth pay. This is what they actually earned. This is people that we paid on the employee's behalf. Even this gross pay, however, may be low. They may be getting paid more than that. If there are benefits such as the employer matching portion in this case of the retirement plan. And that's something that just to keep in mind in our own paycheck and in other paychecks as well. When when we're processing payroll as the employer and the employee, when we consider that gross pay, we also need to consider okay, what are we really getting paid? And if there's other benefits over and above that, we need to consider those items to in terms of our total compensation. 47. 510 Federal Income Tax (FIT): In this presentation, we will take a look at the federal income tax calculation or F I t. Now the federal income tax calculation. First, we should define what we're talking about here because when we hear federal income tax, you may think of that from different context. Most likely move. People think of federal income tax as what is reported on the 10 40 at the end of the year . And it's true. That's what federal income taxes what we pay, what we have to report. But we don't usually pay it at the end of the year. Most people don't Most people pay it throughout the year, and if we're W two employees, we pay it by with holdings that are actually done from the employer. So when we talk about federal income tax here, we're talking about the calculation of those with holdings. Note that we do want to keep in mind this big link. There's a huge link between the with holdings we have here and our reporting of taxes on the 10 40 at the end of the year, which is done primarily by the W two that we will get from our employer telling us not only what the tax will wages are, but how much what was with held. So the other federal income tax you may think of when we're thinking about the company side is the federal income tax that the company pays now. I'm not talking about the payroll tax company pays for the employees, but the fact that they were a corporation, a separate legal entity, pay income tax so in every instant, pays tax in some way, so pass through entities. Still, the income would pass through to the owners, and they would pay income tax. So in essence, in other words, there is a federal income tax that the company or the business pays in some format as well . A corporation being easy to imagine They're gonna earn income just like we, as individuals dio and then pay taxes based on what they have earned. This federal income tax for payroll taxes is not at all related Teoh the taxes for the company. Although these taxes are part of payroll and therefore can be deducted as an expense, it's an expensive of having ah, business and paying employees. It's really an employee expense. But in any case, we are talking about federal income tax calculations for with holdings throughout the time period. For each of the employees, this is one of the most complicated ports of the taxes. Once we you know, when we look at Social Security, it's complicated for a few different reasons. One that reason that federal income tax will be confused between different types of federal income tax or whose federal income tax are we dealing with and the type of year. When are we dealing with it? We're dealing with the withholding or the federal income tax on the 10 40 at the end of the year related but different also one of the most confusing taxes because it's impossible to get it perfect. Um, all we can do is make an estimate on it, and the estimate process is gonna be structured and formalized through a series of table. So this will be the most confusing type of tax we dio, especially if we do it by hand. If we do it with a computer, then the computer can just generate it. But we probably don't have much idea of what is going on and probably couldn't explain it to well do anyone else or do much tax planning with it if we didn't have a better understanding of it. So the federal income tax that we're gonna need to withhold from each paycheck will be based on a few different things. We're gonna need marital status. We're gonna need to pay frequency. Meaning When does the company pay period? Do they pay weekly monthly, bi weekly, semi annually. And we need the taxable income for for this calculation. Now, these things these things are gonna be necessary, of course, because if you think about the 10. 40 at the end of the year, it's based on these things. That tax we pay is a complicated calculation, by the way, we also need the number of allowances. So the these four things are gonna be types of things that are gonna be in our 10 40 at the end of the year. So the income tax is not a flat tax. It's a complicated tax to calculate. In order to calculate it, we need to know if they married or not. Why? Because marital status will change. The tax brackets were in and how many exemptions we have on the 10 40 at the end of the year and therefore the with holdings we have will have to be in such a formatted kind of lineup so that if we add them up, they will cover the tax and the envy of the frequency. The pay frequency on that, of course. Ah, well, when we look at the tables, which is how we'll have to do these types of calculations, the tables will be broken out by how frequent we pay. So do we pace weekly, semi weekly monthly or ah bi monthly so well that will determine what table we use and then that the taxable income we need to know the taxable income for the pay period, how much they're getting paid for this particular time period. And that's an indication of what the total tax will be as well, because obviously we have a progressive tax rates. If you think about your 10 40 the more income you make than the higher tax bracket you're latest dollars will be in. So we need to know that in order to do the calculation for but with holdings throughout the year and then the number of allowances is gonna tie in loosely Teoh the number of exemptions we know on the 10 40 exemptions like ourselves, our spouse, our dependence and the allowances may not line up ter perfectly to that number, but they're kind of based on that number as well, to try to calculate what the with holdings will be. These are the types of things we needed in order to calculate with holdings these attacks, things that were provided to us by the employees on the form W four when they became employed with us. Once we have that into the system, we don't really care about tax planning anymore. Way never do as a payroll. We don't do tax planning as payroll side of things because that would be confusing, you know, issues. We've got to separate that those duties out. So what we're doing now is just saying, Okay, this is the information that was given to us. How much do we withhold? That's what. That's the only question here that we eat. And we need this information in order to do that. Now, to get that, if we were to do this by hand, we would get that orphan into this by a computer the iris is going to give that information , and we could do that by using tables which are given to us by the circular e employers Tax guy. This is for 2018. You could look it up. Just goto iris dot gov and look for the circular e. And within it we can find the tax tables. Now a computer system will have those tax papal tables for us already and just pull that number out. But its really useful to go through the tables at least a few times to see the complexity of it and even going through the tables. We really don't understand what the table. How did the table get constructed, right? It's not a flat tax. It had to take these into consideration these calculations into consideration to make the table. So you can tell from a planning standpoint, this is kind of a confusing issued t get this federal income taxes. There's no guarantee, in other words, that the federal income tax withheld will line up Teoh what will actually be a taxable at the end of a year on the 10 40 calculation. But we do our best, so the tables will look something like this. If we go into the circular Eem and we find the tables, it'll be broken out. We gotta go to the correct table. So, for example, this is the table for a single person for a company that pays weekly. So if we pay weekly and we have a single individual, we can go to this table and we can look into whatever the weekly earnings were. If our employees earned 0 to 70 dollars, that's how much they're They're gross wages were and they had no ah, no allowances. They chose zero. Even though they have one exemption for themselves, they chose zero on and then they wouldn't. Why would they do that? So they don't have any with holdings. Typically, you know, So they got and that would be zero would be taken out now. Obviously, as as the income goes up, the withholdings would typically work. So if there wages were between 1 35 and 1 40 and they claim zero, then we would withhold $7. Now, this is only the beginning of the table. That's why there's all zeros here. But as the income goes up, then if they had one exemption, they would pay zero. And as the exemptions go up, of course, if they had zero exemptions, they would. We would withhold MAWR because we would expect them to go more money at the end of the year . When they do their payroll calculation. At the end of the year, these tables will go down. Teoh. Fairly decent amount of income. They will stop at some point, you know. So if someone makes a lot of money, then we won't be able to use these tables, and we'll have to use a different method in order to calculate their withholdings. So if they're married and weekly, then once again we pay weekly and they are married, Then we find there how much they got paid weekly for that particular papered. And then how maney allowances they have from their W four and then wherever that lies. If they were at one allowance and they made, you will say here somewhere between 3 55 and 3 65 like, say, 3 58 then they would go here. Also note that the way the table is, it's got 3 55 here and 3 55 here so way have the question. What if they made 355? Do we pick up the $5 withholding or the $6 Now, typically, we want to be more conservative. I we we as the business would rather just withhold mawr than less So will typically air on the higher withholding because we'd rather have our, you know, over withheld. And then anything we over withhold like they'll get back on the 10. 40. So we'd rather have them not owing money on the 10 40 than owing money Obviously a dollars not gonna make a big difference, but typically well, we'll air on withholding too much rather than too little. Ah, and in this case, so usually that's the case. So then if we have ah, single person still but now they pay bi weekly. Now this bi weekly is a decision by the company. So obviously the company pays people bi weekly, which is different than semi monthly Thes tables will differ than semi monthly. But once we know what table we use, we'll just use the same table each time. So this will be bi weekly again looking at the paid tables, the only things changing are gonna be these These stats up here and obviously the amounts withhold will change based on the papers. How much was earned in this case by weekly the earnings for employees? Ah, that get paid by weekly. You would think that they would earn, you know, more than than the weekly table that up here. So then we've got we've got married bi weekly, same type of idea and obviously that things are gonna change. Why? Because marital status will change the amount of with holdings. And these tables originally were built on the concept that we only have one income because obviously the employer only knows of that single income. So the tables air kind of constructed as if there's only one income. And we know that families typically have more than one income now and other income sources . So these tables are far from a perfect, you know, estimate. Unless we make that w four calculation more accurate in some way. Okay, so then we've got the semi monthly for single. So remember, semi monthly is different than ah bi weekly. So because there's 24 compared to 26 pay periods, So this table will differ, then semi monthly, two by two by weekly because there's they're slightly different a number of pay periods and then met married semi monthly. Ah, and then we have single for the monthly if we pay monthly and then married monthly. So a note. If you're doing this by hand, you got to find the right table. You gotta find you know where they were earned for each employee. Look at how many allowance or at and then look what the deduction would be again. Most of these all have zeros because we're only looking at the head or the first portion. And as the wages go up, then more with holdings would go up as well. Okay, so we were going and then we have daily, of course. So the other method is going to be the percentage method. So if we can't typically, we're gonna use the tables. But for example, if they earn too much money, then we can't use the tables. We have to use some other method, and that would typically be a percentage method. And you can think of the percentage method. It's kind of like this is kind of how they would create the table. So these air useful to look at and try to calculate just to try to figure out OK, you know, how are these tables being built? And if you if you look at these, of course, we know that the tax rates are progressively going up as income goes up. And so if you're trying to build a table, you basically and these won't line up with the table exactly, but they'll give you an idea of how this is being built. So if they earned between 71 254 so what that means is, if they if they had less than the 71 they wouldn't pay any taxes. But if they had between this mount, we're gonna have to subtract. Ah, you know, whatever they have. If they have 100 minus the 71 that's what they're gonna pay taxes on. So we don't we lending to calculate that 10% on that portion, and that would be how much tax they would pay. If if we're in this bracket, if they made somewhere between 2 54 and 815 then no, we kind of already calculated the tax up to 254. This this lining up to here? We've already calculated attacks on that. So we don't need to re calculate that what we need to do is just calculate the tax on the portion above to 54. That's below 815. So if it was, like 909 100 minus the 254 and then we're just gonna take the 18 which is the amount of tax on the to 54 plus the difference between you know, the 900 ah minus 22 54 and that would that be a 12% rate that rates going up as we make more money? And then if they made something between 815 and 1658? Then again, we already configure the tax. As of this line, that's the last point. So so as of that point, they had the tax would be eighties 5 62 and then whatever they made above that, So if they made 1000 200,200 minus 288 15 times the higher tax rate of 22% 48. 520 Medicare Tax: in this presentation, we will take a look at the Medicare calculation when considering Medicare. We're talking about the federal Insurance Contribution Act that they Fike. A type tax pica federal insurance contribution can be broken out into the Social Security component and the Medicare components. We're concentrating here on the Medicare component now, like the other fighter component, like Social Security, it has thes two layers to it. It's got the employer layer and the employees layer. This is going to be the most confusing component or part or thing to understand within the Medicare taxes, because we can confuse these two once again, we could confuse Ah, the 1.45 as if that's the only thing being paid or whose pain these taxes and the idea of this tax is similar to the 41 K plan. Again, that 41 K plan is not the same thing as a Medicare plan or so scary plan or a fighter plan in terms of the benefits and the payouts. But in terms of the pain into the program, you can think of it as a similar type of set up, meaning the employer is mandated to put in 1.45% which you'll notice it is a lot smaller if we if we move the decimal two places, it's 20.145 and the employer is is mandated to match that, in essence, putting in another 1.45 So what does that mean then? This is a Medicare is gonna be a payroll tax that will taken out. But remember, from the employer standpoint, the employee portion is not really a payroll is not really a payroll tax. To the employer, it's just payroll. It's part of the payroll. So in other words, the employees gonna earn whatever they earn and of their earnings. They're gonna have to take out 1.45% which we will take from them and just do them. The service have taken out their earnings and paying it not to them, but to the government, were mandated to do that sets. But in essence, we're just taking the employee wages that they've earned and allocating it to someone else that they owe. Whereas the employer portion is a payroll tax to the employer, meaning it's not coming out of girls pay, it's coming out of our you know, their employers checking account. In addition, Teoh, the employee tax. So in this in, in essence, this is really the payroll tax to the employer. This is really kind of a payroll tax to the employees. The employer sees it as just part of wages. It's something that's got to be owed to the employees. Now again, from an economic standpoint, you can. There's arguments in terms of what's really the effect of taxes. Who is really paying the taxes if you think about markets and whatnot. But from a logistic standpoint, from a record keeping standpoint, the accountant sees this as just the employees, part of the employees wages. It's not a separate tax. We just pay it out. Two things for the employees. This will be a separate tax and its attacks. That's not being called on the corporate income. It's been based on the employee wages. So this is going to be broken out typically as payroll taxes on recording when we have record the income statement. So that's usually the confusing piece. So note that really, the tax that's being paid between the employer and employee, the total tax being received or paid for Medicare is the sum of both of these taxes on the earnings of the employees. Often, miss people often think that it's only 1.45 This is what you'll see on the paste up actually coming out of the pay stub. But it's really twice that, because the employers put it in a portion as well. Because it's the same portion. It could be confused, and it can be confusing in terms of who's paying it or how the calculation is working. The calculation will be based on the gross profit for the employees each employee. So then there's no cap as there is with the Social Security type of payment. In part of the reason for that. And just if if we were to speculate on, part of the reason, if you're trying to find reasons for the tax code, can be difficult sometimes. But if we were to speculate, the Medicare is more of a pure safety net program now. So in other words, you have to qualify to get the benefits for neck for Medicare out at the at the end, whereas so security you get the benefits just for paying into the program. So so security. Kind of morphing into more of a, uh, kind of a retirement type of plan, in some sense, from the federal level. Whereas the Medicare really is paying in, it's still really a safety net program to help people that are having problems. Andi need the Medicare assistance, and because of that, it's ah, it's also less costly 1.45% of a lot less than the Social Security rate, which was it was a 6.2 now, no, that's really it's really twice that it would be 12.4 for Social Security and 2.9 for for Medicare. But again, it's substantially less so. There's no cap, and we don't deal with that that camp issue. It's the flat tax of the actual calculation for both these components is pretty straightforward. Whatever the gross wages, we just take a flat tax a lot easier to do than the federal income tax. We do have an an additional 9.9% big difference Saudi 0.9 addition for wages over 200,000 and this is another kind of component, that's all that's clearly ah, debatable component. As to as to whether that's your change or how that should change to this, this is likely more likely of a cap that could change over time, possibly than possibly the rates, which could change over time to, but probably not as often. 49. 605 Taxes Employer Employee: in this presentation, we will take a look at taxes for the employer and employee, or look at taxes and deductions and determine whether or not it's the employer tax or employee tax and deductions. In other words, we're looking at who is responsible for pain these items. Is it the employer or the employee? Now this is a confusing question because in one sense you might argue that they're all employer responsible taxes because employers really the one that's facilitating the payment , making the actual logistics off the payments happen. However, the question is really whether or not it's being taken out of the employee's gross pay to get down to net pay. Or is it something that the employer is paying over and above and outside of the calculation of gross pay? And that might be a more accurate way to think about it, because there's a lot of implications when we say that an employer tax on employee taxes at an employer deduction or an employee deductions and again, from a economic standpoint, you could argue who is actually paying the tax what's really happening. If we didn't have, you know, the laws that we have here so it might be more accurate and easier to think about in the context of which taxes are going to be coming out of the growth pay to get to the Net, pay for the employees in our payroll calculation in which taxes are gonna be paid by the employer and not be involved in the growth pay calculation. So we're gonna list these out. And if the thing says if we say yes in each column or in either column, I yes means that it's gonna be an employer responsible type of item. If we say no, it's going to be non employer responsible in that column. And if it's yellow, then that's gonna depend. And that's how we'll go through these. And if you memorize the last slide, then you have an advantage here. If you contralto recall what you remembered on the last lied. So we're gonna go through these here. We got Social Security. What type of taxes? That is it an employer tanks and employees tags or both, And we're gonna say it is an employer and it isn't employee tax and confusing a bit. Why? Because remember that the Social Security they set up kind of like as if it was a form one K matching type of thing. So there's an employer portion to it and there's an employee portion to each pay it. Currently, I believe, 6.2% off the employee wages, so that's gonna be on both sides. So when we see the growth paycheck calculation, the amount coming out here is really only half of the total amount that will be paid. The other half will not be coming out of the paycheck. It will be coming out of the employer's payroll taxes on their side on their checking account. Then we've got Medicare. Is it an employer Tax? Yes. Employee tax? Yes, same thing, because these are the two fighter taxes and they're set up in a similar fashion in that the employer will pay for a portion of it, half of it kind of like a matching type of idea. And then the employees will pay for a portion of it, so it will be calculated in the gross pay, reducing the growth pay, but only by half. That's only half that will actually be paid, the other half being paid by the employer not included in the calculation of net pay. Gross baited to net pay paycheck calculation and then we get the federal income tax. Is an employer tax? No. Now note that this you might say well, with federal Doesn't a corporation fate pay federal income tax? Yes, they dio, but we're talking in the context of payroll, federal income, tax meaning federal income tax that's calculated on the basis of employee wages, not federal income tax, calculated on the basis of the corporations. Net income. That's that's a different type of federal income tax. A note. Uh, we have to be careful in the context. Here we're talking about federal income tax as a payroll type tax. In this case, it's not something that the employer pays but is responsible for calculating and pain for the employees. In other words, the employer does the logistics of taking it out of growth, pay to calculate net pay and then paying it. Teoh the Fed to the government. But it's being paid on behalf of the employees out of their girls pay not as something out of the employer funds again, theoretically, so then we have the federal unemployment tax isn't an employer tax Yes. Is it an employee tax? No. So this is going to be something that does not come out of the calculation of Net pig roast paid to net pay. It's not gonna be part of the paycheck calculation. It's not gonna be on the pay stub. The employees won't even see this. And so for that reason, and because it's a lot smaller, we may not have any familiarity with it just by being an employee. The employer, On the other hand, we'll have to feel how yearly 9 40 pay this tax. So it's smaller tax, but it's still something that that's a pain, because you gotta calculate it. There's a little cap on it and everything so on. You have to report for it so that one comes out of the employer portion. Not out of the employees state unemployment. Is it an employer tax? Yes. Is it an employee of tax? It depends on the state. Now, this one room is that unusual one, and that we usually are not touching it on the state taxes here because we're gonna it's gonna change from state to state. We can apply the same principles most of the time to the states. But remember that the state unemployment tax is closely, closely tied, linked to related Teoh the federal unemployment tax because of the way the legislation basically happened. So that means that every state really kind of has a minimum standard in order to meet the regulations that were basically put in place as the federal unemployment tax, what's put in place. In other words, in order to get a lower tax rate for the federal tax, the state has to meet some minimum requirements and therefore all the states will do that so that they can keep the money in this team in the state rather than go to the Fed. So therefore, we're going to include the state tax, and we're gonna say, Yeah, it's gonna be an employer tax because that's part of what's kind of standardized. But it could also be a partially on the employees as well, and that's gonna depend on the state. The state has more leeway. Thio Thio have an important portion there, so it will be paid by the employer not included in gross pay, and it possibly could have a portion to it depend on the location. That will be a reduction from our gross pay to arrive at net pay for our paychecks. Workers Compensation compensation is that employers acts. It is an employer tax. Is it an employee tax? No, not an employee tax. So workers compensation something that's gonna be paid out of the employer taxes. And obviously it's four compensation for employees. We don't have any employees. We don't have worker's compensation. But it's not gonna be a calculation to arrive at. Net Income is not coming out of the employees Gross income to arrive at net income. Then we have the 401 came math. If we have a matching plan, is it an employer tax? Yes. Is it an employee tax? Yes. Now? No. This is where specifically have to say that it has a matching plan. Like many. For one case, dio. If we're talking about other attacks of retirement plans, then it's still a benefit no matter what, because it usually has a higher amount, you can put into it. But there may be differences as to whether the employer put or who puts the money in and how much is by each of these. But if there's a matching plan, then it's kind of similar to what we said in Social Security appear they're not the same thing. The so security is not Ah 41 K because the Fed isn't really holding onto the money in a similar doesn't have to account for it in that way in a similar way. But the ah withholding is similar in that the employees gonna put something that's gonna come out of the employees check, and the employer then is going to match it in some way that coming out not from the employee check, but from the employer, uh, general checking and then voluntary duck deductions. Are the employers know? Are they coming out of the employee? Yes, so anything that's voluntary. Typically, the employee has an option as to whether they wanna have the deduction or not. And the employer is giving the benefit the service, not of paying for it but of facilitating the transaction of taking it out of the employees , check for them and making the payment for them so that the employee doesn't really have to worry about it. If the employer wants some voluntary deduction to go to a savings account, or something like that, then the employers is just taking it out of the check and putting it directly to where the employee wants automatically and more of a service. It's going to be calculated in the calculation for net pay, however, because it's gonna be paid by the employer but four and out of the funds that was earned from the employees. 50. 615 Federal & State Unemployment Tax: In this presentation, we will take a look at federal and state unemployment tax calculations when considering federal and state unemployment tax calculations. We are considering types of taxes that are employer taxes, so we're focusing in here on employer type taxes. FOTA is going to be something federal unemployment tax is going to be something that is not a employee tax at all. Unlike the fighter taxes, Social Security and Medicare, which have a employer and employee component, the food to tax is a pure employer attacks. It has no employees component to it, meaning when we look at our paycheck and that paste of the calculation of our net pay, it doesn't have any Fouda removed from it. Fouda is a payroll tax. There will be an expense on the corporations or the business books as a A payroll tax and not part of the wages paid for the employees. So the food attacks then is going to be on the 1st 7000 Now this could change, and this is something that's really kind of confusing toe look at meaning. We're gonna take each employee and we're only going to pay food attacks. The employer is paying the food attacks based on the 1st 7000 of wages for the employees, that means that after they make you know 7000 and $1 we don't pay any more tax on food of after that for that next dollar. So for that kind of is a little unusual in some ways. Meaning that means that if we have more employees, then we're gonna have rather than pain, employees more money. We're gonna end up paying more food at because most likely and employees, even poor time employees, if they're employed by us for the entire year, will earn more than $7000. So for each employee, if they're employed for the entire year, then we're probably gonna be paying more than 7000. We're gonna have to pay. You know, the maximum food attacks per employee by the food attacks is fairly small as well. So that's another area that's really a bit confusing. If you have test questions on it, it's a bit confusing if in practice it's it's more straightforward. So the way you'll see this is that it'll it'll say that the food attacks is 6%. And remember, when we talk about these percentages in these caps that they could change over time. But if they these ones are more stable than other things we talked about. But the types of taxes that we're talking about are going to be a types of applicable standards. So once anything changes, we want to just go back and make sure that we are checking the correct rate and apply it and use the same principles that we're using to calculate the tax. So the rate, the way the wrong on the law set it up is basically saying that the rates gonna be 6% however, that we're gonna try to mandate the states in some way Teoh implement their own suta and therefore we're going to say, Hey, the federal taxes 6%. But you get a 5.4 rate reduction if the state complies with suitor requirements in accordance with the Fouda loss. So within the food to the law, the federal income tax law, the feds basically said, if you states put together a Suta State Unemployment Tax Act that complies with this A, B and C, then we'll give you a 5.4 discount or deduction, which means that the net tax, the actual food attacks and for all practical purposes is 0.6. Now, notice is pretty low tax rate 0.6 for the food to tax. So again, if you look, if you look at it and they ask you, what's the food? A tax rate, What's the federal unemployment tax rate? It's really 6% with this deduction, which basically every almost every state or ah complies with and therefore the rial application rate, the one you're actually gonna use most likely to calculate is gonna be this 10.6%. So from an application purpose for all practical purposes, most the time we're gonna have a food to rate that we're gonna use at 0.6%. But, um, the wording of it's gonna be 6% if the state complies with its from the 5.2. I mean, the 5.4 and the deduction given us to that 0.6% Now note. This isn't 6% of 60.6. So if we were to convert this to a decimal moving at two places to the left and that calculatedly 20.6 so it's 0.6 of the 1st $7000 earned for each employee for food attacks, which is an employee er tax. Uh, that's going to be paid, meaning it's not coming out of the of the paycheck. And then the state Unemployment Tax Act will vary. We've noted here that all states typically have some type of state unemployment, and the state unemployment will typically meet the minimum so that they qualify for this 55.4. In other words, you know, the state would rather set up their own system and collect the 5.4% rather than have the have the Fed take it at the sixth at you know, the 6%. So if the state has to impose a tax, they would rather take the tax typically, so they're usually going to comply here. But that would be kind of like a minimum standard, and they could add some more standards to it and vary the tax in some way for the suit attacks. But oftentimes it'll it'll mimic the same type of calculation. Some type of low, um, cap here, like 7000 would be for the 1st 7000 or 8000 or something like that and then have a similar type of rate up to that point. So reporting period and tax deposits notes that different There's gonna be different requirements for when, in essence, we have to pay the deposits for our payroll, and it really depends on how how larger payroll is. So the laws is gonna try to give more flexibility to painful periods that have have less employees and less total payroll. So, in essence, you know, the larger the payroll is that the more frequently we have to pay so we could end up pain, you know, on what we could. Our payroll periods and taxes could be a monthly, semi monthly or the next business day, and we won't get in a lot of detail in terms of what those paper, you know exactly what the dollar amounts are because those could change. And very just be aware that as we report the payroll, we need to make the deposits as we go. And so if we're, um, if we're doing payroll weekly or or bi weekly or semi monthly or monthly, once we process the payroll, there's a question asked you, how long can we wait until we give the money to the government, meaning after every payroll period, we're taking money out of the employees. Wages for the with holdings. How long do we have until we have Teoh remit the money to the government, pay that government out, pay that money to the government? And of course, they want their payments sooner rather than later. And eso we make those payments as we go and then we verify the reporting, kind of like we do with a 10 40 for individual income taxes. That's what the quarterly reports will do. And 9 40 ones are not there to calculate and pay the tax the 9 41 zehr there to report and verify the tax code and the payments that theoretically and should have actually physically been made by that time. So when we do the 10 40 I mean, when we do the 9 40 ones at the end of the quarter for payroll taxes, the quarterly reports at the 9 40 at the end of the year for Fouda we should not be beach pain at that point. Kind of like your 10 40 at the end of the year. We shouldn't owe money on the 10 40 at the end of the year for everything was done right. We should have actually overpaid on the 10 40 and get money back for the same thing is true for payroll taxes that we should be pain as we process payroll and we have some time period after payroll processing t make that payment, and then we're just gonna report that we have paid and the liability on the nine forties Quarterly and the 9 41 at the end of the year. Note, too, that, unlike the 10 40 we're not thinking and we're gonna get money back because it's not. It's not a complicated it's not a A system that is more complicated, like the income tax, meaning it's more flat tax that calculations should be exact. We should know exactly how much we owe. We should have paid exactly what we owe. So if we did it all correctly, we can conceivably make it exact. And it should be as opposed to income taxes, which that's an impossibility. You're always gonna be off, and hopefully, hopefully there's a bit of a refund because that makes things easier. At the end of the year, 51. 620 Form 941: In this presentation, we will take a look at Form 9 41 The form 9 41 is a quarterly federal payroll tax return so that form 9 41 is going to report those federal taxes of those federal taxes, including the federal income tax, the Social Security and the Medicare on a quarterly basis. Note that when we talk about the federal income tax where we're not talking about the taxes for the corporation, which are going to be reported on the corporate or whatever business entity we're talking about, it's not the income tax for the for the corporation. It's the income tax for the employees. So note that the Form 9 41 is going to report the payroll taxes and in this sense, were talking payroll taxes for both employer and employee. Remember that when we when we record something on the books as payroll taxes on on the income statement for payroll tax expense, we typically just think of the employer portion. That's what were we will record as payroll taxes on the income statement. The employee portion will be included in just the payroll expense because it's really payroll expense that has been earned by the employee. That's not the taxes that were paying over and above what we would pay the employees anyways. It's just so happens we're going to pay that portion to the government rather than to the employees, although the employees earned it. When we talk about the 9 41 we're going to be reporting not both components. The with holdings we took from the employees and the component for the payroll taxes that we owe on top of those with holdings now quarterly then will mean that there's going to be four payments we're gonna have divide the year in the quarter. So there's 12 months in the year. If we divide 12 by the 4/4 that we're gonna have, we're gonna have three month time periods. So the first quarter of, of course, January, February, March, then April, May, June, July, August, September, October, November and then December 3 month time periods. And when you first start looking at this, that can seem a little bit confusing. When we see quarters. You might just start to think it's easy. Sometimes people start to think that there's four months because it's 1/4 but remember, we're taking 4/4 off a 12 month year. 12 divided by four is three. We've got three month quarters that we're talking about whenever we break the year up into the quarters. And then the question is, when do we have to report the 9 40 ones when we actually have to turn them, turn them in? Well, the first quarter is January, February, March, and then we have till the first of next month. Teoh, turn in the 9 41 Meaning we have to record everything and get it all set up and report it by April 30th the second quarter being the same April, May, June. And then we have to compile that data as of the end of June for the three months into June and get it done and and, uh, turning in by July 31st. And then the third quarter, which includes July. August, September, has to be turned in by the end of October or is due by the end of October. And then the quarter of October, November in December is going to be due by January 31st of the following year. So that's gonna be our quarterly returns when they're due. This is gonna be a copy of the 9 41 and you could find this on the IRS website. You can just go to the I. R s dot gov and type into the forms section and 9 41 and you can get a copy of what the 9 41 looks like. This is just the first page. It's typically a two page document, but this gives you the major components of the first page. If we zoom in on this a bit, we're going to say that we have the employer identification number. That's gonna be the I. D. Number for any payroll calculations. And again, any entity, no matter what, the entity, will typically need an e I in number and report the payroll. We got the name trade address. Then we need to report which quarter that we are filling out the 9 41 4 and then we'll go through these calculations. We'll fill this out a little bit more completely later. But note, of course, we have the wages, tips and compensation. This is will be for the for all of the employees here. So we're talking all of the employees kind of combined together. When we do the payroll checks, we're and do the pay steps will actually have to break this out by employees as well and give give the similar information for the employees. But this is gonna be combined. All of our employees. Then we've got the federal income tax withheld. Ah, for wages, tips and other this number. There's no calculation here. Note. We're not gonna basically take the wages, times, anything we can't because it differs. It's not. It's not a straightforward tax. Um, it'll differ from employees to employees. All we can do is is basically add up what we came up with based on our calculations on what we withheld from each employee, then we have the Social Security and Medicare calculations here. Now what we have is the Social Security wages and then the Medicare wages. And then we have the tips broken out separately, which, if we have tips that would be applicable. Otherwise, we put the total wages here. Now, note that this may differ than line to the Social Security wages for all of our employees may differ from line to for For one thing, I hear there could be a cap on the Social Security wages, and this will be reflected again on your W twos. You may see that there's three lines for wages for self security wages, federal income tax wages. Federal income tax is decreased by things like a 41 K plan, whereas the Social Security is not Social Security wages have a cap on it, whereas the federal income tax does not, and then Medicare doesn't have a cap on it, whereas the Social Security does. So we could end up with three different, you know, wages, lines one for federal income tax, which could differ from these. The self security wages which could differ from the Medicare for the entire company. Then we're gonna take the Social Security wages and multiply it times point 1 to 4, which, of course, is if we move the decimal place two points over 12.4%. And remember, we said that it was 6.2. That's how much we pay and the employer times two. That's where you get in there. 12.4. Removing the decimal two places over This would be 12.4% or 0.1 to form on the Medicare side, we have the points, Um 0 to 9, which is 90.45 Oh, point or 145 which is what we pay on the employee and employer side times two for both. And so we're paying 20.29 between the employer and employee. So that's where we could see that we're reporting both sides here, the employer and employee side. And then we're going to basically add those columns up here, t get to get our total taxes that we will. Oh, meaning we're adding the federal income tax, the employee tax on Lee and the Soul Security and Medicare, which is adding up the employee and employer or portion of federal taxes. Then we have some other lines, like adjustments, and there's gonna be some fractions of a penny type of things that are off. So if something's if our calculations are different than what what we calculated to be by fractions of a penny, then we can make some adjustments there, and then we have some other type of adjustments we won't go into at this time to finally arrive at the taxes after adjustments, whether they be just rounding adjustments or any type of other adjustments involved reporting those three types of taxes this is reporting than the liability component. This is how much we owe. We've re calculated it. We've already recount. We've already calculated it as we've done payroll in our payroll registers and actually withheld what should be reported here. Because this line here, this is just going to report what we already calculated for the federal income tax. And we've re calculated a flat tax, that flat tax just being a percentage times each individual's each individual's pay rate. So if we take the total times the pay rate, it should be the same. So our tax should be pretty much exact. And then we have this rounding thing that we could round if it's not exact. Now, Line 12 is total taxes after adjustments and credits, and then line 13 is gonna be the deposits we make. So these are gonna be the deposits we've made. So notice what we're doing here. We've got the liability that's been fully adjusted here, and then we've got what we deposited already. So this isn't a formal. We're gonna make the payment at this time. We're not trying to determine how much do we owe. We're just basically double checking how much we owe calculating it in kind of a different way and reporting it on a quarterly basis Here. So So this is just a reporting requirement. Shouldn't be on area where we are filling out and pain taxes at this point in time. So then we have the balance due, or overpayment, which again, hopefully there isn't any balance. Do our overpayments. If we had made an error somewhere, then there could be. But hopefully it's all it's all been paid up, and we're good, and we're just gonna report what has been done successfully already. Then we have a section B of the 9 41 the section B is going to give us some of the payment type of schedules. Now, Section B is only going to be required if we're over a certain amount of income amount. Otherwise we can weaken, have ah, summary. That's part of the 9 41 that is a bit less detailed. But of course, what we're gonna have here is we're gonna say there's three months within, um are quarter that were reporting for the 9 41 whether it be quarter 123 or four. And we're gonna actually break out the payments that were made here. So we'll just actually break out the payments by month and list out those payments. And of course, then we can sum up those payments for a month, one month to and among three. And if we add up the three months, that should then add up to our total payment that that we have our total payments, the sum of all the payments we have made designated to this quarter. And as we can see here that the total here online 12 on formed 9 41 So whatever we come up with here should this should be supporting what we reported on line 12 of 9 41 And if there's any discrepancies, if the IRS says, Hey, we didn't get paid in this and that and then, of course, then we have to go through. These will give us a list of the actual payments. We can see if they've cleared the bank and see if these payments have actually cleared and then we can talk to the iris and actually go through the list of payments we have and take anti them off and ask the IRS Hey, is this what you have on your side? And the problem will typically be if there is a discrepancy that the iris either doesn't have the payment, didn't clear or it's been applied to the wrong quarter, which is very possible, depending on how we reported it. If we accidentally made a payment at the end of the third month and applied it not to quarter one, but 2/4 to then it got applied the wrong quarter in, which has got to make sure that we have our applications to the correct quarters, and that should be a way that we can fix any tax of problems related to that. 52. 625 Form 940: in this presentation, we will take a look at Form 9 40 9 40 It's gonna be the annual federal unemployment or the Fouda tax return. So the 9 40 is going to be something that is gonna be an annual return, as it says here, and it's really just reporting the food. Now you might think these these numbers air so close to each other the nine forties, which are the quarterly returns in the 9 40 ones. That one. They're easy to get mixed up. For that reason, remember that the 9 40 ones, for whatever reasons, are the quarterly returns, and the 9 40 is kind of like the yearly return. The other thing that's confusing about them is one because numbering is so close and and to just because they're both payroll tax forms, it's easy to think that the 9 40 or the year inform is going to sum up in some ways, um, the payments that have been recorded or the types of taxes that are on the 9 40 ones. But that's not exactly the case. The 9 40 reports of completely different federal income tax, which is the food a tax, the federal unemployment tax. So note that the 9 41 is gonna be covering all other federal payroll taxes. So the 9 40 ones the 4/4 9 40 ones cover the federal income tax again. Not for the corporation on their net income, but for the employees payroll taxes, the income tax, the F I T and then the Social Security and Medicare. For both the employer and employee sides. Those are the 9 40 ones. The 9 40 isn't going to recap that again on an annual basis. What the 9 40 does is calculate just thief Ouda Tax The federal unemployment tax. Um, and the reason one reason this is the case is that it's kind of a waste of time to record the 9 40 once. Or maybe it's it's thought of as in material or not worth the effort to record to report the food attacks on a quarterly basis. Because it's such a it's a smaller tax. There's not as much being recorded, so therefore, the requirement is really just an annual requirement. So it's not really that we have quarterly requirements and an annual to sum everything up. It's more along lines that we're not gonna add the food a requirement to be broken down on a quarterly basis, in part because it's a smaller type tax therefore will allow. It's not to be reported until the end of the year, although the payments, like in all taxes, should be paid on the way as we go. So because it's a yearly form that's gonna be do, it's, it's we're gonna record the whole years worth of data from January to December, and then it's going to be due by January 31st. So clearly, obviously the end of the year is gonna be a a big time for record keeping. So we've got to do that last quarter and then we've got to do that nine forties so the 9 40 will look something like this. This and again, you can get this from the IRS. Gonna iris dot gov Look up the forms, look up form 9 40 you can get an idea of what the 9 40 looks like. It will be much. It'll be pretty much the same typically from your two year, but we do want to make sure if there's any changes to we need rates or anything. It will be reflected, of course, in the new in the newest form. So I want to make sure that you that you're down, whatever you're working on, downloading the newest form, this is the 2017 form here, so I will have the e i n number. Once again, we always need that guy in number. No matter what type of entity we are in the employer identification number, name, address, then we're gonna check the boxes that are applicable up here. Note that it's not the quarters, of course, because it's an annual return. But if it's an amended return, we got to say it's amended. If there's no payments for employees in 2017 we wanna have that. And if it's a final return, then we got a note. That, and the final returns can be a bit of a pain. We want to make sure that we close everything out for, um, for a corporation in terms of payroll taxes as well as everything else. So the first portion is gonna tell, ask for the state and asked, Basically, have we paid the state taxes? Are we subject to state taxes? Because remember that the state taxes or that are in some way related suit attacks is related to make sure that we have the lower food to rate. So if we paid the state taxes, we typically have that lower food to rate, which is gonna be the point. 006 or the 60.6%. Now, when we calculate the photo wages, it's a little bit confusing, cause you might remember that we talked about the fact that the food has a $7000 limit, her employees. So in essence, we're gonna be paying food attacks up to $7000 per employee, which pretty much all employees will will hit that if they've been employed for the entire year. Unless we hired them in, like, December or something or, you know, the last quarter, then they're probably gonna be paid 7000 orm or and so we're gonna have to pay food A for each employee for around 7000. Typically. Now, we've already calculated that probably when we did our when we did our calculations in the register to see what our payroll wages are for food or food, A payroll taxes. But the way we're reporting it here is we're gonna have to say that Here's our our payments to all employees. Basically what we paid and then any exempt payments we have, as well as the total of payments made to each point in excess of 7000. So we're gonna have, in other words, to have total payments and minus everything paid over the 7000 to get Teoh the number that we basically are gonna be using to calculate FOTA which we which we probably already have, which is, which is the, um, line six here, the sub total. That's kind of like a business kind of like our food toe wages that will have to make the calculation on, and that will be here. And then we're gonna apply the fruit attacks before adjustments is going to be the 0.6 It will take line seven food of taxes, times 70.6 that's 6%. And that, in essence, is going to be our food a tax. Now, if we go down to part three, we're talking about that as types of situations where the food of wages are you paid were excluded from the state unemployment tax and that's a case. Well, if you didn't pay state unemployment, you're not gonna get the 6% or you're going to get that higher rate and you're not gonna get that exemption. You have to add back in. You know that that that higher percentage for the federal percentage. So if that's applicable, we'd have to fill that part in here for any exempt wages from state taxes and pay the higher food to attacks once again similar to the 9 41 We would then have our our tax liability that we would calculate. Here, this is is a basically a recalculation of the tax liability because we've already calculated it and paid it. And this is going to re calculate it on a summary basis, meaning we're taking it and kind of as a whole and applying the tax rate, which should work because it's ah, it's ah, flat tax. So even though we calculated it as we wind on each individual wages on each individual pay period, it will still work out if we take the total the total wages that are food wages, times that the same rate. So we're gonna report that there and then we're going to report the food attacks. Ah, deposits that we have made. So we're gonna do the comparison and we're not gonna pay the food attacks now. We've already been paying it. The government wants their payments as the paychecks are being received. As we take the money from our we're not withholding money in this case, but as, ah, it big. As employees earn money, they want to be paid their food attacks in relation to the employees earning money throughout the year. So we've already made the payments and we're gonna report this So this form is just a reporting form. In other words, it's not a form to calculate how much tax well, and then write a check. Typically, if we do, we'll probably owe interest in penalties on it if we're paying for pain right now. So line 12 and 13 should be the same. If they're not, then we're gonna have to owe money or we're going to get a refund on it. But if we did it correctly, then they should tie out. Unlike like a 10 40 which is impossible to do that the payroll taxes typically is possible because the flat tax. So we should have paid pretty much exactly exactly what the taxes, and we should be able to just report it now and say, Here's a recalculation A recap of how much we owe for photo. Here's a recap of the deposits that we've already made. You can go ahead and verify that those deposits are made on your side of things, and just that will be the summary report for food. 53. 920 Form W 3: in this presentation, we will take a look at the form W two and form W three. So of all the payroll tax forms, the form W two it's probably the one that we are most familiar with. One that we have received it from our employer, one that we have used in order to fill out our form. 10 40 our income taxes at the end of the year. What we'll do here is go over. Some of the components of the W two will discuss how it relates to the other payroll tax forms and part of its functions, basically beyond just recording the taxes for our 10 40. So first we'll take a look at that function here. Of course, we receive it in order to help us toe to create and report our income on the form 10 40 our responsibility to do just by being the citizen. So we're going to self report how much we've earned and ah, and and that's gonna be on the 10 40 now that's gonna be one purpose. But the WT should also basically be ah firm statement to us as well that hey, the government is giving us the W two. And I mean, the company's giving us the W two and has also given the W to a copy of the W two to the I . R s. So w two is also saying, Hey, this room has information that we're giving to you has been provided directly to the IRS as well. And therefore, if you don't report this information, you prat, you're almost certainly going to get some type of some type of letter, like unaudited, some kind, some letter saying, Hey, there's W two income that you didn't report because it's being reported to the iris. So that's one thing to just be aware of that we have This is gonna be a red form of the w to you basically indicating that, you know, one cop is going to go to the to the employee. One copy is going to go to the I. R. S, and therefore the information is known on both sides. And therefore, it's something that basically you just have to report on your 10. 40. Um and it's already known by the I. R. S. If we go through their components of the w two, we of course have line one That's gonna be our wages and tips. And you would think that would be if you were to ask someone how much they earn. You would think you can look in the W two and just look at the Line one and say, That's how much we earn. But it's not an accurate number in all cases, because, really line one lines up. Teoh. What we earn for calculating federal income tax is typically main. It lines up to kind of like the withholdings calculation were making for federal income taxes and the amount we're going to calculate to use how much we owe taxes on on the 10 40 . But it's been reduced by some things like, for example, it's been reduced by the amount that we put into our 41 K plan. So it's not really what we've earned, possibly in that case, the Social Security is another wages, but it's in. It's geared towards the wages for Social Security calculations, and remember that may not be accurate in terms of how much someone earned as well, because there's a cap on how much Social Security wages are reported. We don't pay taxes over that cap. So if someone made over a certain amount of money than the Social Security wages wouldn't actually be accurate and how much they earned because it would be capped at that amount. The Medicare may actually be the most accurate wage calculation. If you look on the form W two, if you want to know how much someone actually earned the Medicare, maybe in many cases, the highest, um number because there's no cap on Medicare and there's no deductions like there are for Line one, such as the 401 K type deduction, which is gonna be a nontaxable for federal income taxes. But Medicare, we pay the rate. Ah, there's no cap on it. So we have these three wage calculations. We use the 1st 1 in order to calculate the taxes on the 10 40 but the other two will help us to calculate the taxes for Social Security and Medicare and make sure that those are in alignment as well. Line to has to do with the federal income taxes. We report that on the second page of the 10 40 that ties into what we've done in like the 9 40 ones where we reported the federal income tax on the 9 41 from the from the company side . So from an individual side, this is the individuals portion of what we reported on the form 9 41 As as what we withheld from company from employees and gave to the government eso Then Then we have the Social Security tax withheld, and this these two should line up. So we should be able to basically see Line three in Line four. Line up this again reporting and reflected in the numbers reported on the forms. 9 41 as is the Medicare. So here's the wages. Here's the Medicare taxes. We should basically be able to take our rate here in just the employees rate. We should be able to take our Social Security wages reported here times. Whatever the rate is just for the employees portion. Not for the both of them, as you see on the 9 41 just the employees half of it, which is currently 6.2% and that should give us our Social Security amount. Medicare. We should be able take our Medicare wages. Whatever's here times the employees half which is currently 1.45% and we should get the Medicare tax here. So those are gonna be the main the main components of the W two we're going to use to report. Now. Some of these mayor may not tie out to, like if we added up the 10 forties if we added up the wages on the forms 9 40 ones, depending on a couple things that could differ like tips. Um, you know, we should be able to reconcile at least the total wages from the 9 40 ones to all of the W two's on the wages. If we were to add them up, we should be able to reconcile them in some way. Same with the Social Security and the Medicare. If we were to add up the Social Security and Medicare wages, then for all W two's, which will dio in a second on the W three, then it should. Basically, we should be able to reconcile that, too. The 4/4 on the 9 40 ones. Same is the case for the Social Security tax withheld and the Medicare. We would add them up for all employees. We should be able to reconcile those toothy 9 40 ones. Ah, so then we have tips. What? Won't go? The tips? The vacation. We, of course, have the employees first name and initial last name. Then we have whether or not they are in a retirement plan or they component or participant within a retirement plan. If they are, we typically will report over here how much was withheld for the retirement plan, and that will be one of the major record styling items. Why lied? One will differ from Line three and line five could be that they put into a 41 K plan and that will be reflected typically down here in the box 12. And then we've got the State I D number. And if there's any basically any state withholding. So we got state wages and state income tax if there is a state income tax, depending on where they are located, so then we have the W three and W three you can see is very similar to the WT we got lying . One. Wages Line one. Wages Line three. Social Security and Line three Social Security wages Line five. Medicare. Why? Because the w three is is in essence, gonna add up all the employees w two. So it's kind of like the summary. So if we added up all the employees W two's, we basically have a W three, which represents, if all employees were one employee, kind of and the numbers for for all the employees put together. And this is one. This is the form, then that we should be able, tow, take and reconcile to some of our other payroll forms. And if we can do that, then we can have a little bit more assurance. So are 9 40 ones. We should be able to reconcile the differences between the 9 40 ones and for the for the. For the wages for the federal income tax for the wages for the self security and the wages for the Medicare as well as thief. Federal Income Tax Withheld The Social Security tax withheld in the metal Medicare tax withheld. Now there can be some components that will complicate that tips. Is is a component. They can complicate that calculation as well, but we can see how these forms they're all gonna be related in some way on note that when we report that they've amounts on the W two, and when we create the 10 40 then whether or not we get a refund will depend on the with hell withholdings that were reporting that have been made by the company by the business throughout the year. So when an employee, then if we over withheld on the employees for the federal income taxes, then they'll get a return once they they do, they're reporting so that basically the form 10 40 is the year end reporting. That's supposed to verify kind of like the 9 40 ones at the end of the quarter of the nine forties for the corporation. The individual is reporting the verification that they've made their payments. They're double checking the liability, reporting that they've made their payments through the corporation, withholding the money from them and then hopefully getting a refund again, if never exact. For the 10 40 for the federal income taxes and possible is too complicated. But hopefully it's a little bit over, and then you get money back. The Social Security and Medicare can be checked on on when we report our our taxes. We note that we put that into our tax calculations as well on the 10 forties. We probably don't notice them as much because those will be exact. Typically, when we get a refund, we get a refund. Typically for over withholding for the federal income tax, the Social Security and Medicare should come out. Exactly. It should. We shouldn't have any over withholding on those components.