Total payroll was $480,000, of which $140,000 is exempt from Social Security tax

Question

Total payroll was $480,000, of which $140,000 is exempt from Social Security tax because it represented amounts paid in excess of $102,000 to certain employees. The amount paid to employees in excess of $7,000 was $410,000. Income taxes in the amount of $80,000 were withheld, as was $9,000 in union dues. The state unemployment tax is 3.5%, but Delaney Company is allowed a credit of 2.3% by the state for its unemployment experience. Also, assume that the current F.I.C.A. tax is 7.65% on an employee's wages to $102,000 and 1.45% in excess of $102,000. No employee for Delaney makes more than $125,000. The federal unemployment tax rate is 0.8% after state credit.

Prepare the necessary journal entries if the wages and salaries paid and the employer payroll taxes are recorded separately.

Explanation / Answer

[Employee side] Wages and salaries 480,000 Withholding tax payable 80,000 Union dues payable 9,000 F.I.C.A. tax payable 28,080* Cash 362,960 (we credit cash for the difference to go to the employees) *Employers match F.I.C.A. - to calculate this total: $140,000 was exempt and only taxed at the Medicare rate of 1.45%140,000 x 1.45% = 2,030 (480,000 - 140,000) x 7.65% = 26,010 2,030 + 26,010 = 28,080* [Employer side] Payroll tax expense 34,520 F.I.C.A. tax payable 28,080 Federal unemployment tax payable 5,600* state unemployment tax payable 840* Unemployment tax calculations: $480,000 - $410,000 = $70,000 subject to unemployment tax There are two we need to calculate - Federal & State. Federal: 70,000 x 8% = 5,600 State: 70,000 x 1.2%* = 840 Difference between 8% and 1.45% = 1.2%*

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