Payroll Accounting

Example 3-5

Taylor Talbot receives wages amounting to $129,800. Their net earnings from self-employment amount to $32,800. Talbot must count $30,400 of their earnings in determining taxable self-employment income for OASDI taxes.

OASDI Taxable Wage Base	−	Wages Received	=	OASDI Taxable Self−Employment Income
$160,200	−	$129,800	=	$30,400

Ralph Henwood was paid a salary of $80,400 during 20-- by Odesto Company. In addition, during the year, Henwood started his own business as a public accountant and reported a net business income of $68,500 on his income tax return for 20--. Compute the following:

a.   The amount of FICA taxes that was withheld from his earnings during 20-- by Odesto Company.

Line Item Description	Amount
OASDI	fill in the blank 1 of 2$
HI	fill in the blank 2 of 2$

b.   Henwood's self-employment taxes on the income derived from the public accounting business for 20--.

Line Item Description	Amount
OASDI	fill in the blank 1 of 2$
HI	fill in the blank 2 of 2$

Example 3-1

During 20--, Rachael Lopez, president of Mathieson Company, was paid a semimonthly salary of $9,825. Compute the amount of FICA taxes that should be withheld from her.

Note: Rachael's tax return status is single.  If an amount is zero, enter "0".

		OASDI	HI
a.	9th paycheck	fill in the blank 1 of 7$	fill in the blank 2 of 7$
b.	17th paycheck	fill in the blank 3 of 7$	fill in the blank 4 of 7$
c.	20th paycheck	fill in the blank 5 of 7$	fill in the blank 6 of 7$
d.	If Lopez's year-to-date earnings as of her 24th paycheck are $235,800, and her year-end bonus is $100,000, how much additional 0.9% HI tax would be withheld for the year?		fill in the blank 7 of 7$

Example 3-1

Ernie Gilmore began working as a part-time waiter on June 1, 20--, at Sporthouse Restaurant. The cash tips of $370 that he received during June were reported on Form 4070, which he submitted to his employer on July 3. During July, he was paid wages of $540 by the restaurant. Compute the following amounts.  Round your answers to the nearest cent.

	OASDI	HI
a.   The amount of FICA taxes that the employer should withhold from Gilmore's wages during July	fill in the blank 1 of 2$	fill in the blank 2 of 2$
b.   The amount of the employer's FICA taxes on Gilmore's wages and tips during July	fill in the blank 1 of 2$	fill in the blank 2 of 2$

For social security purposes, what conditions must an individual meet to be classified as a "covered" employer?

a. The common-law relationship of employer and employee must exist.

b. The person must employ one or more individuals for the performance of services in the United States.

c. Both of these answers are correct.

d. Neither of these answer is correct.

In order to be classified as a "covered" employee, an individual must perform services where 

A 

 relationship exists between an employee and an employer when the employer tells or has a right to tell a worker how, when, and where to work.

An 

 is a person who follows an independent trade, business, or profession and offers services to the public.

Employers must collect fill in the blank 1 of 2

 taxes on tips reported by employees and for wages paid to tipped employees. Employers are also liable for their share of the fill in the blank 2 of 2

 taxes on the tips reported by employees and for wages paid to tipped employees.

The first 

 months of sick pay received by an employee is considered to be wages. These amounts are subject to withholding for FICA tax purposes.

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Employees' pretax contributions into a qualified deferred compensation plan are subject to fill in the blank 1 of 2

 tax. However, the employers' matching contributions are fill in the blank 2 of 2

.

1. John Luis receives wages from three employers during 20--. Is he entitled to a refund on the OASDI taxes paid on wages in excess of the taxable wage base?

If individuals paid OASDI taxes on wages in excess of $160,200 fill in the blank 1 of 3

, they are entitled to a fill in the blank 2 of 3

.

If so, how can he receive a refund? fill in the blank 3 of 3

The self-employment tax rates for 2023 on net earnings are fill in the blank 1 of 4

 % for OASDI and fill in the blank 2 of 4

 % for HI. Self-employment income is subject to fill in the blank 3 of 4

 % additional HI tax on earned income in excess of fill in the blank 4 of 4$. The actual tax calculation is done on Schedule SE (Self-Employment Tax) of Form 1040.

The deposit rules for nonagricultural employers are: a. Total taxes $50,000 or less in the lookback period: fill in the blank 1 of 5

. b. Total taxes more than $50,000 in the lookback period: fill in the blank 2 of 5

. c. Accumulated taxes of $100,000 or more: fill in the blank 3 of 5

. d. If you fell under the one-day rule at any time during this year or last year: fill in the blank 4 of 5

. e. Less than $2,500 for the quarter: fill in the blank 5 of 5

.

All employers must deposit their employment taxes electronically with the exception of those with 

 or less in quarterly tax liabilities.

There are two electronic methods of deposit. When the employer instructs the Treasury Financial Agent to withdraw funds from the employer's account and route them to the Treasury's account at the Federal Reserve Bank it is referred as fill in the blank 1 of 2

. When the employer instructs the bank to send the payment directly to the Treasury's account at the Federal Reserve Bank it is referred as fill in the blank 2 of 2

. Generally, an employer must file Form 941 each calendar 

.

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Penalties that may be imposed in the following cases:

a. One month late in filing Form 941: fill in the blank 1 of 3

.

b. Seven days late in making a tax deposit: fill in the blank 2 of 3

.

c. Issuing a bad check to the IRS: fill in the blank 3 of 3

.

Example 3-1

Example 3-2

Wallington Company has 100 employees, each earning $525.25 a week.

Line Item Description		Amount		Amount
OASDI
Amount of OASDI tax withheld from each employee's paycheck each week:		$32.57		(6.2% × $525.25)
Total tax withheld from the 100 employees' wages:		$3,257.00		($32.57 × 100)
Tax on employer:		$3,256.55		[6.2% × ($525.25 × 100)]
HI
Amount of HI tax withheld from each employee's paycheck each week:		$7.62		(1.45% × $525.25)
Total tax withheld from the 100 employees' wages is:		$762.00		($7.62 × 100)
Tax on employer:		$761.61		[1.45% × ($525.25 × 100)]

Volpe Corporation has only five employees who are all paid $850 per week. Compute the total FICA taxes that the employer would withhold from the five employees each week and the amount the company would pay as its own liability for the employer's share of the FICA taxes on the weekly wages of the five employees:

Round your taxable wages per paycheck to the nearest cent.

Line Item Description	Amount
Employees' total OASDI	fill in the blank 1 of 4$
Employees' total HI	fill in the blank 2 of 4$
Employer's total OASDI	fill in the blank 3 of 4$
Employer's total HI	fill in the blank 4 of 4$