Introduction to Payroll

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Accounting for Payroll April 9, 2011 Prepared by Emily AKA Emily Li BKA EMLAMY

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What Is Payroll? One of the largest expenses of a business Compensation paid to employees for performing services for the business Governmental regulations More to payroll than just take-home pay ♫ F is for friends who do stuff together, U is for you and me. N is for anytime and anywhere at all. Down here in the deep blue sea. ♫ To Do: Lunch with Shanaynay Make other friends Clean the toilet Meet Spongebob Squarepants Skydive in Lodi

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Payroll Deductions Gross pay : total earnings of employee for particular payroll period Take-home pay (net pay) : amount of money employee actually takes home Subtract deductions from gross pay Deductions consist of various taxes employer is required to withhold from employee’s pay CHEM 118B: Cycloaddition reaction : two independent pi-electron systems bond to form new ring of atoms Whyyyyy The grass is greener on the other side.

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In order to withhold taxes from employ ee ’s paycheck, employ er must know some things. Fill out W-4 Form Full name Social security number Home address Marital status Number of dependents Signed and dated by employ ee Information on W-4 Form used to determine deductions MAT 129: Fourier transform : E2 π i θ Guy next to me kind of smells.. U + Me = Us (Calculus) Jiāyóu 加油

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Typical Deductions Social Security Tax ( FICA ) Medicare Tax Federal Income Taxes Withheld State and Local Income Taxes Withheld State Disability Insurance Other Voluntary Deductions To Do: Go to the bank Open ING account Roth IRA account Learn about investing Kick some ass

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Social Security Taxes FICA = Federal Insurance Contributions Act Social Security tax is in two parts: Social Security (FICA) and Medicare Monthly pension benefits paid to retirees, survivor benefits, and disability benefits Applied to all employees Employ er s are required to match employ ee contribution Non-progressive ( fixed amount withheld from paycheck, regardless of salary ) Ceiling on FICA tax, but no ceiling on Medicare tax Social Security Tax ( FICA ) Medicare Tax Federal Income Taxes Withheld State & Local Income Taxes Withheld State Disability Insurance Other Voluntary Deductions I cannot afford to waste my time making money. ~Louis Agassiz

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Federal Income Taxes Pay-as-you-go tax Not actually a tax  income withheld in anticipation of federal income tax Submit income tax return in April for previous calendar year ( January 1 – December 31 ) Used to determine tax liability Funds withheld by employ er used to satisfy tax liability Amount withheld > Tax liability = tax refund Amount withheld < Tax liability = you owe monies Social Security Tax ( FICA ) Medicare Tax Federal Income Taxes Withheld State & Local Income Taxes Withheld State Disability Insurance Other Voluntary Deductions After a visit to the beach, it's hard to believe that we live in a material world. ~Pam Shaw

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Federal Income Taxes ….cont’d Based on 3 factors: Earnings for the pay period Marital status Number of exemptions claimed by taxpayer Progressive ( more money earned, higher percentage of income paid in taxes ) Single people have less expenses than married people, so amount withheld from single person will be somewhat greater than married people More dependents taxpayer claims as exemption, less withheld  lower tax liability Social Security Tax ( FICA ) Medicare Tax Federal Income Taxes Withheld State & Local Income Taxes Withheld State Disability Insurance Other Voluntary Deductions The real measure of your wealth is how much you'd be worth if you lost all your money. ~Author Unknown

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State and Local Taxes Businesses may also be liable for state and local income taxes, depending on location Taxing authorities publish withholding tax tables Social Security Tax ( FICA ) Medicare Tax Federal Income Taxes Withheld State & Local Income Taxes Withheld State Disability Insurance Other Voluntary Deductions I'd like to live as a poor man with lots of money. ~Pablo Picasso

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Disability Insurance Taxes Many states have this program that requires employees to contribute a nominal sum each week to fund to program Money collected is usually turned over to the state on a quarterly basis Social Security Tax ( FICA ) Medicare Tax Federal Income Taxes Withheld State & Local Income Taxes Withheld State Disability Insurance Other Voluntary Deductions When it is a question of money, everybody is of the same religion. ~Voltaire

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Voluntary Deductions All the previous deductions were made by the employ er , but the voluntary deduction is authorized by the employ ee Examples: union dues , insurance premiums , payroll savings plans , charitable contributions , and supplementary pension plans Social Security Tax ( FICA ) Medicare Tax Federal Income Taxes Withheld State & Local Income Taxes Withheld State Disability Insurance Other Voluntary Deductions A big part of financial freedom is having your heart and mind free from worry about the what-ifs of life. ~ Suze Orman

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Calculating Employee Earnings Employee : individuals who work directly for a business organization Hourly rate basis ( specific dollar amount per hour worked ) Commission basis ( certain percentage given for the sale of a product or service ) Annual salary basis ( fixed amount broken down into weekly, semimonthly, or monthly payments ) Independent contractor : an individual or a business not directly employed, but used by business only to do specific activities (a fee is usually paid and does not have the various deductions ) To Do Calculating Employee Earnings Overtime Earnings The W-2 Form A second reason why science cannot replace judgement is the behavior of financial markets. ~Martin Feldstein

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Overtime Earnings Normal five-day workweek usually consists of 40 hours (six-day workweek consists of 48 hours) Overtime = any hours worked in excess of employee’s normal workweek Calculated at 1.5 times the regular rate of pay for each hour worked beyond normal workweek e.g., Normal workweek is 40 hours per week. Employee worked total of 43 hours and is paid $6 per hour: To Do Calculating Employee Earnings Overtime Earnings The W-2 Form Time is more valuable than money. You can get more money, but you cannot get more time. ~Jim Rohn 40 hours x $6 $240 3 overtime hours x (1.5 x $6) 27 Gross Pay $267

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The W-2 Form At the end of the calendar year  report of the individual’s total earnings for the year Document must be submitted along with income tax return To Do Calculating Employee Earnings Overtime Earnings The W-2 Form Y ou can only become truly accomplished at something you love. Don't make money your goal. Instead, pursue the things you love doing, and then do them so well that people can't take their eyes off you. ~Maya Angelou

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Accounting for Payroll Now wasn’t this fun? Uhh…

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