Payroll Accounting Options - Business Empire

This calculation is normally done weekly, bi-weekly, or monthly. Before the actual check is issued to the worker, there are other procedures that are required of the employer.

Taxes and other withholdings are retained from the paycheck before it is given to the employee. After the money is taken from the gross earnings, the employee is left with the net income or take-home pay. The percentages, income brackets, and formulas of the Internal Revenue Service change periodically. For example, in the 1970?s the highest Federal income bracket was at a socialistic 70% of the gross income.

The items withheld from a paycheck are Medicare, Social Security, Federal, and State taxes. The current Medicare tax rate is set at 1.45% and the Social Security rate is 6.2% of gross earnings. Federal income taxes range from 10% to 35% depending on the income bracket the individual falls into. The State taxes vary by each state with 7 states not imposing income tax. To view each state law search: tax admin fta rate ind inc.

There is also an accrued tax that must be calculated and contributed by the employer when figuring the payroll accounting. A portion of Medicare is paid by employer, portion of Social Security, Federal Unemployment Tax, and State Unemployment Tax must be paid as well.

Just to note, there is a Tax Expense portion of the payroll accounting disbursements transaction that is the expense part of the accrued tax transaction.

There are certain documents that need to be retained by the employer. These documents include time sheets, original employment application, employee reviews (if applicable), Federal and state W-4s, and the employer?s copy of the employee?s W-2 form.

Most of what you need to know to calculate these payroll withholdings and taxes are spelled out in Circular E. A current issue can be obtained by searching Circular E and selecting the irs.gov link. This document is a good guide through the process and answers about any payroll accounting questions you might have.

Payroll accounting can be done in-house or outsourced to an accounting service. Of course it is always preferable to outsource if the means are available. If the funds are not available having payroll accounting software is a must for more than 2 full time employees. The two most popular are Peachtree and QuickBooks accounting software, but QuickBooks is better overall.

The author, Joe Coffee is a consultant for the online marketing firm, Web Shepherd. Visit http://www.accountingandyou.com for more tips from Joe and other writers about leading methods of accounting and small business accounting options.

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Source: http://accountingservices.businessempire.biz/2011/05/21/payroll-accounting-options/

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