4.

03 Key Terms for Preparing Payroll

Term Definition
The total amount earned by all employees
Payroll
for a pay period

A fixed amount of money paid to an

Salary
employee for each pay period

The period of time covered by the payroll

Pay period
period

The person responsible for the preparation

Payroll clerk of the payroll

The total amount of money an employee

Gross earnings earns in a pay period. Also called gross
pay or total earnings

An amount of money paid to an employee

Hourly wage
at a specified rate per hour worked

A record of the times an employee arrives

Time card at work and leaves each day. Used to
calculate hours worked

An amount paid to an employee based on a

Commission percentage of the employee’s sales

The amount of money paid to an employee

Piece rate for each item produced by the employee

1 ½ times the hourly wage. Used to

calculate wages earned on hours worked
Overtime rate
over 40 per week

An amount subtracted from gross earnings

Deduction
A deduction from total earnings for each
person legally supported by the employee
Withholding allowance Reduces the amount of income tax to be
withheld

Completed by each employee to provide

the employer with the necessary
Form W-4
information for determining income tax
withholding

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4.03 Key Terms for Preparing Payroll – Page 2

Term Definition
A required federal tax paid for old-age,
survivors, and disability insurance
Social Security tax
The Social Security tax rate is 6.2%.

A required federal tax paid for hospital

insurance.
Medicare tax
The Medicare tax rate is 1.45%.

The maximum amount of earnings on

which a tax is calculated
Tax base
Most tax bases vary from year to year.

A form that summarizes information about

the payroll for one pay period
Payroll register Shows total earnings, payroll withholdings,
and net pay of all employees.

The amount left after total deductions have

Net pay been subtracted from gross earnings

A business form that contains all of the

payroll information for each individual
Employee Earnings Record
employee

Reflect the year-to-date gross earnings for

Accumulated Earnings each employee

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4.03 Calculating an Employee’s Total Earnings

1. Calculate the regular earnings by multiplying

hours times the rate.

2. Calculate the rate by multiplying the

rate by

3. Calculate the overtime earnings by multiplying hours

times the rate.

4. Add the earnings and the

earnings to calculate the earnings.

X Regular Rate =

Regular Rate
X =

Overtime Overtime
Hours X = Earnings

Regular
Earnings + =

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 4.03 Calculating an Employee’s Total Earnings

1. Calculate the regular earnings by multiplying regular

hours times the regular rate.
2. Calculate the overtime rate by multiplying the regular
rate times 1 ½.
3. Calculate the overtime earnings by multiplying
overtime hours times the overtime rate.
4. Add the regular earnings and the overtime earnings to
calculate the total earnings.

Regular
Hours X Regular Rate = Regular Earnings

Regular
Rate X 1 1/2 = Overtime Rate

Overtime Overtime
Hours X Rate = Overtime Earnings

Regular Overtime
Earnings + Earnings = Total Earnings

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4.03 Calculating Payroll Tax Withholding

Employee Social Security & Medicare

Social
Security
Total Earnings X = Tax
Deduction
Medicare
Total Earnings X = Tax
Deduction

Employee Federal Income Tax Withholding – Calculated using tax tables

Employee State Income Tax Withholding – Calculated using tax tables or
state rates (whichever is appropriate for the state)

4.03 Calculating an Employee’s Paycheck

MINUS MINUS MINUS MINUS MINUS EQUALS

Total
_______ _______ _______ _______ _______ _______
Earnings
Income
Income Tax Tax (Paycheck
Withholding Withholding Withholding Withholding Deductions Amount)

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4.03 Calculating Payroll Tax Withholding

Employee Social Security & Medicare

Social
Social Security Tax
Total Earnings X
Rate (6.2%) = Security Tax
Deduction
Medicare
Medicare Tax Rate
Total Earnings X
(1.45%) = Tax
Deduction

Employee Federal Income Tax Withholding – Calculated using tax tables

Employee State Income Tax Withholding – Calculated using tax tables or
state rates (whichever is appropriate for the state)

4.03 Calculating an Employee’s Paycheck

MINUS MINUS MINUS MINUS MINUS EQUALS

Total Social Medicare Federal State Other Net Pay

Earnings Security
Income Tax Income Tax (Paycheck
Withholding Withholding Withholding Withholding Deductions Amount)

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 4.03 Journalizing Payment of a Payroll

STEPS Using a Cash Payments Journal:

(a General Journal may also be used)
1 Write the in the Date column.
2 Write the title of the account debited,
in the Account Title
column.
3 Write the number in the Ck. No.
column.
4 Write the amount debited in the ____________
Debit column.
5 On the same line, write the total amount
_________ to the employees, in the
Cash column.
6 On the next several lines, write the titles of the
accounts to be credited,
Income Tax Payable (federal withholding),
Social Security Tax Payable,
Tax Payable, and any other accounts for
deductions, in the Account Title column.
7 On the same lines, write the corresponding
amount in the General ___________________
column.
8 Post the entry to the appropriate general ledger
accounts.

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 4.03 Journalizing Payment of a Payroll

STEPS Using a Cash Payments Journal:

(a General Journal may also be used)
1 Write the date in the Date column.
2 Write the title of the account debited, Salary
Expense, in the Account Title column.
3 Write the check number in the Ck. No. column.
4 Write the amount debited in the General Debit
column.
5 On the same line, write the total amount paid to
the employees, in the Cash Credit column.
6 On the next several lines, write the titles of the
accounts to be credited, Employee Income Tax
Payable (federal withholding), Social Security
Tax Payable, Medicare Tax Payable, and any
other accounts for deductions, in the Account
Title column.
7 On the same lines, write the corresponding
amount in the General Credit column.
8 Post the entry to the appropriate general ledger
accounts.

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4.03 Calculating Employer Payroll Taxes

Employer Social Security & Medicare

Employer’s
Total Earnings X = Social
Security Tax
Employer’s
Total Earnings X = Medicare Tax

Unemployment Taxes - Federal

Federal
*Taxable
Earnings
X = Unemployment
Tax
*Taxable Earnings for federal unemployment taxes are based on the first
$7,000 earned by each employee.

Unemployment Taxes - State

Federal
*Taxable
Earnings
X = Unemployment
Tax
*Taxable Earnings for state unemployment taxes varies by state.

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4.03 Calculating Employer Payroll Taxes

Employer Social Security & Medicare

Social Security Tax Employer’s
Rate Social
Total Earnings X = Security
6.2% Tax
Medicare Tax Rate Employer’s
Total Earnings X
1.45% = Medicare
Tax

Unemployment Taxes - Federal

Federal Unemployment Federal
*Taxable Tax Rate
Earnings
X = Unemployment
.8% Tax
*Taxable Earnings for federal unemployment taxes are based on the first
$7,000 earned by each employee.

Unemployment Taxes - State

State
*Taxable
Earnings
X State rate = Unemployment
Tax
*Taxable Earnings for state unemployment taxes varies by state.

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4.03 Key Terms for Payroll Taxes

Term Definition
The expense account used to record
Salaries Expense employees’ earnings
Taxes that are collected to provide funds
Unemployment Taxes for workers who are temporarily
unemployed
Calculated based on employee earnings
The federal unemployment tax is 6.2% of
the first $7,000 earned by each employee
Federal Unemployment Taxes
Employers may deduct 5.4% of the federal
unemployment tax if they pay
unemployment taxes to the state.
Calculated based on employee earnings

State Unemployment Taxes The state unemployment rate and tax base
is set by each state and varies from year to
year.
The expense account that is used to record
Payroll Tax Expense the employer payroll taxes
The form used by the employer to pay
Social Security, Medicare, and federal
Federal Tax Deposit Coupon (Form 8109) income taxes to the Internal Revenue
Service
The online system that is used by larger
Electronic Federal Tax Payment System businesses to remit payroll taxes
(EFTPS)
The form that summarizes an employee’s
Form W-2 earnings and deductions for the calendar
year
The transmittal form filed by the employer
that summarizes the earnings and
Form W-3 deductions for ALL employees for the
calendar year
The employer’s quarterly federal tax return
that reports accumulated amounts of
Social Security, Medicare and federal
Form 941
income tax withheld from employee’s
earnings, as well as the Social Security and
Medicare taxes owed by the employer
Used to report the employer’s federal
Form 940 unemployment tax for the calendar year

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 4.03 Calculating Employer Payroll Taxes

Employer Social Security & Medicare

Employer’s
Total
X = Social Security
Earnings
Tax
Total Employer’s
X =
Earnings Medicare Tax

Unemployment Taxes - Federal

Federal
*Taxable
X = Unemployment
Earnings
Tax
*Taxable Earnings for federal unemployment taxes are based on
the first $7,000 earned by each employee.

Unemployment Taxes - State

Federal
*Taxable
X = Unemployment
Earnings
Tax
*Taxable Earnings for state unemployment taxes varies by state.

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 4.03 Calculating Employer Payroll Taxes

Employer Social Security & Medicare

Employer’s
Social Security
Social
Total Earnings X Tax Rate =
Security
6.2%
Tax
Medicare Tax Employer’s
Total Earnings X Rate = Medicare
1.45% Tax

Unemployment Taxes - Federal

Federal
Federal
*Taxable Unemployment
X = Unemployment
Earnings Tax Rate
Tax
.8%
*Taxable Earnings for federal unemployment taxes are based on
the first $7,000 earned by each employee.

Unemployment Taxes - State

State
*Taxable
X State rate = Unemployment
Earnings
Tax
*Taxable Earnings for state unemployment taxes varies by state.

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 4.03 Journalizing Employer Payroll Taxes

STEPS USING A GENERAL JOURNAL:

1
Write the in the Date
column.
2 Write the title of the account debited,
, in the Account Title
column.
3 The amount to be debited is the total of the
employer’s ______ ,
_____________________________,
____ unemployment, and
________ _ unemployment taxes.
4 Write the amount debited in the General Debit
column.
5 On the next several lines, write the titles of the
accounts to be credited,
_____________________________________,
_____________________________________,
_____________________________________,
and ________________________________,
in the Account Title column.
6 On the same lines, write the corresponding
amount in the General __________________
column.
7 Post the entry to the appropriate general ledger
accounts.

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 4.03 Journalizing Employer Payroll Taxes

STEPS USING A GENERAL JOURNAL:

1 Write the date in the Date column.
2 Write the title of the account debited, Payroll
Tax Expense, in the Account Title column.
3 The amount to be debited is the total of the
employer’s Social Security, Medicare,
federal unemployment, and state
unemployment taxes.
4 Write the amount debited in the General Debit
column.
5 On the next several lines, write the titles of the
accounts to be credited, Social Security Tax
Payable, Medicare Tax Payable, Federal
Unemployment Tax Payable, and State
Unemployment Tax Payable in the Account
Title column.
6 On the same lines, write the corresponding
amount in the General Credit column.
7 Post the entry to the appropriate general ledger
accounts.

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4.03 Journalizing the Payment of Social Security, Medicare,
and Federal Income Taxes

STEPS USING A CASH PAYMENTS JOURNAL:

(a General Journal may also be used)
1
Write the in the Date
column.
2 On separate lines, write the title of the accounts
to be debited, _________________________,

,
and
_____________________________________,
in the Account Title column.
3
Write the number in the Ck. No.
column.
4 On the lines, write the corresponding amount in
the General column.
5 On the first line of the entry, write the total
amount of the check in the _______________
Credit column.

(If using a General Journal, write the title of the

account to be credited, , in the
Account Title column and write the
corresponding amount in the General Credit
column.)
6 Post the entry to the appropriate general ledger
accounts.

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4.03 Journalizing the Payment of Social Security, Medicare, and
Federal Income Taxes

STEPS USING A CASH PAYMENTS JOURNAL:

(a General Journal may also be used)
1 Write the date in the Date column.
2 On separate lines, write the title of the accounts
to be debited, Social Security Tax Payable,
Medicare Tax Payable, and Federal Income
Tax Payable, in the Account Title column.
3 Write the check number in the Ck. No. column.
4 On the lines, write the corresponding amount in
the General Debit column.
5 On the first line of the entry, write the total
amount of the check in the Cash Credit
column.

(If using a General Journal, write the title of the

account to be credited, Cash, in the Account
Title column and write the corresponding
amount in the General Credit column.)
6 Post the entry to the appropriate general ledger
accounts.

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4.03 Journalizing the Payment of Federal Unemployment Taxes

STEPS USING A CASH PAYMENTS JOURNAL:

(a General Journal may also be used)
1 Write the in the Date
column.
2 Write the title of the account to be debited,
__________________________________
in the Account Title column.
3 Write the ___ number in the Ck.
No. column.
4 On the same line, write the corresponding
amount in the General __________________
column.
5 On the same line, write the total amount of the
check in the Credit
column.

(If using a General Journal, on the next

available line, write the title of the account to be
credited, __________________ , in the
Account Title column and write the
corresponding amount in the General Credit
column.)
6 Post the entry to the appropriate general ledger
accounts.

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4.03 Journalizing the Payment of Federal Unemployment Taxes

STEPS USING A CASH PAYMENTS JOURNAL:

(a General Journal may also be used)
1 Write the date in the Date column.
2 Write the title of the account to be debited,
Unemployment Taxes Payable-Federal in the
Account Title column.
3 Write the check number in the Ck. No.
column.
4 On the same line, write the corresponding
amount in the General Debit column.
5 On the same line, write the total amount of the
check in the Cash Credit column.

(If using a General Journal, on the next

available line, write the title of the account to be
credited, Cash, in the Account Title column and
write the corresponding amount in the General
Credit column.)
6 Post the entry to the appropriate general ledger
accounts.

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 4.03 Journalizing the Payment of State Unemployment Taxes

STEPS USING A CASH PAYMENTS JOURNAL:

(a General Journal may also be used)
1 Write the in the Date
column.
2 Write the title of the account to be debited,
_________________ ,
in the Account Title column.
3 Write the _______ number in the
Ck. No. column.
4 On the same line, write the corresponding
amount in the General __________________
column.
5 On the same line, write the total amount of the
check in the Credit
column.

(If using a General Journal, on the next

available line, write the title of the account to be
credited, __________________ ,
in the Account Title column and write the
corresponding amount in the General Credit
column.)
6 Post the entry to the appropriate general ledger
accounts.

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4.03 Journalizing the Payment of State Unemployment Taxes

STEPS USING A CASH PAYMENTS JOURNAL:

(a General Journal may also be used)
1 Write the date in the Date column.
2 Write the title of the account to be debited,
Unemployment Taxes Payable-State in the
Account Title column.
3 Write the check number in the Ck. No.
column.
4 On the same line, write the corresponding
amount in the General Debit column.
5 On the same line, write the total amount of the
check in the Cash Credit column.

(If using a General Journal, on the next

available line, write the title of the account to be
credited, Cash, in the Account Title column and
write the corresponding amount in the General
Credit column.)
6 Post the entry to the appropriate general ledger
accounts.

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