Accounting and Finance Foundations

Unit 8

Accounting and Finance Foundations Unit 8: Payroll 666

Payroll

Each employer must pay all of the income tax withheld from its employees’ earnings, as well as both the

employee’s and employer’s Social Security and Medicare taxes, to an authorized financial institution or

Federal Reserve Bank.

When does each business have to make this deposit, though? It varies based on the circumstances, but

in general, each business’s deposit schedule depends on the amount of tax liability and other criteria. For

example, if the employer’s accumulated tax is less than $500, this payment may be made with the busi-

ness’s tax return.

In an earlier lesson, we said that employers must match their employees’ Social Security and Medicare

payments dollar for dollar. That means that when an employer pays its employees’ tax withholdings and

Social Security and Medicare taxes to the government, the payment must include the employer’s share of

the Social Security and Medicare taxes as well. Let’s take a look at how an employer calculates how much

to pay to the government for its employees.

Example

Given the information provided in the table, what is the employer’s total deposit including tax withholdings,

Social Security taxes, and Medicare taxes?

Employee Gross

Earnings

Tax

Withholding

Social

Security

Medicare Net

Earnings

Plumlee, C 1,050 141 65.10 15.23 828.67

Powell, M 2,085 379 129.27 30.23 1,546.50

Randle, M 1,995 318 123.69 28.93 1,524.38

Robins, J 2,089 413 129.52 30.29 1,516.19

Total Tax Withholdings = $141 + 379 + 318 + 413 = $1,251

Total Social Security Tax Paid by Employees =

$65.10 + 129.27 + 123.69 + 129.52 = $447.58

Total Medicare Tax Paid by Employees =

$15.23 + 30.23 + 28.93 + 30.29 = $104.68

Total Social Security and Medicare Tax Paid by Employees x 2 =

($447.58 + 104.68) x 2 = $552.26 x 2 = $1,104.52

Employer’s Deposit = $1,251 + $1,104.52 = $2,355.52

Student Guide

Chapter 20

Lesson 20.1 Employer’s Tax Withholding,

Social Security, and Medicare Deposits

Employer’s Deposit = $1,251 + $1,104.52 = $2,355.52