Analyzing and Journalizing the Payroll
An employer pays wages or salaries to employees. The account used to record employees’ earnings is considered a normal operating expense of a business, and is often referred to as salaries expense.
If an employer wants to increase the amount in salaries expenses, he or she has to debit the account for the gross earnings for the pay period.
Employers are required to withhold the following amounts from an employee's paycheck:
- FICA (7.65% of gross wages)
- Social Security (6.2% of gross wages)
- Medicare (1.45% of gross wages)
- Federal Income Tax withholding – This deduction depends on the number of exemptions an employee is claiming and the employee’s marital status. In effect, you are paying for taxes that appear on your Form 1040.
- State Income Tax withholding – This deduction is similar to the Federal Income Tax withholding. (Some states do not have a state income tax.)
- Other deductions including employee contribution to a retirement plan, employee-paid medical insurance premiums, or reimbursements due to the employer can be withheld.
The final amount the employee gets after all deductions are removed from gross wages is known as net wages.