FA 8 5 Payroll and Payday NARRATOR: Current liabilities. One of the big current liabilities that we're responsible for is payroll taxes. And as an employee, do we pay payroll taxes? Oh, sure we do. We pay all kinds of things like federal income tax, state income tax, we can even pay city earnings tax. In addition, we pay Social Security taxes, Medicare taxes, and we finally get a little bit of take home pay. Not only does the employee have to pay these taxes, but for many of them, the employer will match them. So let's take a situation and in the tax we're going to be doing exercise seven in case you have that. But here's the facts. We have wages expense for the period. And so I know that I'm going to have to be debiting wages expense for the full amount of the time card which is the hours times the rate. And it comes to $371,000. Now, we then start deducting to get take home pay. One of the things that the employee has to pay is federal income tax. And I'll abbreviate that FIT, for federal income tax payable. And the amount of the federal income tax of this amount is $94,884. Now this is given to me. If I was a payroll clerk, and you can get certified in being a payroll clerk. Did you know that? There's a lot to this in figuring this amount out. There's also state income tax, which I'll call SIT, for state income tax payable. And the state income tax amount is $15,636. In addition, we have to pay Social Security taxes. Sometimes you'll see them referred to as FICA, F-I-C-A. And the reason they're called FICA is because that was the Act that brought Social Security taxes into being. But let's just call it Social Security Tax payable. And that amount has been computed to be $23,002. In addition, we also owe as employees, Medicare. So Medicare payable is $5,379.50. Now, on these, no matter how much we owe, earn, we will always owe federal income tax, state income tax. There is a ceiling amount that you pay Social Security up to. Medicare, if you make it, you pay Medicare tax on it. There's also in this problem, medical insurance that the employee has to pay a part of. And they pay $12,870. And after taking out all of these deductions from the wages expense, you get the take home pay which is the wages payable, which ends up to be $219,225.50. So this entry is recorded when the time cards are turned in. Now why did I say time cards? Because these are wages, aren't they? And wages means that it's an hourly rate times the hours worked. So for all of our employees, we make this one entry to record the payroll. Then on payday, which is usually later, we will put the amount of the take home pay in the bank and the employees can what? Cash their checks. So here's the entry. It will be wages payable, credit cash. And that is to pay the payroll. So $219,225.50 the take home pay or to pay the payroll. Stay tuned. We're now going to look at the employer's side.