FICA 2

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  • #194420
    Anonymous
    Inactive

    So as the employer, are you withholding 7.65% of wages from being paid to the employee? And is the federal income tax withheld not a part of wages?


    Lime Co.’s payroll for the month ending January 31, 20X1, is summarized as follows:

    Total wages $10,000

    Federal income tax withheld 1,200

    All wages paid were subject to the Federal Insurance Contributions Act (FICA). FICA tax rates were 7.65% each for employee and employer. Lime remits payroll taxes on the 15th of the following month. In its financial statements for the month ending January 31, 20X1, what amounts should Lime report as total payroll tax liability and as payroll tax expense?

    A. Liability: $1,200; Expense: $1,530

    B. Liability: $1,965; Expense: $1,530

    C. Liability: $1,965; Expense: $765

    Correct D. Liability: $2,730; Expense: $765

    Federal income tax withheld $1,200

    Employee FICA (7.65% x $10,000) 765

    Employer FICA (7.65% x $10,000) 765


    Total $2,730

    Payroll tax expense: Employer FICA (7.65% × $10,000) = $765

Viewing 6 replies - 1 through 6 (of 6 total)
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  • #667842
    Missy
    Participant

    FICA is 15.3%. The employer pays half and the employee pays half (so 7.65% each).So 7.65% is an expense to the employer and the other 7.65 reduces an employees wages.

    Federal income tax is different than FICA, and it is not part of wages, it is a reduction of wages to get to net pay.

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    #667843
    Anonymous
    Inactive

    So the 1200 federal income taxes withheld reduces the 10,000 wages number?

    #667844
    SaveBandit
    Participant

    The whole entry would look like this:

    Dr. Gross Wages 10,000

    Dr. FICA 765

    Cr. Federal Income Tax W/H 1200

    Cr. FICA W/H – Employee 765

    Cr. FICA Payable – Employer 765

    Cr. Wages Payable 8035

    For the employer, FICA is a payroll tax ON TOP OF gross wages. For the employee, FICA is a payroll tax that REDUCES gross wages in the same way that federal income tax reduces wages.

    I hope that makes sense.

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    #667845
    Missy
    Participant

    Yup, look at your own pay stub. Will show regular pay (wages), less any voluntary deductions (insurance, 401k, cafeteria plans) the federal incoome tax, state income tax (in most states), Social Security and Medicare (also known as FICA) to get to your check amount.

    The reason why the federal income tax plus the entire fica is liability is that the employer withholds those the pays on the employee's behalf.

    Old timer,  A71'er since 2010.

    Finance manager/HR manager

     

     

    Licensed Massachusetts Non Reporting CPA since 2012
    Finance/Admin/HR Manager

    #667846
    Anonymous
    Inactive

    Ah, thanks.

    #667847
    ibCPAsoon
    Member

    Payroll taxes on the companies books is the EMPLOYERS portion.

    Salary expense for the employer is $10,000…..of that $10,000….7.65% is withheld for FICA (Which is still included as salary expense of the company)….and then any withholding is also withhold (still included in salary for the corp).

    The EMPLOYER portion of the FICA would be payroll taxes of the company in addition to any FUTA/SUTA …but that is beyond the scope of the question you mentioned. THe employee withholding and employee FICA is NOT part of the company payroll taxes. This is why total payroll tax expense is only $765 for the 7.65% of $10,000 wages subject to EMPLOYER FICA.

    Think of it as a journal entry:

    At January 31 to record payroll…you paid the NET wages to the employee. So $10,000 less $765 for their FICA and $1,200 for their withholding for a total of $8,035…but your salary expense is still the full $10,000.

    You would record:

    DR. Payroll Tax – $765 (For Employer Portion of FICA).

    DR Salaries – $10,000 (For Gross Wages)

    CR Cash $8,035 (Net Wages actually paid to employee – $10,000 less employee fica less w/holding)

    CR Liability $765 (Employee Portion of Fica Remitted the Feb. 15th)

    CR Liability $765 (Employer portion of FICA remitted Feb 15th)

    CR Liability $1,200 (Employee withholding remitted Feb 15th).

    Then on February 15th when you remit p/r taxes:

    DR Liability $2,730 (For Employee FICA $765 + Employer FICA $765 + W/holding $1,200)

    CR CASH $2,730 (It isn't paid until 15th of the month after….so it does not hit cash until now).

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