Payroll Taxes Payable
“Payroll taxes payable” is an account that represents the amount of payroll taxes that a company has withheld from its employees’ salaries but has not yet paid to the relevant government authorities.
These taxes typically include:
- Federal income taxes withheld
- State and local income taxes withheld (if applicable)
- Employee portion of Social Security (FICA) taxes withheld
- Employee portion of Medicare taxes withheld
In addition to the amounts withheld from employees’ wages, the employer’s portion of Social Security and Medicare taxes is also typically included in the payroll taxes payable account.
Once the taxes are remitted to the government, the “payroll taxes payable” account is reduced by the amount of the payment.
Here’s an example: If a company processes payroll and withholds $5,000 for federal income taxes, $3,000 for Social Security taxes, and $700 for Medicare taxes, the company would record a total of $8,700 in its “Payroll Taxes Payable” account. When the company remits these amounts to the government, it would decrease (credit) its “Cash” account and decrease (debit) its “Payroll Taxes Payable” account by the same amount.
Please note that the account can vary from one company to another based on the size of the organization, its accounting practices, the complexity of its payroll, and other factors. It’s always recommended for companies to seek advice from a certified accountant or a payroll professional when dealing with payroll accounting.
Example of Payroll Taxes Payable
Let’s consider a small company with a few employees. Here’s how the payroll taxes payable might be recorded in a particular pay period:
- The total gross pay for all employees in the pay period is $20,000.
- The company withholds the following amounts from employees’ paychecks for payroll taxes:
- Federal income taxes: $4,000
- Social Security taxes: $1,240 (6.2% of gross pay)
- Medicare taxes: $290 (1.45% of gross pay)
- In addition, the company owes the following amounts for its share of payroll taxes:
- Social Security taxes: $1,240
- Medicare taxes: $290
The total payroll taxes payable for this pay period would be the sum of all these amounts: $4,000 (federal income tax) + $1,240 (employee’s Social Security) + $290 (employee’s Medicare) + $1,240 (employer’s Social Security) + $290 (employer’s Medicare) = $7,060.
The journal entries would look something like this when the wages are paid:
When Wages are Paid:
| Account | Debit | Credit |
|---|---|---|
| Wages Expense | $20,000 | |
| Federal Income Tax Payable | $4,000 | |
| Social Security Tax Payable | $2,480 | |
| Medicare Tax Payable | $580 | |
| Cash | $13,940 |
When the Payroll Taxes are Paid:
| Account | Debit | Credit |
|---|---|---|
| Federal Income Tax Payable | $4,000 | |
| Social Security Tax Payable | $2,480 | |
| Medicare Tax Payable | $580 | |
| Cash | $7,060 |
This reduces the “payroll taxes payable” balances to zero since the company has now remitted the taxes to the government.
Again, this is a simplified example and actual payroll accounting can be more complex due to factors such as state and local taxes, benefits, and other deductions. Always consult with a payroll professional or accountant when dealing with payroll accounting.
