US Remittances to the Government

Employment taxes

In the us, most employers are required to withhold income taxes, social security tax, and Medicare taxes from their employees' pay­checks. They must also match the employee contribution to social security and Medicare taxes and remit both. Employers must also calculate and remit federal unemployment tax (FUTA) to the IRS.

To track withholding taxes, your company should set up the following accounts:

• Wages (Le., the employee's gross wages)

• Employment taxes (expense) (ie., the employer's share of payroll taxes)

• Employment tax liabilities (ie., withholdings from the employee's pay and the employer's share)

The accounting entry for this will look like this:

DR Wages

DR Employment taxes (expense)

CR Payroll liabilities

CR Cash

 

The treatment of federal unemployment tax is a little different. It is calculated in most cases as 0.8 percent of the first $7,000 of an employee's wage. The employer bears the burden of this tax; nothing is withheld from the employees' pay.

When it is time to remit this tax, you would set up the entry as ­

DR Employment taxes (expense)

CR Cash

 

Some companies' bookkeeping systems automatically accrue the amounts owing for FUTA, but it is not necessary to do so.

Other remittances to the government

There are several other remittances that you might have to make to various levels of government in the US, including state taxes. The concepts for these are the same as for the remittances.