Question

In about 200 words (total), answer the following questions:

Employees are subject to taxes withheld from their paychecks.

List the federal taxes withheld from most employee paychecks.

Explain how a defined contribution pension plan works.

When should the liability associated with a product warranty be recorded? Discuss.

Answer 1

The U. S. income tax system and many state income tax systems require employers to withhold payroll taxes from their employees' gross salaries, wages, bonuses, etc. The withholdings from an employee's gross pay include:

• The employee portion of Social Security tax
• The employee portion of Medicare tax
• Federal income tax
• State income tax

Social Security tax and Medicare tax is withheld from an employee's salary or wages and the employer is also required to pay a Social Security and Medicare tax. In other words, the employer is responsible for remitting to the federal government both the employee and the employer portions of the taxes.

The amount withheld for federal income tax is based on the employee's salary or wages as well as personal information (including whether to be taxed at the Single or Married income tax rates) that the employee is required to provide the employer on IRS Form W–4, Employees Withholding Allowance Certificate.

In most states, payroll accounting will involve a state income tax. In those states, an employer is required to withhold the state income tax that an employee is expected to owe based on salaries or wages. Like its federal counterpart, the amount withheld is rarely the exact amount of income tax that the employee will owe to the state government.

List the federal taxes withheld from most employee paychecks.

The federal taxes withheld from most employee paychecks are

• employee’s federal income taxes,
• social security
• Medicare
• State Taxes

With a defined contribution plan,

• an employee, get to decide how much money he wants to contribute to his account though there are annual contribution limits that depend on your age and are subject to change year after year.
• The employer will facilitate what is typically an automatic transfer into your account. In many cases, an employer might offer to match a certain percentage of employee contributions.
• Once the employee account is funded, it will be up to the employee to decide how to invest his money. Most plans offer a number of investment options, each of which comes with its own risks and fees. Furthermore, once the employee opens an account, he gets to maintain ownership of it, even if he switched jobs.
• There are strict rules regarding the timing of withdrawals. Typically, the employee faces a stiff penalty for withdrawing funds prior to reaching age 59-1/2 (though there are a few exceptions). Depending on the type of plan you open, you may get an up-front tax break for contributing.

the liability associated with a product warranty be recorded -

A product warranty liability and warranty expense should be recorded at the time the product is sold if it is probable that customers will be making claims under the warranty and the amount can be estimated. When the warranty liability is both probable and can be estimated, the accountant will accrue in the period of the sale a liability and an expense for the future warranty work.