In: Accounting
Each time employees are paid, the company has a liability for Employer Payroll Taxes. (QBO)
Solution :
The law requires companies to deduct payroll taxes from employee’s paycheck. Employers are than
Required to transfer these tax holdings to various tax agencies. These payroll tax has following statutory tax deductions :
Federal income tax withholding
Social Security tax withholding
Medicare tax withholding
Additional Medicare tax withholding
State income tax withholding
Various other local taxes withholding
There are few voluntary tax deductions also. These taxes are deducted from the employees paycheck only if the employee has agreed to get them deducted. Voluntary deductions pay for or contribute toward various benefits which the employee has elected to participate in. Voluntary payroll deductions may include the following:
Health insurance Premiums
Life insurance premiums
Retirement Plans contribution
Employee stock purchase plans. Etc
These taxes are called as employers liabilities as they are deducted by the employer on the policy and assurity that they will pay it to the concerned tax authorities on behalf of employees. Since these is an obligation on employers, it can be termed as liability for employer.
The company has following responsibilities after making deduction from employees paycheck:
Paying the employers share to payroll taxes
Depositing taxes withheld from the employees
Preparing various reconciliation reports
Accounting for payroll expenses through their financial reporting, (which is must)
And finally filing payroll tax returns.