Payroll is the sum of all the amount of money given by an employer to its employee in a given set of time. Payroll can be computed by adding all the amount of time work less deductions. Payroll is a crucial task in accounting department as it denotes legal part such as the taxes. A payroll system is subjected to laws and other regulations. Employees in the accounting are accounted for any payroll irregularities and errors.
Payroll payments needs to be accurate and on time. Deductions and withholdings must be correct as obliged by the government. Tax reports and remittances must be submitted and paid at the right time.
Payroll resources can be subdivided into 4. First is the computation of the gross pay plus bonuses, then the social security and Medicare deduction computations, the withholding tax and other deductions.
Payroll Work Pay
Gross pay of an employee maybe based by hours worked, days worked or the items produced. Login and logout are written in a time card or sheet. This sheet is submitted a few days from the pay day.
Bonuses are usually given at the end of the year though some companies give midyear bonuses. Bonus and 13th month pay is required by the government.
Payroll Social Security and Medicare
Medicare and Social Security are FICA taxes shared by the employees and the employers. To compute for FICA you need to determine the gross pay, the social security rate and the Medicare rate that year. Multiply the social security rate to the gross pay, you get the social security deduction. Same goes with the Medicare deduction. The employer will pay the same set of amount.
Computing for tax is a complex thing to do. Luckily for employees, they don't need to do that for themselves. The employer will do that. The employer will just ask you to fillout the W-4 form.
To compute tax, you need to know the following: the income amount that can be taxed, your gross pay, standard deduction and personal exemption. Standard deduction consists of your status, children or dependents number, age and if you or your spouse is blind.
An example of tax computation is as follows:
If you are single, no children, age is under 65, you or your spouse is not blind then your standard deduction would be $5,800.
So given that your gross income is equal to $40,000 and your personal exception is $3,700, your total taxable income would be $30,500.
Taxable income = gross income - standard deduction – personal exemption.
Taxable income is the income value where the government gets a portion from. This is not yet your Income tax.
Given the values above, your taxable income is $30,500. To compute your income tax you need to know about taxation income bracket to get the tax rate. In this example, $30,500 is taxation income brackets are in the first and second brackets. First bracket is $0 dollars above to $8,500 taxable income and second bracket is $8,501 – $34,500 taxable income.
To compute, get the highest taxable income in the first bracket that is $8,500 multiply to the rate for the single status which is 10%.
Taxable income first bracket = $8,500 x 10% = $850.00
Next, deduct $850.00 dollars to $30,500. this will result to $22,000.00 which would now fall to the second bracket. Do the computation again with Taxable income second bracket rate for single status which is 15%.
Taxable income second bracket = $22,000.00 x 15% = $3,300.00
Your total income tax would be the first taxable income bracket which is $850.00 plus the second taxable income bracket which is $3,300 would be $4,150.00.
Total Income tax = $4,150.00
Payroll Allowed Deductions
Aside from the Social Security, Medicare and Tax, there are other deductions an employer can deduct in the payroll. These are the following:
1. Reductions – these are deductions concerning retirement pay or retirement plans.
2. Union – the company union can ask for payments through the payroll.
3. Insurance premiums – voluntary payment by the employee.
If deductions exceed what is allowed, there is precedence in the deductions. Priorities must be the withholding tax, the social security and the Medicare.
