accounting payroll software.
Payroll Accounting Options
By Joe Coffee
Starting off with a basic guide of payroll the hours worked by an employee is multiplied by the rate of payment to give the gross earned amount due to the employee. This calculation is normally done weekly, bi-weekly, or monthly. Before the actual check is issued to the worker, there are other procedures that are required of the employer.
Taxes and other withholdings are retained from the paycheck before it is given to the employee. After the money is taken from the gross earnings, the employee is left with the net income or take-home pay. The percentages, income brackets, and formulas of the Internal Revenue Service change periodically. For example, in the 1970’s the highest Federal income bracket was at a socialistic 70% of the gross income.
The items withheld from a paycheck are Medicare, Social Security, Federal, and State taxes. The current Medicare tax rate is set at 1.45% and the Social Security rate is 6.2% of gross earnings. Federal income taxes range from 10% to 35% depending on the income bracket the individual falls into. The State taxes vary by each state with 7 states not imposing income tax. Here is a link to view each state law: http://www.taxadmin.org/fta/rate/ind_inc.html
There is also an accrued tax that must be calculated and contributed
by the employer when figuring the payroll accounting. A portion of Medicare is paid by employer, portion of Social Security, Federal Unemployment Tax, and State Unemployment Tax must be paid as well.
Just to note, there is a Tax Expense portion of the payroll disbursements transaction that is the expense part of the accrued tax transaction.
There are certain documents that need to be retained by the employer. These documents include time sheets, original employment application, employee reviews (if applicable), Federal and state W-4s, and the employer's copy of the employee’s W-2 form.
Most of what you need to know to calculate these payroll withholdings and taxes are spelled out in Circular E. A current issue can be obtained by searching Circular E and selecting the irs.gov link. This document is a good guide through the process and answers about any payroll questions you might have.
Payroll can be done in-house or outsourced to an service. Of course it is always preferable to outsource if the means are available. If the funds are not available having payroll software is a must for more than 2 full time employees. The two most popular are Peachtree and QuickBooks software, but QuickBooks is better overall.
Joe Coffee is a consultant for the online marketing firm, Web Shepherd. Visit www.accountingandyou.com”>www.AccountingAndYou.com for tips about leading methods of accounting and small business accounting options.