Accounting for Employee Payroll Deductions - Accounting

Alright, as I said before, we're going to look at specifically the employee side of it

What do you, the employee, have to pay on your own behalf? What comes out of your

check? And so we're going to be looking at the employee payroll deductions. So what

is that made up of? Well, these are the amounts that's withheld from the employee's gross pay. These are the things that makes your, what you take home, not

what you earn. What you think you're supposed to bring home. This is what makes your check a lot less. It's because these are the things that you have to pay on

your own. And I look at these in a hierarchy. The big thing with these is there are quite a few of

these, and I want to make sure I don't forget these. So if I could look at them in a hierarchy

to say, okay, who gets paid first, who gets paid second, I'm less likely to forget these

So who gets paid first when it comes to your check? Well, Uncle Sam gets paid first. So let's

start with the federal and the state income taxes. That's where I always start. So federal

and state income taxes, this is required with holdings that are determined from the IRS tax

tables. If you've ever seen the tax tables they can be a little bit daunting. Most of the time you probably not going to have to use those in this class Intro to Financial Accounting class because it not a tax class Most of the time they just going to give you kind of a percentage or just the outright amount But federal you going to have to and if you in a state with income tax then you

going to have to do state income taxes as well. There are a few states out there that do not have state income taxes, Florida being one

of them. So if you're in that state, then you don't have to worry about that. But the first one is the state income tax, or federal and state income tax

So this is based on the employer's annual earnings rate and the allowance amount withheld, which you do on your W-4s

You fill out that on your W-4s. So first person gets paid, Uncle Sam

Who's the second person gets paid or second entity that gets paid? Uncle Sam

And so now they're going to have to pay for our Social Security and our Medicare. So that's the FICAs

So FICA taxes or Federal Insurance Contribution Act is where FICA came from

But it's made up of two pieces. You've got Social Security and you've got Medicare. So Social Security taxes is one part of it

This covers all retirement, disability and survivorship side of it. And for the year 2021 and this is important to understand because this part does change depending on what year you in But for the current year we doing this in 2021 Social Security tax is 6 of the first earned by the employer in a calendar year

Typically the 6.2 doesn't change. It could, but typically it doesn't. What does change is the cap

you only pay 6.2% of the first $142,800. If you make more than $142,800 in a year

you're only going to pay it on the first $142,800. If you make less than $142,800

then you're going to pay 6.2% on everything that you make. But again, you want to keep up with the

$142,800 because again, that does change every year. It's been changing every year since forever

as long as I know. That's Social Security. Now let's look at the Medicare side. Medicare taxes

this covers medical benefits. So again, for the year 2021, Medicare tax is 1.45% for the full

amount earned by an employee in a calendar year There is no cap to this If you make 100 bucks you going to pay 1 If you make a million bucks you going to pay 0 Actually if you make over I believe then that 1 goes up to 2 I believe Just double

checking on that because it changes each year. But for the basic, just understand it as 1.45

And that is the Medicare. Now, who gets paid after the FICA taxes? So we've done federal and state

income tax. We've done both the FICAs. What's left is going to be your voluntary withholdings

That's if you choose to take something out to pay for or to save up with or whatnot

So this is per employer requests, contracts, unions, and other agreements. So if you take

something out of, if you pay towards your own 401k, that's what would come out of this. If you

paid something for union dues, that's what would come out of this. If you want to do charitable

contributions, that's what would come out of this because these are voluntary things that you choose

to take out of your check before you get your check to take home. So those are all of the employee

payroll deductions. In the next video, I'm going to show you how to account for all this in an example

Thank you