Payroll fundamentals presentation

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Payroll Fundamentals
Part 2
For audio, dial 800-377-0237 access code 4114422
Presenter
Debbie Mathewson, CPP, CTT+
Senior Learning Specialist
Debbie.mathewson@adp.com
909-592-6411 x4422
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Housekeeping Tips
Questions
‒ Incoming audio in “mute” mode
‒ Use the Q&A feature to submit questions
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Session Materials
Print
Open soft copy or print
pages 41 through 56
Session Handouts
Handouts needed for class:
 Payroll Fundamentals Book 2014.pdf
– Print
 2014 IRS Publication 15
– Download – have open in a separate window
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Objectives
 Calculate Social Security & Medicare Taxes
 Determine what compensation is taxable
 Calculate employee wages from gross to net
 Explain Federal tax depositing and filing
requirementsrequirements
Workbook Page 2
Part 1 Review
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Social Security & Medicare
Social Security wage limit for 2014:
$117,000
Social Security rate:
6.2%6.2%
Medicare Tax rate:
1.45%
Workbook Page 16
Payroll Deductions Practice
Page 16 - Example 1:
Mike is paid $900 in federal taxable wages every two
weeks, is married and claims 2 withholding
allowances. Using the wage bracket method for
federal income tax withholding calculate Mike’s netfederal income tax withholding, calculate Mike’s net
pay.
Taxable biweekly wages: $ 900.00

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Example 1:
Mike is paid $900 in federal taxable wages every two weeks, is
married and claims 2 withholding allowances. Using the wage
bracket method for federal income tax withholding, calculate
Mike’s net pay.
Taxable biweekly wages: $ 900.00
Federal income tax withheld: $ -28.00
Social security tax withheld: $ -55.80
Medicare tax withheld: $ -13.05
Net pay: $ 803.15
Sue earns an annual salary of $62,000, is paid
weekly and on her W-4, she claims single with two
withholding allowances. Using the percentage
method for federal income tax withholding calculatemethod for federal income tax withholding, calculate
the net pay of her weekly paycheck.
Taxable weekly wages: $1,192.31 ($62,000 ÷ 52
weeks)
Percentage Method Practice
$76.00 x two withholding allowances = $152.00
$1,192.31 - $152.00 (2 withholding allowances)
= $1,040.31 (subject wages)

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Percentage Method Practice
$1,040.31 - $753 = $287.31 X 25% = $71.83 + $97.75 = $169.58
Sue earns an annual salary of $62,000, is paid weekly and on
her W-4, she claims single with two withholding allowances.
Using the percentage method for federal income tax
withholding, calculate the net pay of her weekly paycheck.
T bl kl $1 192 31 ($62 000 ÷ 52 k )Taxable weekly wages: $1,192.31 ($62,000 ÷ 52 weeks)
Federal income tax withheld: $ - 169.58
Social security tax withheld: $ - 73.92
Medicare tax withheld: $ - 17.29
Net pay: $ 931.52
Calculation Practice
Work on Practice Question #1 on Page 17
– Change your feedback color to purple when you’re
done.

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Calculation Practice - Answer
1. 48 hours x $15.48 = $743.04
8 hours x $15.48 x .5 = $61.92
$743.04 + $61.92 = $804.96 (Gross Pay)
2. Federal Income Tax Withheld = $56
Wage Bracket (page 49 of IRS Publication 15)
Weekly/Married/2 withholding allowancesWeekly/Married/2 withholding allowances
3. $804.96 x 6.2% = $49.91 (Social Security Tax)
4. $804.96 x 1.45% = $11.67 (Medicare Tax)
5. $804.96 x 2.25% = $18.11 (State Income Tax)
6. $804.96 x 1.0% = $8.05 (City Income Tax)
7. Line 1 – (Lines 2 through 6) = $661.22
Taxable Compensation
Determining Taxable Compensation
 Taxable Fringe Benefits
– Personal use of a company car
– Gift certificates
Company paid vacation– Company paid vacation
– Amount of benefit defined as its Fair Market Value
– What it would cost an individual in an Arm’s Length
Transaction
– When added to an employee’s earnings, it’s known as
Imputed Income
Workbook Page 18
Imputed Income
Group Term Life Insurance
– Taxable in excess of $50,000

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Nontaxable Fringe Benefits
– Working condition fringe benefits
– Certain moving expenses
– Qualified employee discounts
– De minimis fringes
– Dues and membership fees
– On-premises athletic facilities
Example on page 19 – John
Regular Wages $2,500
Imputed Income $1,800
Total Taxable Wages $4,300
After the taxes are calculated on the total taxableAfter the taxes are calculated on the total taxable
wages, what will happen to the imputed income
amount?
It will be subtracted before his net pay is calculated.
Voluntary Deductions
 Pretax Deductions
 For Health, Life, and Disability Insurance
– Deferred Compensation Plans
 401(k) Contribution limit for 2014 = $17,500
 Catch-up Provision allows for an additional $5,500
– Cafeteria Plans
 Allow employees to select from two or more benefits

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Work on Practice Question #2 on Pages 21-22
– Change your feedback color to green when you’re done.
Calculation Practice #2 - Answer
Tom’s Federal Taxable Wages (Page 21 Line #3)
1. $5,192.31
2. $ 467.31
3. $5,192.31 - $467.31(401k) - $200(pretax
health insurance +$2,475 (car lease value) =$ , ( )
$7,000.00 (Federal Taxable Wages)
Federal Income Tax Withheld – Page 41 of the IRS
Publication 15
$151.90 x four withholding allowances = $607.60
$7,000 - $607.60 = $6,392.40

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Federal Income Tax Withheld – Page 43 of the IRS
Publication 15
$6,392.40 - $6,050 = $342.40 X 28% = $95.87 + $1,112.55 = $1,208.42
Tom’s Net Pay
1. $5,192.31
2. $ 467.31
3. $7,000.00
4. $1,208.42
5. $ 245.00 ($7,000 x 3.5%)
6. None
7. $ 0
8. $7,467.31 ($5,192.31 - $200 + $2,475)
9. $ 108.28 ($7,467.31 x 1.45%)
10. Net Pay - $2,963.30
Biweekly salary $5,192.31
Imputed car value + $2,475.00
Gross earnings = $7,667.31
FIT - $1,208.42
SIT - $ 245.00
Social Security - $ 0
y $
Medicare - $ 108.28
Health Insurance - $ 200.00
401(k) contribution - $ 467.31
Imputed car value - $2,475.00
= $2,963.30

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Depositing & Reporting Taxes
Principle of Constructive Receipt
Check Date
Federal Tax Deposit Rules
Two deposit frequencies are monthly and
semiweeklysemiweekly
Frequency based on a lookback period
Workbook Page 23
Lookback Period
Example:
– For tax year 2014, the lookback period is:
– July 1, 2012 through June 30, 2013
Employer’s 941 Liability $50,000 or less:
– Deposit frequency will be monthly
Employer’s 941 Liability greater than $50,000:
– Deposit frequency will be semiweekly
Workbook Page 23
Big Time Java’s 2014 Lookback Liability – Pg. 24
Lookback Period

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Big Time Java’s 2014 Deposit Frequency – Pg. 24
Lookback Period
Lookback Period
Example – Big Time Java, Inc.
 2014 Lookback Period
 3Q12 Liability - $13,000
 4Q12 Liability - $15,000
 1Q13 Liability - $13,000
 2Q13 Liability - $13,000
Total Liability - $54,000
What is Big Time Java’s assigned deposit
frequency for 2014?
Semiweekly
Workbook Page 24
Next Day Deposit Rule
– If an employer’s tax liability reaches $100,000,
 Must be deposited by next banking day
F d l D it D D tFederal Deposit Due Dates
Workbook Page 24

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Deposit
Frequency
Check Date Cutoff Date Due Date
Monthly
Semiweekly
Semiweekly
Next Day
Deposit
Frequency
Monthly 1st through
the 31st
Semiweekly
Semiweekly
Next Day
Deposit
Frequency
Monthly 1st through
the 31st
Last day of
the month
Semiweekly
Semiweekly
Next Day

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Deposit
Frequency
Monthly 1st through
the 31st
Last day of
the month
15th of the
following
month
Semiweekly
Next Day
Deposit
Frequency
Monthly 1st through
the 31st
Last day of
the month
15th of the
following
month
Semiweekly Saturday
through
Tuesday
Next Day
Deposit
Frequency
Monthly 1st through
the 31st
Last day of
the month
15th of the
following
month
Semiweekly Saturday
through
Tuesday
Tuesday
Next Day

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Deposit
Frequency
Monthly 1st through
the 31st
Last day of
the month
15th of the
following
month
Semiweekly Saturday
through
Tuesday
Tuesday 3 banking
days following
cutoff date –
usually Friday
Next Day
Deposit
Frequency
Monthly 1st through
the 31st
Last day of
the month
15th of the
following
month
Semiweekly Saturday
through
Tuesday
Tuesday 3 banking
days following
cutoff date –
usually Friday
Wednesday
through
Friday
Next Day
Deposit
Frequency
Monthly 1st through
the 31st
Last day of
the month
15th of the
following
month
Semiweekly Saturday
through
Tuesday
Tuesday 3 banking
days following
cutoff date –
usually Friday
Wednesday
through
Friday
Friday
Next Day

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Deposit
Frequency
Monthly 1st through
the 31st
Last day of
the month
15th of the
following
month
Semiweekly Saturday
through
Tuesday
Tuesday 3 banking
days following
cutoff date –
usually Friday
Wednesday
through
Friday
Friday 3 banking
days following
cutoff –
usually
Wednesday
Next Day
Deposit
Frequency
Monthly 1st through
the 31st
Last day of
the month
15th of the
following
month
Semiweekly Saturday
through
Tuesday
Tuesday 3 banking
days following
cutoff date –
usually Friday
Wednesday
through
Friday
Friday 3 banking
days following
cutoff –
usually
Wednesday
Next Day Any date
Deposit
Frequency
Monthly 1st through
the 31st
Last day of
the month
15th of the
following
month
Semiweekly Saturday
through
Tuesday
Tuesday 3 banking
days following
cutoff date –
usually Friday
Wednesday
through
Friday
Friday 3 banking
days following
cutoff –
usually
Wednesday
Next Day Any date Same as
check date

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Deposit
Frequency
Monthly 1st through
the 31st
Last day of
the month
15th of the
following
month
Semiweekly Saturday
through
Tuesday
Tuesday 3 banking
days following
cutoff date –
usually Friday
Wednesday
through
Friday
Friday 3 banking
days following
cutoff –
usually
Wednesday
Next Day Any date Same as
check date
Next banking
day
Federal Tax Deposit Calendar
www.adp.com
Insights & Resources >
Tools & Resources >
Compliance Resources >
Calendars
Example 1 – Bob’s Car Repair – Monthly
Depositor
 Sept. 5 Liability - $15,000
 Sept 19 Liability $15 000 Sept. 19 Liability - $15,000
 Total Liability for September - $60,000
 When will this liability be due? – October 15
Workbook Page 25

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Example 2 – Gina’s Hair Salon – Semiweekly
Depositor
 Friday, May 23 Liability - $53,000
 When will this liability be due?
Workbook Page 25

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Impact of One-Day Rule on Monthly Depositors
 $100k liability in a month results in a change to
a semiweekly frequency
Workbook Page 25
Example 3 – John’s Hardware Store – Monthly
Depositor
 Friday, September 12 Liability - $103,200
 When will this liability be due?
Workbook Page 25

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Quarter Quarter Ends 941 Due Date
Jan. – Mar. March 31
Apr. – June June 30
July – Sept. September 30
Oct. – Dec. December 31
Workbook Page 25
Jan. – Mar. March 31 April 30
Apr. – June June 30
Workbook Page 25
Apr. – June June 30 July 31
Workbook Page 25

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July – Sept. September 30 October 31
Workbook Page 25
July – Sept. September 30 October 31
Oct. – Dec. December 31 January 31
Workbook Page 25
Form 944
Filed Annually
For employers whose annual liability is less
than:
$1,000
Workbook Page 26

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Federal Unemployment Insurance (FUTA)
Paid by employers
FUTA Tax Rate is:
 6.0% on the first $7,000 per employee
 Can receive a credit of 5.4%
 Referred to as the tentative credit
Wh dit i li d FUTA t i 0 6% When credit is applied, FUTA rate is 0.6%
Credit Reduction
 For employers in states who cannot pay back a federal
loan
 IRS announces credit reductions states after November
10 each year
Workbook Page 26
Federal Unemployment Insurance (FUTA)
Depositing and Paying FUTA
If quarterly FUTA liability is less than $500, then
liability carries to next quarter
Reporting FUTA Tax
R t d ll F 940Reported annually on Form 940
Workbook Page 26
Tax Deposit Practice
Page 27 of the workbook

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Thank You!
Debbie.mathewson@adp.com
909-592-6411 x4422
67

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