Payroll Accounting Chapters 4-6 Bieg and Toland

Payroll Accounting Chapters 4-6 Bieg and Toland How is the amount of a fringe benefit that is taxable to an employee determined? - It is the amount by which the fair market value of the fringe benefit exceeds what the employee paid, plus any amount the law excludes. The personal allowance amount is deducted from the employee's income in computing taxable income. In 2014, the amount of a personal allowance was - $3,950 In which of these situations are employer contributions into employees' health savings accounts excluded from the employees' taxable income? - When the employee has high-deductible health insurance The formula used to "gross-up" supplemental payments in order to cover the taxes on the supplemental payments is: - 1 Applicable Tax Rate/Divided by intended payment The penalties imposed on employees for filing false information on Form W-4 are: - Fines of up to $1,000 or imprisonment for up to one year or both. Damerly Company (a California employer) wants to give a holiday bonus check of $250 to each employee. Since it wants the check amount to be $250, it will need to gross-up the amount of the bonus. Calculate the withholding taxes and the gross amount of the bonus to be made to John Rolen if his cumulative earnings for the year are $46,910. Besides being subject to social security taxes and federal income tax (supplemental rate), a 7% California income tax must be withheld on supplemental payments. Round your calculations and final answers to the nearest cent. - Gross bonus amount $414,25 Federal income tax withheld $103.56 OASDI tax withheld $25.68 HI tax withheld $6.01 California income tax withheld $29.00 Take-home bonus check $250 annualizing wages - method of determining amount of income taxes to be withheld by multiplying the wages for one payroll period by the number of periods in the year, determining the annual amount of withholding required on the total wages, and dividing the annual withholding by the number of payroll periods. backup withholding - amount of income tax withheld by payers of taxable interest, dividends, and certain other payments made to payees who have failed to furnish the payers with correct identification numbers. de minimis fringe benefit - any property or service the value of which is so small that accounting for it would be unreasonable or impractical. defined contribution plan - a retirement plan that provides future benefits based solely on the amount paid by each employee and employer into the account, plus investment gains. gross-up - gross-up amount of payment so that after the appropriate payroll taxes are withheld, the net amount left is equal to the original intended payment. information returns - forms upon which an employer reports compensation paid to individuals who are not employees. part-year employment - another method of calculating the withholding of federal income tax from an employee's pay. percentage method - method of determining amount of income taxes to be withheld using Table of Allowance Values and Percentage Method Withholding Table. personal allowance - a deduction allowed in computing taxable income; also known as a personal exemption. quarterly averaging - method of determining the amount of income taxes to be withheld by estimating the employee's average wages for the calendar quarter, computing an average payment, and withholding an amount based on the average payment. reciprocal agreement - arrangement entered into by two or more states whereby the resident of one state working in another state will not be subject to the withholding of income taxes by the state in which the person is employed if that state has entered into a similar agreement with the employee's resident state. special withholding allowance - allowance claimed by employees so that wages which are below the level subject to the income tax will not be subject to withholding. standard deduction - an amount of money used to reduce an individual's adjusted gross income in computing taxable income. supplemental wage payments - additional compensation such as vacation pay, bonuses, and commissions paid to employees. wage and tax statements - statements furnished by employers to their employees informing them of the wages paid during the calendar year and the amount of taxes withheld from those wages. wage-bracket method - method of determining amount of income taxes to be withheld by reading amount from tables provided by the IRS, which take into consideration length of payroll period, gross earnings, marital status, and number of withholding allowances claimed. wages - includes the total compensation paid to employees for services. Taxable tips - $20 or more in a month Personal allowance - $3,950 deduction in computing taxable income Backup withholding - Withhold federal income taxes of 28 percent of payments made Form 1099-MISC - Payments of at least $600 to independent contractors Roth IRA - Annual nondeductible contributions of up to $5,500 Standard deduction - Amount of money used to reduce an individual's adjusted gross income to taxable income Pretax salary reductions - Withholdings from gross pay that reduce the amount of pay subject to federal income tax Form 1096 - Annual summary and transmittal of U.S. information returns Nontaxable fringe benefits - Qualified employee discounts Flexible reporting - Allows employers to use any basis as the time period for payment of noncash fringe benefits constructively paid - remunerations that are credited to the account of, or set apart for, an employee so that they may be drawn upon at any time, even though they are not actually possessed by the employee. contribution report - quarterly tax return filed with the state by the employer that provides a summary of the wages paid during the period and shows the computation of the tax or contribution dismissal payments - amounts paid by employers to workers who have been separated from employment; also known as payments in lieu of notice, separation pay, or terminal leave pay. experience rating - method by which employer contribution payments may be adjusted because of a favorable employment record;also known as merit rating interstate employee - an individual who works in more than one state. merit rating - see experience rating. negative-balance employers - those whose reserve accounts have been charged for more benefits paid out than contributions paid in to the fund. partial unemployment - employment by the individual's regular employer on a reduced scale because of lack of work. partial unemployment notices - forms completed by the employer and given to partially unemployed workers so that supplemental unemployment benefits may be obtained. pooled-fund laws - unemployment insurance system wherein the cost of unemployment benefits is spread among all employers in a particular state. positive-balance employers - those who have built up a balance in their reserve accounts (contributions paid in less benefits charged). reciprocal arrangements - agreements between states to provide unemployment insurance coverage and payment of benefits to interstate workers. reserve-ratio formula - experience-rating plan used in most states, based on: Contributions - Benefits Paid / Average Payroll. separation report - report that provides a wage and employment record of the separated employee and the reason for leaving. status report - initial statement filed by new employers with their state unemployment office, which determines their liability to make contributions into the state unemployment compensation fund. Title XII advances - funds borrowed from the federal government by states who, due to financial difficulties, cannot pay their unemployment compensation benefits. voluntary contributions - payments deliberately made by employers to their state funds in order to qualify for a lower unemployment compensation tax rate. wage information reports - statements filed by the employer, usually with the quarterly contribution report, which lists employee names, social security numbers, taxable wages, taxable tips, state in which worker was employed during the reported quarter, and employer's federal account number. business expense - cost of operating a business that is deductible by the employer for federal income tax purposes. check-off system - withholding of union dues from employees' wages by the employer. disposable earnings - the earnings remaining after withholding for federal and state income taxes, FICA taxes, state unemployment and disability taxes, and deductions required for state employees' retirement systems. electronic funds transfer system (EFTS) - system whereby the employer transfers employees' net pays to employees' bank accounts with electronic equipment rather than issuing paychecks. electronic paystubs - paystub information made available through a secured Web site, kiosk, or interactive voice response system. garnishment - legal or equitable procedure by means of which a portion of the wages of any person must be withheld for payment of a debt. group insurance - life insurance program for employees at a low cost. journal entries - transactions recorded in the accounting system of a business.