Payroll tax deduction
One of the largest expenses that most businesses incur on a regular, ongoing basis is payroll.Payroll represents the compensation that is regularly paid to the employees of a business organization.Labor costs and the related payroll taxes represent a large and constantly increasing portion of the total cost of operating most business organizations.Based on the dollar expenditures and the governmental regulations relating to payroll, it is one of the most important accounting activities.Although the worker tends to think in terms of his or her payroll check at the end of the particular payroll period, there is more to payroll than just take home pay.
All employees of a business organization receive compensation for the activities they perform within the organization.The compensation is known as salary, wages, or other more descriptive terms, such as commissions or piecework earnings.The payroll system in use must be designed to perform the intricate computations required by the various governmental authorities, process the payroll data quickly, and assure the payment of the correct amount to each employee.The system should also provide for safeguards against payments to nonexistent employees or other misappropriations of funds.
The amount earned by an employee, whether paid on an hourly, weekly, semi-monthly, monthly, piecework, or commission basis, is the employees gross pay.Gross pay is the total earnings of the employee for the particular payroll period.The amount of money the employee actually takes home is known as take home pay or net pay.Net pay is arrived at by subtracting certain deductions from the gross pay.Deductions consist of various taxes that the employer is required to withhold from the employees pay on a regular basis that coincides with the payroll period in use.
In order for the employer to withhold taxes from the employees paycheck, there are certain things the employer must know about the employee.This needed information is obtained through the employees preparation form, the employee withholding allowance certificate which is available from the internal revenue service.This certificate asks for the employees full name, social security number, home address, marital status, and the number of dependents that the person is claiming.The form is then signed and dated by the employee and used by the employer to determine the amounts of the various deductions to be taken from the employees gross pay.
The typical deductions made by the employer from the employees gross pay include: social security tax, federal income taxes withheld, state and local income taxes withheld, state disability insurance and other voluntary deductions.
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