Recording payroll tax journal entries involves accounting for the wages paid to employees and the associated taxes withheld and paid by the employer. Here are the steps and examples of the journal entries involved in payroll accounting, including employee payroll taxes, employer payroll taxes, and the payment of these taxes.
Example Scenario
Assume the following details for a given payroll period:
- Gross wages: ₹200,000
- Employee's Income Tax Withheld: ₹30,000
- Employee's Provident Fund (EPF) Withheld: ₹12,000
- Employee's Health Insurance Withheld: ₹8,000
- Employer's Contribution to EPF: ₹12,000
- Employer's Contribution to Health Insurance: ₹8,000
- Net pay to employees: ₹150,000 (₹200,000 - ₹30,000 - ₹12,000 - ₹8,000)
Journal Entry for Recording Payroll
- Recording Gross Wages and Withholdings
| Date | Particulars | Debit (₹) | Credit (₹) |
|---|---|---|---|
| 2024-06-30 | Wages Expense A/c | 200,000 | |
| To Employee Income Tax Payable A/c | 30,000 | ||
| To Employee EPF Payable A/c | 12,000 | ||
| To Employee Health Insurance Payable A/c | 8,000 | ||
| To Cash/Bank A/c | 150,000 | ||
| (Being wages and withholdings recorded) | |||
- Recording Employer's Payroll Taxes
| Date | Particulars | Debit (₹) | Credit (₹) |
|---|---|---|---|
| 2024-06-30 | Payroll Tax Expense A/c | 20,000 | |
| To Employer EPF Payable A/c | 12,000 | ||
| To Employer Health Insurance Payable A/c | 8,000 | ||
| (Being employer's payroll taxes recorded) | |||
- Payment of Payroll Taxes
When the company remits the payroll taxes to the respective authorities:
| Date | Particulars | Debit (₹) | Credit (₹) |
|---|---|---|---|
| 2024-07-15 | Employee Income Tax Payable A/c | 30,000 | |
| Employee EPF Payable A/c | 12,000 | ||
| Employee Health Insurance Payable A/c | 8,000 | ||
| Employer EPF Payable A/c | 12,000 | ||
| Employer Health Insurance Payable A/c | 8,000 | ||
| To Cash/Bank A/c | 70,000 | ||
| (Being payment of payroll taxes made) | |||
Summary
- Recording Gross Wages and Withholdings: Debit Wages Expense A/c, Credit various Payable accounts and Cash/Bank A/c.
- Recording Employer's Payroll Taxes: Debit Payroll Tax Expense A/c, Credit various Payable accounts.
- Payment of Payroll Taxes: Debit various Payable accounts, Credit Cash/Bank A/c.
These journal entries ensure that both the employee and employer payroll taxes are properly accounted for and paid to the relevant authorities.
