# Salaries Expense (v1)

The Salaries Expense journal entry documents the employer's tax burden.

Question: Your lemonade stand has 10 employees that work 40 hours a week and make \$15 per hour. Federal income tax is 15%, state income tax is 5%, FICA taxes are 7.65%, and unemployment is 6.2%. Record the total salaries expense.

We can calculate the total salary expense with the following equation...

Total Salary Expense = # of Employees x Hours per Week x Hourly Rate

...and considering that there's 10 employees working 40 hours a week at \$15 per hour...

Question: Your lemonade stand has 10 employees that work 40 hours a week and make \$15 per hour. Federal income tax is 15%, state income tax is 5%, FICA taxes are 7.65%, and unemployment is 6.2%. Record the total salaries expense.

...this results in a total payroll of \$6,000!

Total Salary Expense = # of Employees x Hours per Week x Hourly Rate
Total Salary Expense = 10 x 40 x \$15
Total Salary Expense = \$6,000

Total Salary Expense = # of Employees x Hours per Week x Hourly Rate
Total Salary Expense = 10 x 40 x \$15
Total Salary Expense = \$6,000

To start, let's place the total salary expense into the Salaries Expense account! (Why? Because salaries are a cost of operating the business, therefore they're an expense!)

We just determined the total salary expense was \$6,000...

Total Salary Expense = # of Employees x Hours per Week x Hourly Rate
Total Salary Expense = 10 x 40 x \$15
Total Salary Expense = \$6,000

...therefore, we'll debit the Salaries Expense account, as we're incurring an expense by paying our employees (and expenses have a normal debit balance)!

From here, we must determine how much of this \$6,000 is going out to employees vs. being paid to the government as the employer's tax burden!

Remember: Federal & State Income Taxes and FICA Taxes are the employer's tax burden...

...therefore, we've gotta determine how much we'll be paying towards those out of our \$6,000 total salary expense!

We're able to obtain the following tax rates for Federal & State Income Taxes and FICA Taxes...

Question: Your lemonade stand has 10 employees that work 40 hours a week and make \$15 per hour. Federal income tax is 15%, state income tax is 5%, FICA taxes are 7.65%, and unemployment is 6.2%. Record the total salaries expense.

• Federal Income Tax = 15% x ???
• State Income Tax = 5% x ???
• FICA Tax = 7.65% x ???

...which need to be multiplied by our total salary expense...

• Federal Income Tax = 15% x \$6,000
• State Income Tax = 5% x \$6,000
• FICA Tax = 7.65% x \$6,000

...to determine our tax amounts!

• Federal Income Tax = 15% x \$6,000 = \$900
• State Income Tax = 5% x \$6,000 = \$300
• FICA Tax = 7.65% x \$6,000 = \$459

From here, what accounts will we place these tax amounts into?

Something critical to understand here is: we owe the government these tax amounts. And whenever we owe something, it represents a liability. Therefore, we're going to store these tax amounts in liability accounts! Specifically... Income Tax Payable & FICA Tax Payable!

Let's start with Income Tax Payable. We have a total of \$1,200 owed in income tax...

• Federal Income Tax = 15% x \$6,000 = \$900
• State Income Tax = 5% x \$6,000 = \$300
• FICA Tax = 7.65% x \$6,000 = \$459

...therefore, we'll credit Income Tax Payable by \$1,200, since we're increasing the amount we owe to the government in income taxes (and liabilities have a normal credit balance)!

Concerning FICA Tax Payable, we owe \$459...

• Federal Income Tax = 15% x \$6,000 = \$900
• State Income Tax = 5% x \$6,000 = \$300
• FICA Tax = 7.65% x \$6,000 = \$459

...therefore, we'll credit FICA Tax Payable by \$459, since we're increasing the amount we owe the government in FICA taxes (and liabilities have a normal credit balance)!

Alright, so we've determined we're paying a total of \$1,200 + \$459 = \$1,659 in taxes...

...meaning that we have \$6,000 - \$1,659 = \$4,341 left over for payout of salaries to our employees!

We owe this amount to our employees, therefore we'll record it as a liability, specifically to the Salaries Payable account! Since we're increasing the amount we owe, we'll credit Salaries Payable by \$4,341!