Final answer:
Deductions from employee wages such as taxes and insurance premiums must be remitted by the employer to the proper authorities. If not paid by the designated deadline, these unremitted funds are recorded as a current liability on the company's financial statements. Managing these payroll taxes and deductions is essential to avoid legal and financial penalties.
Step-by-step explanation:
Deductions From Employee's Wages and Current Liabilities
Deductions from an employee's wages typically fall under taxes, insurance premiums, savings plans, and union dues. Employers are required by law to withhold a portion of an employee's earnings to cover these expenses, acting as an intermediary between the employee and the various entities that these funds are paid to, such as the government and insurance companies.
When it comes to payroll taxes, employers face two primary responsibilities. These include the portion that is deducted from the employee's wages, which is meant to cover obligations such as the pay-as-you-earn (PAYE) or pay-as-you-go tax (PAYG), and social security contributions. However, there are also employer-paid taxes, which are based on the wages that the company pays to the employee and include contributions to various insurance programs and social security funding.
Should a company not remit these amounts to the respective authorities by the end of the accounting period, they must recognize these unpaid amounts as a current liability. This is because the employer is essentially holding onto funds that are owed to another party, much like a bank treats deposits as a liability since it owes the funds to depositors.
Failure to manage these liabilities properly can lead to significant legal and financial repercussions, including fines or other penalties. In the context of an individual employee, not paying taxes on earned income can result in similar consequences, including a fine or incarceration.