Question

Excess Term Life Insurance on a Paycheck

Forum|Forum|4 years ago
February 4, 2022
3 replies
0 views

Our company is setting up group term life insurance for the first time. We have two employees that have an excess benefit over $50,000. The excess amount is subject to medicare and ss. One employee has an excess of $10,000 and the other of $50,000. Using the IRS formula (excess amount / 1000 x age percentage x 12 months) one employee comes to $54 and the other at $18. When creating a paycheck, how do I include this info to generate the med/ss taxes and then to include the premium for the company paid life insurance? What I'm doing: under the "Other Payroll Items" section, I have "Group Term Life Insurance" of $54 and it correctly generates only med/ss taxes on that amount. Then I have "Life Insurance; company paid" also in this section of $50 for the life insurance premium that the company owes. But in the "Company Summary" section, it is automatically including both of these amounts and shows that we owe $104 ($54 plus $50) for life insurance. This is incorrect, the $54 is only what is figured for med/ss and the $50 is the premium owed. What am I doing wrong? I've spoken to QB support a couple times and they can't figure out how to create the paycheck correctly! I've tried putting the $54 under the "Earnings" section but I can't specify only med/ss taxes if it's in this section; all taxes are generated on the $54.

QuickBooks Desktop Payroll

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LollyNino_C

Hello there, @Silverado4.

When we read a post, we have to identify if it's really a bug or just an unexpected behavior that we can fix here. Or, is there a workaround to make sure a poster is able to work with his books? Then, if we can't do something about it anymore, that's the time we request for a call.

We encourage posters to call, so our phone agents can get additional details of the issue. They need to have screenshots, replicate the scenario on the QuickBooks company of the poster, get the account information of the affected user, quantify the affected users, etc. This way, our engineers will have enough information to find the root cause and carefully create solutions that will not affect other functions. Also, there are things that can't be done here for security reasons. This why we request for a call.

On the other hand, I like the idea of not explaining the scenario again when reaching out to our phone support. I'm sharing this to the management team.

You can check out this page that will walk you through applying S Corp Medical at year-end for corporate officers.

Keep me posted if there's anything else that you need help with. Take care and have a great day!

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lsefcik

I tried to enter all the taxable portion of group term life insurance so that it would be a taxable item on employee paychecks, but instead, Quickbooks added the amount to salary expense and created a liability! This is incorrect; this is supposed to be a memo only entry on the paycheck in order to have the taxability of the excess over $50k life insurance taxed to the employee as a fringe benefit. It should have zero impact to the company P&L and zero impact to the company balance sheet.

Every payroll system I have ever used adds this as a taxable item on the paycheck with no impact to the company P&L or balance sheet. It is just a taxable fringe benefit; nothing more. QB please get this fixed!

J

JamesAndrewM

I appreciate you for reaching out to us, @lsefcik.

In QuickBooks, the taxability of group term life insurance (GTLI) depends on the specific circumstances of the policy.

GTLI is generally taxable to employees if you pay for coverage and the face value of the policy exceeds a certain amount. The amount at which GTLI becomes taxable varies depending on the policy's issuance year. In 2021, for example, the face value of GTLI must exceed $50,000 for the premiums to be taxable to the employee.

You may want to check what tracking type you're currently using. You can also make changes if necessary, and I recommend consulting with your accountant to ensure your records are in tip-top shape.

You can visit this article to know how to create a payroll summary report to see what you've paid out in your QuickBooks payroll: Create a payroll summary report in QuickBooks.

The Community always welcomes you for further inquiries with regard to the opening balance and transactions. Have a great day ahead!

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BookingNumbers

Does QuickBooks assist with calculating the value of excess insurance, or do we need to manually calculate it based on IRS rates, assign it to each employee, and track their age with every payroll run?

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lsefcik

I reported this issue over two years ago. To the best of my knowledge it hasn't been fixed. The taxable value for the amount of "excess life insurance over $50k" should be able to be added to a paycheck and be taxed; that is all! It's a memo entry, with absolutely no impact to the company GL.

Your premium is paid separately through AP. We should be able to use the IRS tables, figure out the taxable amount and divide that evenly over the year on EE paychecks. Quickbooks cannot handle this properly!!! They hit salary expense for the taxable portion and set up a liability. I've never seen a payroll company not be able to handle this properly.

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BookingNumbers

Agree. If I create the GTLI payroll item and select either expense or liability account in the payroll item setup, I'll have to "fake" pay it, which will affect the cash account. Any solution without creating a ghost liability? AKA GAAP?

Could I set up a "non-cash" payroll item as a regular pay, and custom the tax calculation on it? This is getting ridiculous.

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lsefcik

Yes, it is ridiculous for QB to not be able to handle a "memo tax entry" for taxable fringes, then tell people to just journalize the wrong stuff out! Then all your payroll reports are wrong, so good luck explaining that if you ever get audited on payroll and payroll taxes!

QB: just grow up and learn how to be a real payroll provider and tax fringes with "memo" entries which tax the employee and do nothing to hit the company GL

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