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MavenP
February 13, 2025
Question

Health Insurance Premiums as Payroll Liability

  • February 13, 2025
  • 1 reply
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I don't think we are coding our company health insurance premium payments correctly in QB Desktop.  The values are set up correctly in QB payroll with a company portion and employee pre-tax deduction using the correct payroll accounts.  The issue is, when making a payment to the Health Insurance provider, this is done outside of QB payroll in normal QB with a Write Check task.  We are using a simple Expense account named "Insurance Expense: Medical/Health" when the check is written (actually its an ACH).  So what happens is this causes our Payroll Liabilities to continuously increase on our balance sheet, I believe because the payment doesn't go against a payroll liability (which does not show up in Payroll Center, Pay Liabilities).  What are we doing wrong, and do we need to get this account as a Liability to show up in Payroll Center?  How to correct the previous transactions going back months, years?

1 reply

FishingForAnswers
FishingForAnswers
February 13, 2025

@MavenP  Not sure if you can get it to show up in payroll liabilities, but the screen you would use to schedule payroll liabilities (941, State Withholding, etc), is under the Payroll Center, Pay Liabilities Tab.

 

At the bottom of the window is a section called Other Activities. In this section, there is a link called 'Change Payment Method'. This is the link you want. It opens the QuickBooks Payroll Setup window, with an option on the left for Schedule Payments. In Schedule Payments, you will find a place to set payment schedules for your payroll liabilities such that they show up under the Pay Liabilities tab.

 

Regardless, there is a menu you can use to bypass this.

 

Go to Employees>Payroll Taxes and Liabilities>Create Custom Liability Payments.

 

This will generate a Select Date Range for Liabilities window.

 

After you select the date range and click OK, it will open a Pay Liabilities window. This window will display all of the Payroll Liabilities that are still owed for the selected date range. This is how you can create a liability check for the relevant health insurance premiums.

 

As far as how to get the payment to show up on your P&L as a health insurance expense, this can be done under the Payroll Item List. Once the List is open, right click on the relevant Item and edit it.

 

For the Company Paid Item, continue to the screen for Agency for Company-paid Liability. The option to select an expense account will be the bottom line on that screen.

 

For the Employee Paid Item, it's a bit more complicated. While the Company Paid Item is 100% paid by the company, the Employee Paid Item is, well, paid by the employee. It comes directly out of their paycheck, and is not really paid by the company at all; it's simply held out of their paycheck for them and later distributed to the correct agency.

 

You are already claiming the Employee's gross pay as a Payroll Expense; because of this, if an employee has $300.00 in gross pay, you will claim the full $300.00 as Payroll Expense.

 

Trying to claim the Employee-Paid Health Insurance as a health insurance expense would be double-dipping; to continue the $300.00 example, if you had $30.00 held out of the Employee's paycheck for health insurance and tried to claim it as health insurance expense, you'd be claiming $300.00 in payroll expense and $30.00 in health insurance expense, or a total of $330.00 in expenses despite there only being $300.00 to start with.

 

Some goes to the employee (Net Pay), some goes to various governments (Employee-paid payroll taxes), and some goes to the health insurance provider (Employee-paid health insurance), but the total expenses should never exceed the gross pay.

 

In short, because the normal check you're creating presumably contains both company-paid and employee-paid health insurance, you are likely overstating your expenses.

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GlinetteC
February 13, 2025

Hello there, MavenP. Thank you for the detailed information you've provided.

 

I agree with FishingForAnswer's recommendation to schedule payroll liabilities and generate custom liability payments in QuickBooks. The suggestion to handle this directly through the QuickBooks interface under the Employees menu for customizing liability payments provides a practical approach to address your issue. Please consider following the steps provided.

 

Concerning correcting the previous transactions, locate the payroll item related to the health insurance transactions that need correction. As you progress on the prompts you will eventually reach a step where you can select the account to which this payroll item is linked. From there, you should choose the proper payroll liabilities account instead of the expense account.

 

Once you click the "Finish" button after choosing the correct account, ensure to select the option that says "Update all existing transactions to use this new account. This choice ensures that all past transactions, which were recorded under the incorrect account, are automatically updated to reflect under the correct payroll liabilities account. I'll share a screenshot for your reference:

 

Additionally, I recommend consulting with a professional accountant to ensure these adjustments are made according to accounting standards and that they're reflected correctly in your tax filings and financial reports.

 

Moreover, you can generate payroll reports. It provides a clear picture of the payroll expenses, which is crucial for any business aiming to maintain a healthy bottom line and ensure employee satisfaction.

 

The recommendations are aligned with best practices for managing payroll liabilities and expenses in QuickBooks. If you have additional concerns, please add them below, MavenP. I’ll be here to assist.

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MavenPAuthor
February 13, 2025

Hi GlinetteC, and thank you for your response.

 

When I go to Employees, Payroll Taxes & Liabilities, Create Custom Liability Payments, I can see the "unpaid" health insurance premiums for the time period I have selected.  This Pay Liabilities dialog box will allow me to "pay" these liabilities, but actually they have already been paid, just using an expense account instead of a payroll liability account, that's why they show up as unpaid I believe.  I don't want to double pay them as it seems like this would happen here.  Can I change the account here in this dialog box to a payroll liability, or what am I missing here?  Thanks in advance.

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