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arkvalleyinfo
December 11, 2018
Solved

Health insurance premiums - liability or expense as wash

  • December 11, 2018
  • 5 replies
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Our company offers insurance.  It pays a portion and the employee pays a portion which is deducted from their paycheck.  I have a deduction set up for the employee and it goes to the insurance expense account; not a liability acct.

Once a month, the insurance automatically deducts the amt of the insurance due from our acct.  I write a check to record the transaction in the check register; (debits . credits the insurance acct)

I have heard pros & cons. Some are saying the employee portion has to be a liability while others say just make a wash and this shows the true expense to the company as well.

So...whats the correct way?

 

Best answer by qbteachmt

I teach and prefer the "internal reimbursement data flow" since there is no liability to pay to anyone. It really depends on the timing; if you pay and then deduct, or if you deduct and then pay.

5 replies

qbteachmt
qbteachmtAnswer
December 11, 2018

I teach and prefer the "internal reimbursement data flow" since there is no liability to pay to anyone. It really depends on the timing; if you pay and then deduct, or if you deduct and then pay.

    A
    arkvalleyinfoAuthor
    December 11, 2018
    We pay and then deduct... so can it just be recorded as an expense?
    qbteachmt
    qbteachmt
    December 11, 2018

    If you pay and then deduct, that would be Expense and Reimbursement (negative expense).

      A
      Anonymous
      December 24, 2018

      We do the same for our two pastors.  We offer insurance and pay a portion and the employee pays a portion which is deducted from their paycheck.  Once a month, the insurance automatically deducts the amt of the insurance due from our acct.   When we set up a deduction for the employee's paycheck and it goes to the insurance expense account we would turn off tax tracking.  Basically the deduction would not show on the w-2 and the employee's salary would include the deducted amount on the w-2.  Would this be correct?   

      qbteachmt
      qbteachmt
      December 24, 2018

      You need the Tax Tracking to be appropriate to the payroll activity; not to the accounting data flow.

       

      If the deduction is from Pre-tax or Post-tax, this matters matters. The fact that you can optionally flow that deducted amount to liability to pay out to the agency, or flow that to an expense account where it acts as an internal data flow as reimbursement to the fact the employer already paid from Banking, doesn't change what this is or how it is reported for purposes of Taxed, payroll forms, W2, etc. It changes how your Accounting is handling the bookkeeping of the activity.

       

      You don't turn off tax tracking just because it isn't paid out separately. And you don't turn on tax tracking, just because something is paid out separately. Example: Child Support deduction is a Net Takehome deduction with no tax tracking, because there is no Tax benefit for being a parent subject to a court withholding order. There is no Tax Tracking because you are not allowed to have all of your takehome, and the child support is a diversion of the takehome.

       

      Who pays insurance, if that is reporting to the employee or not, if that is taxable to them or not, and if the employee share is pre-taxed or post-taxes, depends on the insurance policy and the employment rules that apply to this activity. Even if the employer is an Insurance Agency, so there is no payment to any other agency, the tax treatment is per the regulations that apply. Not per the Banking that happens.

        P
        pamdthomaslandscapecom
        May 6, 2020

        How do I set up the internal reimbursement data flow?

        A
        A1Marine
        January 31, 2022

        Okay I am having issues understanding here. 

        I am trying to figure out our payroll liabilities account and our health insurance expense account. 

        The only two people who get their insurance paid for in full are the owners. (there are only 3 of us and i'm PT) so there are no deductions from their paychecks. The bill comes in we pay it and it goes into the Health Expense. but now there is this huge liability account from 2021. ( how do i fix this?) We are an S corp. as well not sure if that has a different way of handling that as well. Also is there a way to make whatever the fix is automatic?

        E
        Ethel_A12
        January 31, 2022

        Welcome to the Community, @A1Marine. Let me share some insights to help you understand where the difference begins.

         

         

        To know which quarter the discrepancy is from, access the Payroll Summary and Payroll Liability Balances reports in QuickBooks Desktop (QBDT).

         

        Before we do anything, let's make sure the tax table is updated. It is to ensure that your federal and state tax calculations are correct.

         

        Here's how:

        1. Go to the Employees menu.
        2. Select Get Payroll Updates.
        3. Click the Download entire payroll update radio button.
        4. Select Update, and then click OK.

         

        Open the Payroll Summary Report and specify a quarter date range to acquire the correct wages, taxes, payroll additions, and deductions. I'll show you how to do it:

         

        1. Go to the Reports menu.
        2. Hover over Employees & Payroll, and then select Payroll Summary.
        3. From the Dates drop-down arrow, choose the specific quarter.
        4. Click the Refresh button to view the changes.
        5. Select the amount of your payroll taxes to view the complete details.
        6. From the Transactions by Payroll item, go to the Wage Base column.
        7. Take note of the total amount, and then multiply the Wages Base amount to the tax rate.

         

         

        Note the amount after detecting the mismatch and make a liability adjustment to fix it.

         

        I've also included a link to an article to correct typical payroll problems in QuickBooks: How to fix common payroll errors.

         

        Let me know how things go on your end. I want to ensure this gets resolved for you.

        ivan-drophousedesign
        ivan-drophousedesign
        February 7, 2023

        Good Morning, 

         

        Is it me or does it seem to me like there was never an actual resolution to this initial inquiry? I specifically use QB Online so perhaps if there was, it may have been exclusive to Desktop?

         

        Quite similar to my contemporaries here, the main issue here is that our P&L and Balance Sheets will reflect inaccurate balances at the end of the year as we categorize all of our insurance premium payments as an expense (rightfully so in the case of us paying in advance then deducting from our employees). However, the company does not cover the full premium payment, therefore the amount deducted from the employee paycheck is paid by them, not us. As such, this amount would be deducted from the "Balance" of the Expense account so the full balance of that Expense on the aforementioned reports would be accurate.

         

        I'm wondering therefore if a Journal Entry to essentially make those "payments" towards the Expense account from the Liability account would be at the very least, a work around for this until Intuit potentially makes a change to this. 

         

        I welcome any thoughts or comments on this. 

         

        Thank you,

         

        I. Gonzalez

        C
        CLaSala
        February 13, 2023

        I am a QBDesktop Assisted Payroll user/employer.  We have 1 employee and myself on a health insurance and have always paid the entire premium.  Now we have a new employee who will pay 30% of the premium (pre-tax).  I have paid my health insurance invoice as an expense from my operating account.  Now it appears it is going to be a payroll liability since it needs to be recorded in the employee payroll as a pre-tax deduction.  I have read and made two payroll items in my payroll item list: Company Contribution Health Ins. and Health Ins. Deduction.  Leaving no amounts in the deduct as this may not be the same for any other employees.  But I am confused and need help figuring this out -

        How do I pay my health insurance bill now?  From my operating account or payroll account? How do I enter my health insurance bill in QBDT?

        How do I set up the payroll item now in the employee profile? 

        DivinaMercy_N
        DivinaMercy_N
        February 13, 2023

        Hello there, @CLaSala. I'm here to help you account for the Health insurance premiums of your employee in QuickBooks Desktop (QBDT).

         

        To pay your insurance bill, you can create a Scheduled Payroll and ensure that this payroll item is included as a deduction on your employee paycheck. Before doing so, create a backup copy of your file first. When ready, refer to these steps: 

         

        1. Go to Employees and select Pay Employees.
        2. Then, choose Scheduled Payroll.
        3. Pick the appropriate schedule and select Start Scheduled Payroll.
        4. Verify the Pay Period Ends date, Check Date, and QuickBooks Bank Account.
        5. Next, select the employees you want to pay.
        6. You can enter hours using the grid, or if you are using timesheets, you’ll see all their hours for this pay period already entered. To see everyone's paycheck details, select Open Paycheck Detail.
        7. Click Save & Next to go to the next employee, or select Save & Close to go back to the Enter Payroll Information window.
        8. Then, select Continue.
        9. Review the Check/Direct Deposit printing options.
        10. Confirm the amounts for each employee are correct and click Create Paychecks.

         

        For reference, check out this article: Create and run your payroll.

         

        I also recommend, reaching out to your accountant to provide additional guidance in recording the payment for the health insurance premiums. They can also advise you on what account you can use. If you're not affiliated with one, you can use our Find an Accountant tool to look for one near you. 

         

        Then, to add the payroll item to your employee profile, please refer to these steps:

         

        1. In your QBDT company, select the Employees menu and click Employee Center.
        2. From there, look and double-click the name of the employee.
        3. Then, select Payroll Info.
        4. In the section for Additions, Deductions, and Company Contributions, add the payroll item you've created.
        5. Next, enter the amount per period and the limit.
        6. When done, select OK.

         

        When ready to pay your employee, please proceed to Step 3 of this article: Set up and manage payroll items for your insurance benefit plan.

         

        You can run also run a Payroll Summary report to see your total payroll wages, taxes, deductions, and contributions. To get started, check out this link: Create a payroll summary report in QuickBooks.

         

        I'm always here ready to help if you have any other concerns about managing payroll items in QBDT. Have a good one and stay safe. 

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