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jonesdds
September 20, 2020
Question

Paying medical premiums in Payroll liabilities

  • September 20, 2020
  • 3 replies
  • 0 views

I am incorporated, have an insurance plan for employees, myself included(as an employee of the corporation).  My current set up is this:

 

I contribute $150/month or $75 per paycheck(semi-monthly) for employees that participate, the rest is take out as a pretax deduction for each employee.  For myself  each paycheck I take out half of the monthly amount as an employer contribution, just like the $75 for each contributing employee.  I do not take out as a pretax amount for myself as it's written off as a business expense like the contributions for employees I pay.

The reason for this I cannot recall but I believe it just was the best way to maximize my personal income yet still get the deduction.  My accountant set it up this way.

 

So, then the payroll liabilities that are due and show up on the payroll liabilities in the payroll modules are just the amounts that are deducted pretax for employees(excluding me).  Then of course when I pay liabilities that amount showing as a liability in  the "Pay Taxes and other liabilities" is just those amounts and not the total amount that's due for the medical premiums.  It's not including my whole premium amounts and not including each employee's contribution from me.

 

What my previous bookkeeper and I have been doing is just zeroing out the expense in payroll taxes and other payroll liabilities.  It doesn't seem correct.  I'm getting the numbers I need for tax purposes but this just isn't the clean way to do it and not the way it's intended to work.

 

I've uploaded my current payroll liability payment for this month.  I always get a warning about doing it this way that I cancel, I'm unable to pay liabilities the way it wants me to.  
As you can see, I basically zero it out as a negative payment to the liability.    

 

What should I be changing to do this correctly and as 

3 replies

C
ChristieAnn 11
September 20, 2020

Hi there, jonesdds.

 

Thank you for posting here in QuickBooks Community.

 

Can you please provide additional information on how you set up the deductions in QuickBooks Desktop. And, how did you offset the amount or zeroing out the expense in payroll taxes and other payroll liabilities? I'd appreciate any further details so I can present accurate information.

 

If you have any more questions or concerns, please don't hesitate to comment below. Have a good rest of your day!

J
jonesddsAuthor
September 20, 2020

Can you not see my screenshot showing how I'm paying the liabilities?  If not basically in my Payroll Center, in Payroll Liabilities I have say $1000 liability due for medical insurance.  That $1000 is the collective deductions taken pretax for all employees but me for one month.  Not including myself.  Then when I pay the liability and the screen comes up in the splits under the Expenses tab I enter a -1000 under the payroll liability account and change the amount of the transaction to $0.  My premium in full and my portion of the staff premiums all are expensed as a Medical Expense, not through payroll liabilities.

 

I am a S corp.

 

I've set up the deduction for Health Insurance premiums-pretax deduction from employees check-and the liability account is the one that I'm talking about above that the negative offset amount points to.  Also, when I pay the medical ins premium, it all goes to that same payroll liability to pay it down.  Tax tracking type is "Premium Only/125" and under Taxes, all state and fed payroll items tax related are checked.  Under "Calculate based on Quantity" it's "neither" thats checked.  Then Default rate and limit is $0 and Annual, restart each year is selected.

 

Hopefully this all makes sense, thank you

J
JonpriL
September 20, 2020

Thank you for sharing the details on how you set up your payroll items, @jonesdds,

 

Let me help share information about the posting accounts of both of your payroll items for you and your employees' insurance premium. I want to ensure that you've set it up the best way so your liability is calculated and paid correctly.

 

To start with, let's review the expense and liability accounts of the created company contribution payroll item to make sure that the liability account of the deduction payroll item is the same. To do so:

  1. Go to Lists.
  2. Select Payroll Item List.
  3. Find and double-click to open the information of the company contribution and deduction payroll item.
  4. Click Next.
  5. Review the expense and liability (company contribution) and liability (deduction) accounts of both payroll items.
  6. Click Finish to confirm any changes you've made.

From here, we'll also need to review the payment method of both payroll items. This way, we can identify if both of your payroll items have a scheduled liability payment or not. Here's how:

  1. Go to Employees.
  2. Select Payroll Center.
  3. Click Pay Liabilities.
  4. Under Other Activities, select Change Payment Method.
  5. On the Scheduled payments, select and review the methods of your company contribution and deduction payroll items.
  6. Select Edit.
  7. Click Finish to confirm the changes you've made.

Now if all the payment has not been reconciled, you'll have to delete and recreate them base on the scheduled liability payments of both payroll items. To learn more about this payment method, here's a link you can visit for reference: Set up and pay scheduled or custom (unscheduled) liabilities.

 

But if all the payment made has been reconciled, you'll have to review each payment created, remove the negative amount, and change it by adding the portion of the company contribution payroll item.

 

Lastly, I've got you this helpful article for steps to resolve any instances that the payroll item is not calculated correctly as reflected on your employees' paycheck: QuickBooks Desktop calculates wages and/or payroll taxes incorrectly.

 

If there's anything else that I can help you with, let me know in the comments. I'll be here to lend a hand.

T
Teri11_2
September 20, 2020

To answer this question correctly, need to know how you selected to file taxes: C Corp or S Corp?

Hate to say that both of the methods/entries you described sound incorrect.  

T
Teri11_2
September 21, 2020

A >2% shareholder of S Corp, is not required to pay any of that health insurance out of pocket.

Your company can pay 100% of the premium for you. 

 

Total is added to W-2 as imputed income so that you pay taxes on it.  

Employees get to do Pre-tax deduction but you cannot. 

 

This amount of expense on company tax form 1120s and personal 1040 must match W-2 total.   

Just Google to see this on IRS website.

 

So on payroll, you should see:

For owner, his premium 100% on W-2 as imputed income.  (Box 1 and 14 as I recall).

For employees, their contribution of the portion you designated as employee paid.

 

Income statement accounting should show:

Full expense for total premiums paid with reduction for employee contributions.

 

IRS Tax Return Form 1120S:

Total paid by company as expense

 

IRS Tax Return Form 1040:

Amount paid for > 2% shareholder

 

I should add I am single owner/employee of S Corp for the last 12 years so I know this is correct.

I have done accounting for 35+ years and my tax lady is a former IRS auditor (20 years younger).

 

Almost all of my 96 consulting clients are S Corp also and some are single owner/employee.

Most also use my tax lady too.

 

 

J
jonesddsAuthor
September 21, 2020

I think all of this is happening as far as taxes are concerned.  But it does make it difficult to have the accounts be clean and easy to see if everything is matching up and all liabilities are being paid.  But, I don't think its happening the way it should, I'm not doing this the way it's intended.

 

On a slightly different note I've never been able to get a straight answer on when to deduct for employees.  Maybe I'm doing it right, maybe not.  Currently I pay semi monthly and the pay period ending the 15th and the last day of the month's deductions are what are used to pay the premiums that are due on 1st of following month(often paid later in the month).  Is this set up typical?

 

R
RCV
September 21, 2020

Thanks for coming back and provided us in-depth details of your payroll concerns, jonesdds.

 

If you set up your employees for a semi-monthly schedule, the 1st pay can be in the middle of the month, and the 2nd is at the end. The common payouts for this schedule are every 15th and 30th of the month. That makes 24 payouts per year. You can check out this article for more details: Set up and manage payroll schedules. 

 

For your question of when to deduct your employees for the medical premiums, then it depends on your deposit schedule requirements enforced by the tax agency. Each tax agency enforces different rules and guidelines that determine how often you should pay your payroll taxes. The deposit schedules are based on how much tax liability you accrue during a tax period, not how you pay our employees. 

 

For example, the monthly payroll tax depositors must make their tax deposits by the fifteenth of each month. When the fifteenth falls on a Saturday, a Sunday, or a legal holiday, tax deposits are due on the next business day. If you're not sure what your tax schedule is, it would be best to consult your accountant or your tax advisor. This way, we ensure QuickBooks tracks your scheduled tax payment accurately and to avoid any penalties or interest imposed by the tax agency for late payments. 

 

To learn more about tax deposit due date and setting up tax payment schedule, check out these articles:

 

To assist you in matching up and checking if all liabilities are being paid, feel free to contact our Payroll support Team. They'll pull up your account in a secure environment and help you with this one. Here's how to reach them:

  1. Click the Help icon on the top menu. 
  2. Choose QuickBooks Desktop Help. 
  3. Tap Contact us.
  4. Select Search for something else and enter your concern in the Tell us more about your question: field. 
  5. Tap Search. 
  6. Choose Start a Message or Get Phone Number to connect with our support. 

I've got a link here where you can find articles about managing your payroll in QuickBooks: https://quickbooks.intuit.com/learn-support/en-us/get-started/07?product=QuickBooks%20Desktop%20Payroll.

 

The Community will always have your back if you need a hand with processing your payroll forms or any QuickBooks related. We are just one post away. Have a great day. 

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