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N
NK-919
April 15, 2024
Question

Taxable Health Insurance Allowance as a "Pay Type" in QB Online

  • April 15, 2024
  • 1 reply
  • 0 views

I have an employee who receives $200 each month as a health insurance allowance (his health insurance is covered by his wife).  This is a taxable allowance.  In QB Online, this allowance has been set up as an "additional pay type" in order for it to be included in the tax calculations.  The difficulty I am having is with the calculations for the company contribution to the employee's 403(b) plan.  Our policy is to provide 6 percent of an employee's salary to the 403(b) plan.  For example, if an employee's annual salary is $60,000, the calculation would be 60,000 divided by 26 (employee's are paid every two weeks) = $2,307.69 x 6% = $138.46.  That is the contribution the employer makes to the 403(b) plan.  However, in QB Online, it includes the $200 monthly allowance as part of the employer contribution to the 403(b) plan.  So, once a month, the calculation is $2,307.69 + $200 = $2,507.69 x 6% = $150.46.  There seems to be no way to change this since the employer contribution is set up as a flat amount of 6 percent of the gross salary.  Any suggestions?  I've spent hours on the phone with Intuit but there does not seem to be a fix.  According to Intuit, the health insurance allowance cannot be moved to employer contributions.  I am truly sorry that I had to migrate to QB Online because QB Desktop was no longer supporting payroll functions.  Setting up and working with payroll (especially payroll items) was so much easier in Desktop.  Right now, I am resigned to the fact that we will be making a slightly larger contribution to is 403(b) plan especially since it is less than $150 a year and, thankfully, we are a very small organization so I am not faced with this dilemma for multiple employees.  Thanks for any help.  Nancy 

1 reply

MariaSoledadG
MariaSoledadG
April 15, 2024

I have an idea of how you can do this in QuickBooks, NK-919.

 

But before we start, may I ask how you set up your employee's health insurance? I've tried this and set it up under Allowances under Pay Types. But it's not adding up as a contribution to 403 (b). Please see the screenshot below:

 

 

 

On the other hand, you'll have to set up 403 (b) as a Percentage of gross pay instead of the flat amount, so it will accurately calculate the amount. To do so, follow the steps outlined below:

 

  1. Under Deductions & contributions, click Edit.
  2. Click Add deduction/contribution.
  3. Select Retirement plans on the Deduction/contribution type field.
  4. Under Type, choose 403 (b).
  5. On the Calculated as box, select Percent of gross pay.
     
  6. Click Save.

 

Furthermore, learn the list of payroll reports that you can use with QuickBooks Online (QBO) to help you generate the right data for your employees. I've added this article for more information: Run Payroll Reports.

 

You can always let me know if you have any concerns when running payroll I'm always here to help. 

N
NK-919Author
April 16, 2024

Thanks for your response.

 

The health insurance allowance is set up under "common pay types" as an allowance with a recurring amount of $200.  Since the allowance is only paid once a month, I simply edit the other paycheck to delete it.  The employee does make a tax deferred contribution to the 403(b) plan.  That is set up as a flat amount.  The employer contribution to the 403(b) plan is set up as a percentage of gross pay at 6 percent.  Although the health insurance allowance is taxable income to the employee, it should not be added to his salary (annual yearly salary) when the 6 percent calculation is made.

 

Nancy

 

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