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WORK2DAYONLY
Level 1

Health insurance premiums - liability or expense as wash

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?

 

Solved
Best answer December 10, 2018

Best Answers
qbteachmt
Level 15

Health insurance premiums - liability or expense as wash

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.

View solution in original post

24 Comments
qbteachmt
Level 15

Health insurance premiums - liability or expense as wash

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.

View solution in original post

WORK2DAYONLY
Level 1

Health insurance premiums - liability or expense as wash

We pay and then deduct... so can it just be recorded as an expense?
qbteachmt
Level 15

Health insurance premiums - liability or expense as wash

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

Anonymous
Not applicable

Health insurance premiums - liability or expense as wash

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
Level 15

Health insurance premiums - liability or expense as wash

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.

pamdthomaslandscapecom
Level 2

Health insurance premiums - liability or expense as wash

I came to a business after payroll and liabilities have been set up, however I'm not sure if they were set up correctly.  Is there any way to find out?  My health insurance liability is always wrong.  The insurance charges monthly but we withdraw from the employees paycheck on a weekly basis and they never match.  Should they be an expense and not a liability?  How do I check to make sure its calculating or entered correctly?

How do I set up the "internal reimbursement data flow" if that's the best method?

pamdthomaslandscapecom
Level 2

Health insurance premiums - liability or expense as wash

How do you set up the the internal reimbursement data flow?

pamdthomaslandscapecom
Level 2

Health insurance premiums - liability or expense as wash

How do I set up the internal reimbursement data flow?

SDavis123
Level 1

Health insurance premiums - liability or expense as wash

Please delete your comment about deadbeat parent in this discussion! Our state requires all child support payments to go through the state system, and our employees who pay their child support consistently through their paychecks do not deserve to be labeled as deadbeat or any other negative term. Very unprofessional and insulting. Thank you. 

ResortandSpa
Level 1

Health insurance premiums - liability or expense as wash

Wondering if you ever got an answer to this question as I have the same problem.  Payroll is  bi-weekly but insurance payment is monthly and with Covid we continued paying for insurance however no employee deductions were made as they were not working.  Now my insurance liabilities are negative and its a big mess.

ReymondO
QuickBooks Team

Health insurance premiums - liability or expense as wash

Thanks for joining this thread, @ResortandSpa.

 

The reason why you're insurance liabilities are negative is because you're continuously paying for it even though you're not running any paychecks. 

 

You can check this by viewing the Payroll Liability Balances report in QuickBooks Desktop. Here's how:

 

  1. Go to Reports and select Employees and Payroll.
  2. Click the Payroll Liability Balances report.

 report2.PNG

It would best to reach out to your insurance company and ask them on what arrangements they can do in kind of situation. You can also ask your accountant for further advice on this matter.

 

Let me also share some articles that talk about managing payroll liabilities in QBDT:

 

 

Please let me know if there's anything else I can do to be of assistance. Just place your concern by clicking Reply and I'll get back to you. Wishing you and your business continued success in all that you do.

drjah
Level 1

Health insurance premiums - liability or expense as wash

We offer AFLAC to our employees, part of the payment is taxable and part is not.

I had all the amounts running fine, paid monthly. QB did an update now it shows I have liabilities owed every quarter last year.......... GRRR. 

Any help or suggestions. There are also issues due to covid.

No one got a pay check for a couple of cycles but the business continued to pay the premiums for the employees. HELP!!

Maybelle_S
QuickBooks Team

Health insurance premiums - liability or expense as wash

Hello there, @drjah.

 

In QuickBooks Desktop (QBDT), we can open the Payroll Summary and Payroll Liability Balances reports to determine which quarter the discrepancy comes from.

 

Before doing so, let's update the tax table version. This is to ensure if you have the correct calculation for federal and state taxes.

 

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.

Once done, open the Payroll Summary Report, choose a per quarter date range to get the correct wages, taxes, payroll additions, and deductions for the period. I'll guide you how:

  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. On the Transactions by Payroll item page, navigate to the Wage Base column.
  7. Take note of the total amount, and then multiply the Wages Base amount to the tax rate.

After identifying the discrepancy, take note of the amount and enter a liability adjustment to correct the amount. Here's the link: Adjust payroll liabilities in QuickBooks Desktop.

 

I've also added an article here about fixing common payroll errors in QuickBooks: How to fix common payroll errors.

 

Don't hesitate to drop a comment below if you have other questions. I'm more than happy to help. Take care!

drjah
Level 1

Health insurance premiums - liability or expense as wash

I do payroll updates very regularly.

So how does that help if the issue was in 2019 and the tax table has changed for 2020. The issue did not occur until 2020.

MirriamM
Moderator

Health insurance premiums - liability or expense as wash

Hello again, @drjah.

 

Thanks for adding information about the problem. A data integrity issue could also be the reason why there's a discrepancy on your payroll liabilities. In this case, let's run the  Verify Rebuild Data tool that helps identify and repairs data issues within your company file. Here's what you'll need to do:

 

  1. Click File.
  2. Go to Utilities, then choose Verify Data.
  3. If QuickBooks detected no problems, there's no further action needed. If you receive a message, "Your data has lost integrity", the file is damaged. Just continue to Rebuild Data to correct the problem.
  4. When you Rebuild Data, you'll receive a message to back up your company file, just click OK. The utility starts as soon as the back up is finished.
  5. Click OK when you get the message "Rebuild has completed".
  6. Run Verify Data again to check for remaining data damage.

For more details about the Verify/Rebuild process, check this article: Verify and Rebuild Data in QuickBooks Desktop.

 

Once done, check to see if everything is working now. 

 

You'll also want to visit this link for more troubleshooting steps: Fix data damage on your QuickBooks Desktop company file.

 

Please let me know how things go on your end. I want to ensure this gets resolve for you. Take care.

Small Bus Owner
Level 1

Health insurance premiums - liability or expense as wash

How is this done in the Online version? As other users have stated, we get a bill and pay it as an expense and it comes out of checking, if we never account for it we can't balance. There has to be an automated way to do this and the steps are not listed anywhere.

KlentB
QuickBooks Team

Health insurance premiums - liability or expense as wash

Hi there, Small Bus Owner.

 

I can share some tips in handling this type of transaction.

 

Since you the bill first as an expense, you'll have to post an employee deduction to an expense account. This way, you'll get reimbursed for the insurance and be able to offset the amount. Here's how:

 

  1. Click the Gear icon.
  2. Choose Payroll settings.
  3. Go to the Accounting section, then click the Edit icon.
  4. Head to the Other liability and Asset account section, click the Edit icon.
  5. Select the appropriate expense account from the Deduction drop-down menu.
  6. Click Continue or Save, then Done.

Additionally, here's an article that you can read to help track and manage your employee and payroll expenses: Run payroll reports.

 

Do let me know if you have any other concerns or questions by dropping a comment below. I've got you covered.

Savvy4
Level 1

Health insurance premiums - liability or expense as wash

Hello,

I would like employee payroll deductions for health insurance to reimburse my Expense account but when I go to the Other liability and Asset account section and click the Edit icon, only Liability accounts appear in the dropdown, the Expense account where I record monthly health insurance bill payments cannot be chosen.

Rubielyn_J
QuickBooks Team

Health insurance premiums - liability or expense as wash

I appreciate your time posting here, @Savvy4. Let me add some insights about this.

 

In the Other liability and Asset account section, there isn't a way to choose the expense. This is because that's what it has been set up. 

 

If you want to reimburse your employee deductions for health insurance, you can deposit this and post it to the expense account.

 

I've also added these articles for more information about payroll deductions: 

 

Please reach out to me again if you have further concerns. I'll make sure to help you out. Have a nice day.

cpagirl
Level 1

Health insurance premiums - liability or expense as wash

How do I make the health insurance withholding post to the expense account rather than the liability account in QBO?

Rubielyn_J
QuickBooks Team

Health insurance premiums - liability or expense as wash

It's good to see you here in the Community, @cpagirl.

 

In QuickBooks Online, the option for Employee Deduction to post to an Expense account is unavailable. Under the Payroll Settings, in the Other Liability & Asset Accounts, it's where the Health Insurance Premium is located. It only lists Liability accounts, so the Employee's Health Insurance Payable grows. 

 

Similarly, Company Contributions only have Expense accounts, but the company contribution from each paycheck goes to the same Health Insurance Liability as to the Employees Deduction. So my company contribution automatically duplicates the general health insurance expense.

 

I also encourage you to check these articles for additional resources: 

Please let me know if you have other concerns with QuickBooks. I'll be around to help you out. Have a great day ahead.

texasgal
Level 1

Health insurance premiums - liability or expense as wash

But at the end of the year the business is counting these totals as an "expense" when it really is not an expense to the company if the employee paid it.

texasgal
Level 1

Health insurance premiums - liability or expense as wash

what if you deduct and then pay, which is the norm since Aflac bills in arrears

John Smith73
Level 1

Health insurance premiums - liability or expense as wash

 

@Rubielyn_J wrote:

It's good to see you here in the Community, @cpagirl.

 

In QuickBooks Online, the option for Employee Deduction to post to an Expense account is unavailable. Under the Payroll Settings, in the Other Liability & Asset Accounts, it's where the Health Insurance Premium is located. It only lists Liability accounts, so the Employee's Health Insurance Payable grows. 

 

Similarly, Company Contributions only have Expense accounts, but the company contribution from each paycheck goes to the same Health Insurance Liability as to the Employees Deduction. So my company contribution automatically duplicates the general health insurance expense.

 

I also encourage you to check these articles for additional resources: 

Please let me know if you have other concerns with QuickBooks. I'll be around to help you out. Have a great day ahead.



Doesn't that seem like an issue in QBO that should be addressed? I am having the same problem and it caused my company to understate our income and now we have a tax burden we were not expecting. What are the steps to balance the employee contributions with the expense account so the P&L is properly reporting? 

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