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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?

 

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Best answer 12-10-2018

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I teach and prefer the "internal reimbursement data flow"...

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.

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Established Community Backer ***

I teach and prefer the "internal reimbursement data flow"...

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.

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We pay and then deduct... so can it just be recorded as a...

We pay and then deduct... so can it just be recorded as an expense?
Established Community Backer ***

If you pay and then deduct, that would be Expense and Rei...

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

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Re: If you pay and then deduct, that would be Expense and Rei...

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?   

Established Community Backer ***

Re: If you pay and then deduct, that would be Expense and Rei...

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 deadbeat 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.

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