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Level 2

Refunding pre-tax employee deductions and reconciling company contributions (over paid) from previous year.

Hello,

 

I have an employee who had an employer sponsored health insurance which was retroactively cancelled by them. This resulted in an over payment to the insurance agency in 2019 which has now finally refunded the over payment in 2020.

 

Can someone help me with this? I need to to handle a refund for the pre-tax employee deduction for medical for 2019.  I also now need to reconcile both the company contribution and the employee deduction that were in excess.  I assume the refunds and reconciliation goes into the 2020 books.

 

Thanks in advance for your help.

Solved
Best answer January 27, 2020

Best Answers
Highlighted
Moderator

Refunding pre-tax employee deductions and reconciling company contributions (over paid) from previous year.

Hi there, AGCorp.

 

You can create a payroll adjustment to correct the year-to-date (YTD) or quarter-to-date (QTD) of the company portion. Before doing so, run a Payroll Summary report for the quarter you need to adjust.

 

  1. Go to the Reports menu and select Employees & Payroll.
  2. Choose Payroll Summary.
  3. Set the date and click on Refresh.
  4. Remove the Hours and/or Rate columns by clicking the Customize Report button.
  5. Under the Display tab, clear the Hours and/or Rate checkboxes. Then, select OK.
  6. Locate and review the insurance item under the Employer Taxes and Contribution section.

For the detailed steps in creating an adjustment, refer to this article: Adjust payroll liabilities in QuickBooks Desktop.

 

I recommend conferring for further guidance in recording the payroll adjustment.

 

For future reference, you can use this article that will serve as guide to help prepare your tax forms: Year-end checklist for QuickBooks Desktop Payroll.

 

Reach out to us if you have further questions. We're always here to help.

View solution in original post

7 Comments
Highlighted
QuickBooks Team

Refunding pre-tax employee deductions and reconciling company contributions (over paid) from previous year.

Hi there, @AGCorp.

 

You can create payroll corrections, then submit a reimbursement check to refund your Employee.

 

The first thing you need to do is add a new payroll item. Here's how:

 

  1. From Lists on the menu bar, select Payroll Item List.
  2. Select the Payroll Item button. Then select New.
  3. Click the Addition item type. Then select Next.

Next, we can set up the new item:

 

  1. Select an expense account to track travel or mileage amounts. Or if this will be an advance to the employee, choose an asset account.
  2. Set the Tax Tracking type to None so that the amounts do not report on tax forms. Then select Next.
  3. For amounts paid per mile/kilometer, select the Based on Quantity checkbox. Then select Next.
  4. Choose to calculate net pay. Then select Next.
  5. Enter a Default Rate. Then select Finish.

 

Then let's go ahead and do the payroll checkup. QuickBooks will recalculate your payroll data. 

 

  1. Click the Employee menu and select Payroll Setup.
  2. Select Data Review.
  3. Under the question "Would you like QuickBooks to help you check your payroll data?," select Yes.
  4. Click Continue

For more details, please read out these articles: 

 

Also, I'd suggest reaching out to your accountant for further guidance about reconciling your account.

 

I'll include an article about setting up a payroll item for insurance for future reference. 

 

Please let me know if there's anything else you need. I'm always here to lend a hand. Take good care.
 

Highlighted
Level 2

Refunding pre-tax employee deductions and reconciling company contributions (over paid) from previous year.

Hello -

 

Thanks for the details. The link you included (Refund an employee for a deduction that was overwithheld)  is very useful and helps me setup the refund for the employee.

 

Can you also help me with handling the company portion of this? I.e. there was an equivalent company contribution towards the health care insurance as well as a payment made to the agency. How do i reverse both these transactions?

 

Thanks again

Highlighted
Moderator

Refunding pre-tax employee deductions and reconciling company contributions (over paid) from previous year.

Hi there, AGCorp.

 

You can create a payroll adjustment to correct the year-to-date (YTD) or quarter-to-date (QTD) of the company portion. Before doing so, run a Payroll Summary report for the quarter you need to adjust.

 

  1. Go to the Reports menu and select Employees & Payroll.
  2. Choose Payroll Summary.
  3. Set the date and click on Refresh.
  4. Remove the Hours and/or Rate columns by clicking the Customize Report button.
  5. Under the Display tab, clear the Hours and/or Rate checkboxes. Then, select OK.
  6. Locate and review the insurance item under the Employer Taxes and Contribution section.

For the detailed steps in creating an adjustment, refer to this article: Adjust payroll liabilities in QuickBooks Desktop.

 

I recommend conferring for further guidance in recording the payroll adjustment.

 

For future reference, you can use this article that will serve as guide to help prepare your tax forms: Year-end checklist for QuickBooks Desktop Payroll.

 

Reach out to us if you have further questions. We're always here to help.

View solution in original post

Highlighted
Level 2

Refunding pre-tax employee deductions and reconciling company contributions (over paid) from previous year.

I came across this post because I have received a COVID-19 premium forgiveness that I need to refund to our employees. The premium is pre-tax so the refund needs to be taxable.  Wanting to make sure I'm setting up the payroll item correctly I came across this question and answer.

 

1. The instructions provided are for a refunding non-taxable deduction. The original message said they needed help with refunding a pre-tax deduction so the refund should be taxable. Maybe I missed something in the instructions.

 

2. If I am correct and the instructions are wrong, what is the correct payroll item setup for refunding a pre-tax insurance premium?

 

Thank you.

Highlighted
Level 2

Refunding pre-tax employee deductions and reconciling company contributions (over paid) from previous year.

 
Highlighted
Level 1

Refunding pre-tax employee deductions and reconciling company contributions (over paid) from previous year.

Hi judith4

 

I had the same questions.  The QB moderator & team replies to the original question seem to completely miss that this was a pre-tax deduction for payment of health insurance premium (replies seem to be directed toward other payroll liabilities).

 

I am trying to apply a Medical Loss Ratio (MLR) rebate proportionally to the company and to the employees, who made pre-tax contributions to health insurance premiums in 2019, which would--as you point out--make the rebate in 2020 taxable income for the employee (whether the rebate is applied toward the current premium and thereby reduces the deduction from the employee's current wages OR if the rebate is given as a cash refund on the paycheck--either way, it ends up taxable).  

 

I was hoping there would be some guidance on both booking the rebate as a deposit (can deposit be split among employees and company liabilities?) and for booking the rebate to the company as well as the employee.

 

Neither of the above answers actually address the original question of pre-tax; both responses treat the refund as not-taxable, which is only true if it is applied as a reduction of the employee contribution (deduction) -- NOT as Joesem M reply suggests (a non-taxable refund check).  If the pre-tax contribution is rebated/refunded to the employee , it would be taxed.

 

Furthermore, last year (2nd Qtr 2019), I followed the "Refund Deposit for Taxes and Liabilities" instructions and the "Adjust Payroll Liabilities" instructions for a refund on employee health insurance premiums, and this June (2020), the adjusted liabilities suddenly reappeared on my liabilities list right after a payroll update.  I haven't had the hours to sit on the phone with QB Payroll to remedy this yet, but it makes me reluctant to use the same QB authorized steps again to process this MLR rebate.  Pretty frustrating that the recommended steps result in errors a year later.

 

I'll be interested to see if there is any follow up to this thread.

Highlighted
QuickBooks Team

Refunding pre-tax employee deductions and reconciling company contributions (over paid) from previous year.

Hello there, little_l.

 

I do appreciate your time and effort in posting your questions here. I'd like to route you to the right support who can closely look into your payroll details. They can check the reporting of the payroll item you're using and see how it affects your payroll. 

 

You can open your QuickBooks Desktop company file to connect with u. Then, follow these steps:

  1. Go to Help, then select QuickBooks Desktop Help.
  2. Select Contact Us.
  3. Enter your concern, then select Continue.
  4. Choose a way to connect with us.

For more details on our availability check out the support hours and types article. My colleagues attached a few helpful resources that will give you more information on how taxes are calculated. 

 

You can always leave your questions in the Community. We're available 24/7 to help. Take care!

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