Section 125 Cafeteria Plan Correction

Hi vgardner218!

Thanks for posting again here. Let me help you regarding the Section 125 Cafeteria Plan.

Yes, you can change the payroll tax tracking type to Premium Only/125. However, if you're unsure, I suggest you consult with a tax adviser, accountant, or to your cafeteria plan administrator.

You can simply edit the current payroll item but the change isn't retroactive. You can also create a new one and remove the old payroll item or rename it to something else to remind you not to use the said payroll item.

What you'll need to do to correct the previous payroll is to process an adjustment. We have an article that shows the detailed steps on how to correct your payroll data due to an incorrect tracking type. Please check this link: Correct year-to-date (YTD) additions or deductions on a paycheck when the wrong tracking type was us....

Hare are some of the articles you can check. These will explain more on how to add Cafeteria Plan in QuickBooks Desktop Payroll and how to correct your employee record:

• Set up a Section 125 Health Insurance (Cafeteria Plan)

• Correct an employee record and repay over or under collected employee paid taxes

Comment below if you have more questions. Take care always!

Thanks for the response.  What would be the best process to use to calculate the numbers needed to make the adjustments that need to be made?

Hi AlexV, 

I'm looking to setup Section 125 / Cafeteria Plan, too. In your reply, you linked an article for QB Desktop Payroll, do you happen to know if Quickbooks *online* allows for setup of a Section 125 / Cafeteria Plan? I don't have "Payroll Item Lists" in my QBO settings. I contacted QBO Support today and they called me back - we couldn't find where to setup either. They took my info and said they'd follow up in an email. They did, but linked the same article.. the QB Desktop Payroll one that you linked. I'm stuck and would appreciate help!

https://quickbooks.intuit.com/learn-support/en-us/help-article/payroll-additions-deductions/set-sect...

Welcome to the thread, @Aud220.

I can guide you further about setting up the Section 125 cafeteria benefit plans in your QuickBooks Online (QBO).

With this plan, your staff members can use pretax salary deductions to cover the costs of their health, dental, and vision insurance. To set this up, refer to the instructions listed below:

1. From the left panel, click the Payroll menu. Then, select the Employees tab.
2. Choose an employee from the list.
3. Click the Edit ✎ icon (next to Pay).
4. In section 5, select + Add a new deduction.
5. Select Health Insurance from the Deductions/contributions ▼ drop-down menu and Medical Insurance for the Type.
6. Choose the $ amount or % of gross pay and enter the $ amount or percentage from the Amount per pay period ▼drop-down.
7. Do the same for the Company-paid contribution if applicable.
8. Click OK, then hit Done.

In addition, here's an article you can refer to for more details: Set up and manage payroll items for your insurance benefit plan

Moreover, check out this resource that helps you in confirming an employee's wages and benefits for year-end reporting: Year-end guide for QuickBooks Online

If you have any further concerns or inquiries about contributions and deductions, please let me know. The Community will always be behind you.

Good afternoon,

I have a client that takes owner draws but still contributes to section 125 payments.  I am unsure how to record this since they are not paying themselves via payroll.  Any suggestions?  Thank you.  Dave

Hi there, Dave.

Before anything else, I'd recommend consulting an accountant about this to ensure the accuracy of your books. This recording would depend on the type of entity. If the company is a partnership, LLC, single member LLC or sole proprietorship, then this is an owner contribution in the Equity section. If the company is a corporation, the answer would depend on whether the owner expects to be paid back. If so, then this would show as a liability called a shareholder loan. If not to be paid, then it would be an equity account.

In QuickBooks Online (QBO), the owner's contribution is recorded in your equity accounts. I'll guide you on how.

1. Go to Accounting.
2. Select Chart of Accounts.
3. Click New.
4. Under Account Type, select Equity.
5. Select Owner's Equity from the Detail Type field.
6. Enter Owner's Contribution in the Name field.
7. Type in the contribution amount in the Balance field.
8. Click Save and close.

I'm also adding this article to learn how to pay an owner of a sole proprietor business in QuickBooks Online: Set up and pay an owner's draw.

The Community will be glad to answer any of your questions again or if you need further assistance recording this. Have a good one!