Short/Long Term Disability Gross Up Option Quickbooks Desktop Payroll Setup

smallbizcis · ‎August 17, 2020

My business is currently setting up Employer paid Short and Long Term Disability (STD/LTD) benefits for its employees. When selecting the benefits package, the "Gross Up" option for these benefits was selected so that the Employees pay taxes on the premiums for these benefits now so that in the event there is a claim the benefits paid are tax free. How do I setup these payroll items within Quickbooks Payroll Desktop so that they are considered taxable items? It did not appear to be an option within the EZ Setup and it was unclear how to do this with the custom option.

Thanks in advance for the assistance.

KlentB · ‎August 17, 2020

I can help you in setting up this item, smallbizcis.

Gross up disability plans are set up as basic (employer-paid) Short Term or Long Term Disability plans. Additionally, they look almost the same in terms of plan details as all other STD or LTD policies.

In most cases, the Tax Tracking Type of gross up disability plan is Compensation since the employer-paid premium is considered taxable income to the employee. This way, the benefits won't be treated as taxable income to the employee when it's paid through a claim,.

With traditional STD and LTD policies where the premium is paid by the employer, claims that are paid to the employee through the policy are considered taxable income.

Although, I would recommend consulting your accountant what tracking type you'll have to use to ensure compliance.

I also encourage reading these articles to help track, report, and create paychecks related to third-party sick pay:

If I can be of any additional assistance, please don't hesitate to insert a comment below. Have a great rest of the day.

View solution in original post

Nick_M · ‎August 17, 2020

Hello, smallbizcis.

We can create a payroll item for both Short-term disability (STD) and Long-term disability (LTD) as an insurance benefit. This will add to your employee's profiles and paychecks.

Here's how:

Go to List on the top menu.
Choose Payroll Item List.
Tick the Payroll Item drop-down and choose New.
Select EZ Setup and click Next.
Then, follow the onscreen setup instructions that will prompt you to answer a series of questions based on the item type.

To set up an insurance item for a custom set up, just refer to this article: Set up a payroll item for insurance. Then, go to To set up an insurance benefit item using custom setup: section.

Then, create a paycheck for an employee then you'll see the LTD and STD insurance in the Other Payroll items section.

For additional insights, you may check out these articles:

If you have any other questions, feel free to post here at anytime, night or day. Thank you and have a nice Monday.

smallbizcis · ‎August 17, 2020

Thanks Nick_M. Once the payroll item is setup and I go to modify the payroll item created in the payroll item list, what is not clear is the "Tax Tracking Type". Should Compensation be selected given the "Gross Up" option and this is treated as taxable wages? None of the other default options provided in QB Payroll seem to align to this option. There is a "Taxable Grp Trm Life" but that isn't applicable as the tax rules for Group Life Insurance are different as it is related to coverage in excess of $50,000. "Gross Up" is a fairly common option for STD/LTD so would have expected that as an option in QB Payroll.

Appreciate the guidance.

KlentB · ‎August 17, 2020

I can help you in setting up this item, smallbizcis.

Gross up disability plans are set up as basic (employer-paid) Short Term or Long Term Disability plans. Additionally, they look almost the same in terms of plan details as all other STD or LTD policies.

In most cases, the Tax Tracking Type of gross up disability plan is Compensation since the employer-paid premium is considered taxable income to the employee. This way, the benefits won't be treated as taxable income to the employee when it's paid through a claim,.

With traditional STD and LTD policies where the premium is paid by the employer, claims that are paid to the employee through the policy are considered taxable income.

Although, I would recommend consulting your accountant what tracking type you'll have to use to ensure compliance.

I also encourage reading these articles to help track, report, and create paychecks related to third-party sick pay:

If I can be of any additional assistance, please don't hesitate to insert a comment below. Have a great rest of the day.

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