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Set up a Section 125 Health Insurance (Cafeteria Plan)

Set up a Section 125 Health Insurance (Cafeteria) plan payroll item in QuickBooks Desktop.

Important HIPAA information: Each healthcare practice is responsible for ensuring compliance with HIPAA and all applicable laws. We encourage healthcare providers to consult with legal counsel regarding their company's individual information practices and how to comply with HIPAA and any other applicable laws.
Cafeteria Section 125 Plans do not appear on any box of the W-2. The IRS does not require this information. Some payroll services will put this on Box 14; Intuit has chosen not to do this.

To set up a Cafeteria Plan Employee payroll item with Custom Setup:

  1. Choose Lists > Payroll Item List.
  2. Select the Payroll Item > New.
  3. Select Custom Setup > Next.
  4. Select Deduction > Next.
  5. Enter a name for your payroll item (for example, 125 Health Insurance Plan), and then select Next.
  6. Enter the name of the plan company or agency, and enter an identifying number (for example, a plan or account number).
  7. Select the liability account where you want to track the deduction until payments are made.
  8. Select Next.
  9. Select Premium Only/125 as the Tax tracking type, and select Next.
  10. Use the default tax setup unless a tax adviser, accountant, or your cafeteria plan administrator has instructed otherwise.
  11. Select Next, and select Next again. (Calculating based on quantity is generally not needed for this item.)
    Note: The default tax setup is only valid when you use the Premium Only Plan (POP), under section 125 of the IRS code. This allows an employee to pay for insurance with pre-tax dollars. We recommend checking with your plan administrator or an accountant to be sure you qualify
  12. If most of your employees will have the same deduction rate and annual limit, enter those values. Otherwise, leave the fields blank.
  13. Select Finish.
  14. Add the item to each qualified employee record.
    1. From the Lists menu, choose Employee List.
    2. Double-click an employee name to open an Edit Employee window.
    3. Select the Payroll Info tab.
    4. In the Additions, Deductions and Company Contributions section:
      1. Select under Item Name to bring up drop-down list.
      2. Select the new payroll item(s) for the Section 125 Plan.
      3. Enter amount that needs to deducted or added on paycheck for each pay period.
    5. Select OK.

To set up a Cafeteria Plan company payroll item with Custom Setup:

  1. Choose Lists > Payroll Item List.
  2. Select the Payroll Item button > New.
  3. Select Custom Setup > Next.
  4. Select Company Contribution > Next.
  5. Name the item and select Next. This name appears on pay stubs and payroll reports.
  6. Enter the Agency for the employee-paid liability, and the account number, the Liability account, and the Expense account for the payroll item. Select Next.
  7. Select the Tax Tracking Type required for the correct tax classification. Select Next.
    Note: In most cases, the Tax Tracking Type is None. Contact your Health Insurance Administrator to determine the taxability of the item if you are unsure.
  8. In the Taxes window do not change any of the taxes and select Next.
    Note: QuickBooks Desktop auto-selects the correct taxes. Do not adjust them.
  9. In the Calculated Based on Quantity window, select Neither and select Next.
  10. In Default rate and limit, enter a default rate only if all employees pay the same amount for health insurance. If the item has an upper limit, enter the amount in the bottom box.
  11. Select Finish.
  12. Add the item to the appropriate employee profiles and enter an amount for each payroll deduction.

To set up a Cafeteria Plan employee and/or company payroll item with EZ Setup:

  1. Choose Lists > Payroll Item List.
  2. Select Payroll Item > New.
  3. Select EZ Setup > Next.
  4. Select Insurance Benefits > Next.
  5. Select the insurance item you want to setup on the list.
  6. Follow the onscreen setup instructions, which prompt you to answer a series of questions based on the item type to create employee and/or company payroll items.

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