Health insurance deduction set up

It's nice to have you here, VickiWNTA.

When setting a Pretax Health Insurance in QuickBooks Online, the taxes are calculated on the reduced salary amount which results in less income tax.

Here's how:

1. Go to the employee's profile. 
2. Select on the employee and go to section 5, click + Add deduction link.
3. Select these options from the drop-down: 
     - Deduction/contribution or garnishment: Deduction/contribution
     - Deduction/contribution type: Health Insurance
     - Type: Medical Insurance
4. Enter the provider and the amounts for Employee and Company-paid fields. 
5. Select Pre-tax insurance premium.
   
6. Click OK.
    

Find out more about the different deduction types including health insurances (Proceed to the Health Insurance section): Add or change pay types.

Also, I'll add this article as your reference in adding and updating deductions and contributions for your employees: Add or edit a deduction or contribution.

For additional reference, you can learn more about setting up a retirement plan deductions and contributions.

Get back to me if you need further help with anything about QuickBooks. Have a nice day.

Thank you for the response.  I have set it up that way.  Need to verify how it will calculate the taxes.  ie.  what is calculated as PRE tax and what is calculated After the deduction.  ie - Federal, SS, Medicare.  

I appreciate you coming back, VickiWNTA.

When setting up pretax health insurance in QuickBooks Online (QBO), the following are exempted: 

• Federal Income Tax (FIT)
• Social Security (SS)
• Medicare
• Federal Unemployment Tax Act (FUTA).

In terms of how the taxes are reported on your federal forms, you can take note of the following below:

• 941: Decreases boxes 2, 5a, 5c
• 940: Box 4 and 4a checked
• W-2: Decreases boxes 1, 3, 5

In case you miss it, you can have this article as your reference. (Proceed to Pretax health insurance drop-down): Add or change pay types.

Know that you're always welcome to post here in QuickBooks Community if you have any other concerns. 

Thank you.  So to clarify - I have done TOO MUCH researching - sorry.  Mind is a boggled mess with this.

By deducting the health insurance from the wages, it decreases the tax amount paid into federal, SS & Medicare, FUTA?  

So for my employees, the only thing the full tax amount would come from the city tax (taxed off gross), school tax taxed off adjusted amount after insurance deducted.  I am in Ohio if that makes a difference.  Are there any taxes other than city that would be deducted from gross?  

I appreciate your assistance.  Vicki

Thank you for reaching back out to the QuickBooks Community, VickiWNTA. To answer your question, some common deductions include FICA payroll taxes, income tax withholdings, health insurance, and retirement contributions. For additional information about gross pay, deductions, and net pay, I encourage you to review this article to see the differences and even how to calculate them. I also recommend speaking with your accountant to verify that you are on the right track. If you don't have an accountant, no worries. QuickBooks offers a ProAdvisor service, where you can enter your zip code and connect with experts around your area. Many offer free consultation as well. Here's how to use it:

1.  Select this link and in the Find an expert in section, choose what you're looking for.

2.  Use your search field to enter a City or zip code.

3. Browse through the results and find one that works best for your business.

Please let me know if you have any questions or concerns. My team and I are here to help you. I hope you enjoy the rest of your day.

I am using assisted desktop payroll, the options are not quite the same as the ones shown for online. Can I get a step by step explanation or should I contact assisted payroll directly?  Julie 

I've got your back, @JulieAVE. I can share the steps by steps process of setting up Health insurance in QuickBooks Desktop.

There are two ways on how you can set up insurance benefits. You can choose either of the following: 

Structure an insurance benefit item using EZ setup:

1. Go to the Lists menu.
2. Select Payroll Item List and click the Payroll Item button.
3. Choose New.
4. Select EZ Setup and click Next.
5. Follow the onscreen setup instructions, which prompt you to answer a series of questions based on the item type.

After you create a payroll item, Intuit recommends you edit the payroll item to ensure all necessary information is entered.

Second option is to create an insurance benefit item using custom setup:

1. Go to the Lists menu and select Payroll Item List. 
2. Choose the Payroll Item button and click New. 
3. Select Custom Setup and click Next. Choose Deduction and click Next.
4. Name the deduction item and choose Next. 
5. Enter the Agency for the employee-paid liability, and the account number and the liability account for the payroll item and select Next.
6. Choose the Tax Tracking Type and select the type required for the correct tax classification. Click Next.
7. In the Taxes window, do not change any of the taxes and click Next.
8. In the Calculated Based on Quantity window, choose Neither and click Next.
9. In Gross vs. net, if the amount of deduction is a percentage (%) of employee's gross earnings, select gross. If it is a fixed dollar amount select net. If calculation varies from one employee to another, you will need to set up separate items. 
10. Enter a default rate only if all employees pay the same amount for health insurance and select Finish.
11. Add the item to the appropriate employee profiles and enter an amount for each payroll deduction.

Additionally, let me attached these articles that might be helpful for future use. This will help you manage your health insurance and spending account.

• Setting Up a Section 125 Health Insurance (Cafeteria Plan)
• Set up a payroll item for Flexible Spending Account

Drop me a comment below if you have other concerns or follow-up questions about health insurance deduction. I'd be more than happy to assist you again. Stay safe and take care.

I am reading through the Q&A for my scenario.  We are good and all set up with our employee insurance.  The employees pay 25% and that is a weekly deduction from their paycheck.  This year one of the employees asked to add her husband, this will be paid 100% by her.  I created another liability, the same as the 25% and called it Employee Insurance - Spouse, and added the flat weekly fee she will be paying.  However, that payment is showing up as a liability for me to pay.  The previous amount never showed up in liabilites, it deducted from check and kept a report for all employees.  How do i fix this?  I do not want the weekly deduction to go to our Insurance carrier, it should only come to her employer since we are paying the insurance in full.  If i set up wrong, will someone help me to set up correctly?

Welcome to the Community, @fergfontaine. I’d be glad to help you fix this issue with setting up your employees' insurance in QuickBooks Online Payroll. 

When setting up payroll liability, the employer needs to pay the amount. That said, it's best to set up the payment as a deduction for the amount subtracted from an employee's net pay to cover the cost of things.

Here’s how:

1. Go to the Payroll menu, then select Employees.
   
   
2. Select the employee's name.
3. Select Edit ✎ next to Pay.
4. In the deduction section, select + Add a new deduction or + Add deductions.
   
   
5. From the Deductions/contributions ▼ dropdown menu, choose New deduction/contribution.
6. Choose a Deduction type and Type from the small arrow ▼ icon.
7. Enter Provider name (appears on paycheck).
8. From the Amount per pay period ▼icon, choose $ amount or % of gross pay and enter the $ amount or percentage. Do the same for the Company-paid contribution as applicable.
9. Select OK, then Done.

 
You can check this article for more information: Set up voluntary deductions in Online Payroll.

In addition, I've got this helpful resource to guide you further if you want to edit a deduction or contribution for your employees.

Stay in touch if you have any other questions or concerns about payroll deduction. I’ll be right here to answer them for you. Enjoy the rest of the day.

I need to make sure what you are saying is the same as what I am asking. 

I do not think so but let me explain. The Employee Insurance is already set up in QuickBooks.  The 25% that is employee paid was also already set up in QuickBooks.  This year one of the employees added her husband.  When I added an item “Health Insurance – Spouse” on the Payroll Item List, I set this up exactly the same as the employees’ portion of the Health Insurance-Employee (25%) since in both cases, this will be pre-tax dollars and the premium is paid by the employer but deducted from employees pay.

Does that make sense?

So after setting this up, the employees spouse deduction is showing up as a liability when I pay liabilities weekly.  Even though the 25% never showed up in weekly liabilities that are paid.  Usually weekly liabilities are federal withholdings to US Treasury. And on a monthly basis our State taxes are paid.  The employee portion of insurance NEVER shows up here but the new one I set up for Spouse is showing up there. 

Sorry, I know this is lengthy and confusing probably. 

I guess what i need to know is can i go in to edit employee, as you stated, but the portion that is 25% for the employee deduction, change this for her and add the portion of her spouses insurance to that 25%?

So sorry if i am making something more confusing than it needs to be...

Hello there, fergfontaine.

Thanks for sharing additional details to your concerns about setting up health insurance deductions in QuickBooks.

Yes, you can edit the deduction from the employee's profile.

If you're using Quickbooks Online, you may follow the steps provided by my colleague above. However, if you're using QuickBooks Desktop, you can check this article for the step-by-step procedure: Edit payroll items used on paychecks.

I'm also adding these articles to learn how to fix common payroll/tax item issues in QuickBooks Desktop:

• Edit a payroll item.
• Correct year-to-date (YTD) additions or deductions on a paycheck when the wrong tracking type was us....

Feel free to get back to this post if you have any additional questions. I'll be around to help.

Hi there, 

I am having this same issue. I've set the insurance up as instructed for a Deduction for the Employee, but it now shows as a Payable Payroll Liability.  I pay the entire health insurance cost for the employee. When I pay the insurance premium, I post it to an expense account for health insurance.

What is the correct way to do the journal entry so that the insurance payment correctly increases the Health Insurance Expense account as well as shows the Health Insurance Payable Payroll Liability is decreased (paid)?

Kat

hi Mod, 

Sorry I have a different problem with medical insurance deduction, could you please help?

We have Blue shield deduction for employee monthly. The payroll monthly did correct, every paycheck is correct, but the 1 on W2 "Wages, tips, other compensation" is incorrect because it included the medical insurance amount. I think the insurance premium paid by employee is pre-tax, thus it should be excluded in taxable income. 

For example for an employee:

Total gross pay: $150,000

401k deduction: $19,500

Hi Mod,

I just found out, we set up Blue shied is under Employee Aftertax deductions, that is why. Should we set up insurance as pre-tax? Thanks

Hello there, HaPhung.

Thank you for getting back to us here in the Community. Allow me to chime in and share some information about health insurance.

Yes, you need to set up Pretax Health Insurance in QuickBooks Online. This will decrease boxes 1,3, and 5 on the W-2. This deduction doesn't fit into the category or code of Box 12.

Here's how to setup Pretax: 
 

1. Go to the employee's profile. 
2. Choose on the employee and go to section 5, click + Add deduction link.
3. Click these options from the drop-down: 
     - Deduction/contribution or garnishment: Deduction/contribution
     - Deduction/contribution type: Health Insurance
     - Type: Medical Insurance
4. Enter the provider and the amounts for Employee and Company-paid fields. 
5. Hit Pre-tax insurance premium.

You can check this article for more details about supported pay types and deductions in QuickBooks Online: Add or change pay types.

Additionally. I've included this article as your reference on how to have copies of your W-2: Print your W-2 and W-3 forms.

I've got you covered if you have other questions regarding your payroll service. I can also help you accomplish your tasks in QuickBooks Online. 

I just started working for a new employer and my check stub says “adjustments to net pay” and that’s where my health insurance premium is deducted. The owner says that it shows it is pre tax online when he enters the information. Is this correct??

Thank you for joining the thread, @Brookieb1981.

I'd love to help you with your concern about your health insurance premium deduction, but can you provide more information about the pre-tax online that shows when entering the information? Any additional information would help us provide the best resolution on this matter.

Please know you can continue to reach me here with your additional questions. I'll be standing by for your response.

Thanks for your reply. Since I’m the employee receiving the check, I’m not sure what is shown on the computer when it’s entered. I’m attaching my pay stub, though I’m not sure that will give you enough information. It seems like there should be a “pre-tax” section on the paystub. My boss says it shows it’s a pre tax deduction when he’s inputting the info for the check but I don’t know.

Thank you for the additional information, and the snapshot provided, @Brookieb1981. It helps me picture your concern as we will get to a resolution to it.

First off, I'd like to share a brief information on why and how your employer adds a deduction to your paycheck.

In QuickBooks, they can add a pre and after-tax deduction. It is designed to enable employees pays their benefits and other deductions such as health insurance, retirement contributions, uniforms, tools, or dues. Also, sometimes your employer might give you an advance on your paycheck and then create a deduction on the following payroll.

You can check out the screenshots I added below to get insights into how your employer takes these deductions from your paycheck. Your employer has a Payroll menu in QuickBooks Online (QBO) Payroll. From there, they can select their employee to add any type of deduction.

Moreover, based on your screenshot, I can see that this is a Medical type of deduction. Thus, I refer to the information entered from your pay stub. This is what it looks like:

Afterwards, this will be added to your Deductions or Contributions and reflected on your pay stub. In addition, regarding the tax setup. If your employer toggles on to the Pre-tax, then deduction items are exempt from tax and reduce taxable wages (decreasing tax withheld). Otherwise, Taxable wages or contribution items are fully taxed.

In this manner, I suggest you contact your employer to discuss how they set up this deduction.

Let me know if you have more questions about deductions entered in QuickBooks. I'll be delighted to share my knowledge about it. Have a great day!

Thank you for explaining how the deduction should be created. By looking at my pay stub, does it look like this deduction is made pre-tax or after taxes?

I appreciate your quick response, @Brookieb1981. I have some information to share regarding the differences of pre-tax and after-tax.

According to my colleague above, pre-tax means that premiums are deducted before taxes are calculated and deducted. Employer will withhold pre-tax deductions from your wages before withholding taxes. This reduces the amount of income that the employee has to pay taxes on.

On the other hand, after-tax means that premiums are deducted after taxes is calculated and deducted. Employers will subtract post-tax deductions from your pay after deducting payroll taxes. This has no effect on an employee’s taxable income.

Furthermore, please know that we’re unable to verify if your deduction was taken pre-tax or after-taxes. This is because it depends on how your Employer set up deductions, company contributions, and pay types in the program. There are also rules on how payroll items should be taxed. That’s why we highly recommend reaching out to your employer.

To get to know more about the pay types you can set up in QBO, read these articles: 

• Add or Change Pay Types in Online Payroll
• Set up, change, or delete employee-paid payroll deductions

For future reference, you’ll want to visit this link to learn more about other payroll tasks: QuickBooks Online Payroll hub. From there, you can browse articles that will guide you through running reports or record transactions. 

Keep me posted if you have additional questions about tax types or any payroll-related concerns. I'm always here to help. Wishing you a great day ahead!

For an existing health insurance withheld deduction, how do I change the general ledger account number associated with that deduction. Thank you. [email address removed]

Hi Steve!

Thank you for reaching out for help with updating the account number of your health insurance deduction. To do this, we'll edit the account associated to the item and enter the new number.

First, check the account associated to the item:

1. Go to the Gear icon and choose Payroll settings.
2. Click the pencil icon for Accounting.
3. See what account is assigned for the insurance item.
4. Click Done to exit.

Second, edit the account.

1. Go to the Gear icon and choose Chart of accounts.
2. Click the down arrow beside View register on the account in concern.
3. Select Edit, and change the account number in the Number field on the pop-up window. If you don't see the said field, you need to turn on the account number option in your settings.
4. Click Save and close.

Enable account numbers:

1. Click on the Gear icon and choose Accounts and settings or Company settings.
2. Go to the Advanced tab.
3. Click the pencil icon in the Chart of accounts section.
4. Switch on Enable account numbers.
5. Put a checkmark in the Show account number checkbox.
6. Click Save and then Done.

On the other hand, if you need references for payroll, you can go to the main support page, scroll down a bit, and click More Topics.

If you have more questions about account numbers or payroll items, feel free to reach back out through this thread. I'm just around to help.

Is there a way to change the account associated with employee health insurance copayment deductions from a liability to an expense, so that copays go against the total insurance premiums paid by the employer?  The only option in the editing process described above is to use a liability account.   In this case the copay deductions are going against the current month's insurance expense, so there is no liability involved.