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+1-802-778-9005Managing employer-paid health insurance in QuickBooks is crucial for keeping your books accurate and ensuring compliance with tax regulations. Whether you’re using QuickBooks Desktop or Online, properly recording health insurance expenses ensures that employee benefits are accounted for correctly, and it simplifies the payroll process.
This guide will walk you through the process of setting up and recording employer-paid health insurance, from creating the necessary accounts to categorizing the transactions. We’ll explore how to efficiently track these expenses, ensure accurate reporting for tax purposes, and streamline payroll entries to maintain smooth financial operations. By understanding the right way to record employer-paid health insurance, you can better manage your business’s cash flow, enhance transparency in your financial statements, and avoid costly mistakes.
Both QuickBooks Desktop and QuickBooks Online offer user-friendly features to help you manage health insurance expenses, with slight differences in navigation and features between the two. This guide will cover the step-by-step instructions for both version (Desktop and Online), ensuring that you have all the information you need to manage employer-paid health insurance benefits effectively.
Under the Affordable Care Act, also known as Obamacare, most Americans are required to maintain a basic level of health insurance referred to as minimum essential coverage defined by the Department of Health and Human Services.
The term “employer-sponsored coverage” includes not only insurance for current employees and their families, but can also include retired employees. Federal law gives former employees the right to stay on their employer’s health insurance, at their own expense, for a time after leaving a job. That, too, is employer-sponsored coverage.
Employers with at least 50 full-time employees or full-time equivalents are typically required to provide health coverage to their workers. A company with fewer than 50 full-time employees and equivalents is not required to provide coverage, although it may qualify for the Tax Credit for Small Employer Health Insurance Premiums if it chooses to sponsor coverage for its workers.
In 1943, the Internal Revenue Service allowed employers to provide tax-free health insurance to their employees. Not only was this a tax break for employers, but employees could receive employer contributions to their health insurance premiums free from income taxes—making it the cheapest and most accessible way to get health coverage at the time.
If your company has an insurance benefit plan, you need to set up and manage payroll items for your insurance benefit plan in QuickBooks Online Payroll and QuickBooks Desktop Payroll to track and tax it appropriately.
However, if you don’t have an insurance benefit plan, QuickBooks has partnered with Allstate Health Solutions to provide employee health benefit options for QuickBooks Online Payroll customers.
In order to set up, add, edit, and track insurance benefits plans or employer health benefits, you must determine the type of health benefit plan or insurance benefit plan.
Let’s understand this with the infographic presented here:
Note: You must keep the policy details of the insurance benefits from your provider and accordingly select payroll items for medical, vision, or dental insurance.
Employee benefits are recorded in the W-2 Forms which are submitted to the IRS for reporting purposes. W-2 tax forms, also known as the Wage and Tax Statement, is a document an employer sends to each employee and the Internal Revenue Service (IRS).
W-2 Forms record employee benefits given by the employer, and it is submitted to the IRS by the employer. This form shows the important info about the income you’ve earned from your employer and the amount of taxes withheld from an employee’s paycheck. You use this form to file your federal and state taxes, helping you in payroll management, tax accounting, and tax filing. A W-2 employee is someone whose employer deducts taxes from their paychecks and submits this information to the government.
Employer-paid health insurance must be recorded in QuickBooks Desktop to maintain the appropriate financial documentation and reflect the employer’s portion of the employee health benefits. For this, first set up deduction and company contribution items in the Payroll Item List. Customize each item, enter the insurance agency details, and set tax tracking types. Finish by adding these items to employee profiles.
Create a deduction item if your employee pays into their health insurance plan. However, if your company also contributes, create a company contribution.
Here’s how:
Navigate to the Lists menu and then Payroll Item List. After this, click on the Payroll Item dropdown, then press New. Select Custom Setup and press Next. \
Choose Deduction and Company Contribution and then hit the Next tab.
Enter the item names, such as medical, vision, and dental, and click Next.
Select the agency name to which liability is paid (or add it) and the account number. Then press Next.
Set the Tax Tracking Type to Premium Only/125 (for pre-tax) and None (for after-tax). Then, click Next three times.
For the None tax tracking type, choose net pay in the Gross vs. net window, then hit the Next icon.
Leave the Default rate and limit fields blank. You can add the rate and limit when the item is added to the employee profile. Press the Finish button.
The set up a company contribution item in QuickBooks Desktop, go to Payroll Item List, choose Custom Setup, select Company Contribution, enter details, set up tax tracking, and finalize.
Following the step-by-step information below:
Hover over the Lists menu and select the Payroll Item List. After this, choose the Payroll Item dropdown, then click New. Select Custom Setup and press Next.
Choose Company Contribution and then hit the Next icon.
Enter a name for the item and click Next again.
Select the agency name to which the liability is paid (or add it), and type the account number. Later, choose the liability and the expense account where you want to track the item, then click Next.
Under the Tax Tracking Type window, select the specific contribution item. Press Next twice.
Under Calculate based on quantity, click Neither, then Next. Then, leave the Default rate and limit fields blank. You can also add the rate and limit when you add the item to the employee profile.
Press the Finish icon.
To add, modify, or remove payroll items in QuickBooks Desktop, use the Payroll Item List to edit or delete items and adjust employee payroll information as needed.
To add health insurance benefit items to an employee’s profile in QuickBooks Desktop, go to the Employee Center, select Payroll Info, add the items, enter the contribution amount and limit, and click OK.
Following the step-by-step information below:
Hover over the Employees menu, then choose the Employee Center and click twice on the Employee’s name.
Select the Payroll Info section.
Under the section for Additions, Deductions, and Company Contributions, add the health benefit insurance items.
Enter the contribution amount per period and the limit.
Press the OK button.
Note: Company contribution items show up under the Non-taxable Company Items or Taxable Company Items sections of pay stubs, depending on how an item is set up.
To modify a payroll item in QuickBooks Desktop, go to the Payroll Item List, right-click and select “Edit Payroll Item,” update the information, and click “Finish” to save changes.
Following the step-by-step information below:
Navigate to the Lists menu, and then choose the Payroll Item List. Then, hit right-click on the item and select Edit Payroll Item.
Change the info as needed on each window.
Press the Finish icon.
To remove a payroll item in QuickBooks Desktop, go to Employee Center, select the employee, access Payroll Info, choose the item, press Delete, and click OK to finalize.
Following the step-by-step information below:
Click on Employees and select Employee Center. Then, select your Employee.
Select the Payroll Info section.
Under the section for Additions, Deductions, and Company Contributions, select the amount (if there’s any) and the item name, and then press Delete on your keyboard.
Hit the OK tab.
How to set up a dummy addition item, go to Payroll Item List, select Custom Setup, choose Addition, name it, set to None for tax tracking, and finish. For company-paid insurance, do the same but select Deduction. Generate a payroll check by choosing Unscheduled Payroll, adding dummy items, and ensuring the check amount is zero.
Following the step-by-step information below:
How to set up a dummy addition item, go to Payroll Item List, choose Custom Setup, select Addition, name the item, choose None for tax tracking, select Net Pay, and finish.
Following the step-by-step information below:
Navigate to the Lists menu and then choose Payroll Item List.
Right-click anywhere, then press New and select Custom Setup > Next.
Opt for Addition and press Next.
Enter the name of the item and click Next twice.
Hit the None icon under the Tax Tracking type drop-down menu and click Next three times.
Select Net Pay and hit Next.
Press the Finish button.
Create a company-paid insurance item, go to Payroll Item List, choose Custom Setup, add a Deduction, name it, select None for tax tracking, choose Net Pay, and finish.
Following the step-by-step information below:
Hit the Lists menu and then choose Payroll Item List.
Click-right anywhere, then press New and select Custom Setup > Next.
Select Deduction, then press Next.
Enter the deduction name and double-click on Next.
Choose None under the Tax tracking type drop-down menu. Then, hit Next three times.
Press the net pay radio button.
Click Next and then hit the Finish icon.
Create a payroll check, go to Employees > Pay Employees, select Unscheduled Payroll, update the date, open Paycheck Detail, clear all items, add dummy additions and deductions, enter a sample amount, and ensure the check amount is zero.
Following the step-by-step information below:
Hover over the Employees menu and then select Pay Employees.
Choose Unscheduled Payroll.
Update the date and then click the employee name.
Select the Open Paycheck Detail option.
Remove all the items in the Earnings section.
Go to the Other Payroll Items section and then remove any addition or deduction items.
Add the dummy addition and deduction item you’ve just created.
Enter a sample amount (like 100).
Make sure the Check Amount is zeroed out.
The adjust the liability for company-paid health insurance to zero at year-end, go to Payroll Taxes and Liabilities, select Adjust Payroll Liabilities, enter details, add the health insurance item, and finalize.
Following the step-by-step information below:
Hit the Employees tab at the top menu bar and then select Payroll Taxes and Liabilities.
Choose Adjust Payroll Liabilities.
Type in the Date and Effective Date.
Click Company under Adjustment is for.
Select the Health Insurance item and enter the Amount.
Tickmark the Accounts Affected checkbox and then hit OK.
Press the OK button.
To report employer health insurance on W-2 forms in QuickBooks Desktop, create a new payroll item under Payroll Item List, set up as a company contribution, and add it to employee paychecks before year-end.
To create a company contribution payroll item in QuickBooks Desktop, access the Payroll Item List, set up a new item as a company contribution, configure liability and expense accounts, and finalize the setup.
Following the step-by-step information below:
Click on List and then select Payroll Item List.
Hit the New Payroll Item tab.
Select Custom Setup, then press the Next button.
Choose Company Contribution and then click Next.
Give a name to the payroll item. For example, “Reportable Health Coverage Cost”. Later, hit the Next icon.
Choose the Liability account drop-down menu, and press Add new.
Select Other Expenses and create a new account name (like “Reportable Health Coverage“). Hit the Save & Close tab.
Navigate to the Expense account drop-down menu and then select the account you’ve just created. Click Next.
Note: Making the liability and expense accounts the same allows you to track your healthcare costs without impacting your financial reports. Press Yes on the warning prompt.
Opt for the tax tracking type drop-down and then choose Health Coverage Cost.
Press Next three times and then hit the Finish tab.
You need to add the healthcare company contribution to your employees’ paychecks and run a payroll before the end of the year.
To check whether the payment must be correctly recorded as an expenditure transaction or not, you need to enter employer-paid health insurance in QuickBooks Online. For this, go to Payroll > Employees, add or modify deductions/contributions, select health insurance, enter provider details and amounts, then save.
Also, you may have to provide the required details such as the beneficiary, the date, the mode of payment, and the account from which the money will be deducted.
To set up insurance payroll items in QuickBooks Online, go to Payroll > Employees, add a deduction/contribution, select health insurance, enter the provider’s name and amount, choose premium type, and save.
Following the step-by-step information below:
Navigate to Payroll Menu> Employees and then choose your employee.
Click on Start or Edit under the Deductions & contributions. Then, select + Add Deduction/contribution.
Select the following from the dropdown menu:
Under the Description (appears on a paycheck) field, enter the provider’s name and select how your deduction is calculated, then enter the amount or percent per paycheck.
Choose Pre-tax insurance premium or Taxable insurance premium. If you contribute a matching contribution, add an amount or percent per paycheck for the company contribution.
Once completed, press Save, then click Done.
To set up a company contribution in QuickBooks Online, navigate to Payroll > Employees, select the employee, add a deduction/contribution, choose the health insurance plan, enter the amount, and save.
Following the step-by-step information below:
Navigate to Payroll > Employees and then select your employee.
Click on Start or Edit under the Deductions & contributions. Then, select + Add Deduction/contribution.
Select the following from the drop-down menu:
Under the Company contribution section, choose how the contribution is calculated. Then, enter the amount or percent per paycheck. If you want to specify an annual maximum amount for company contributions, write down the amount in the Annual Max field.
Press the Save button.
Note: Company contribution items are displayed under the Other Pay/Contributions section of pay stubs.
To edit or remove an insurance item in QuickBooks Online, go to Payroll > Employees, select the employee, modify or delete the contribution, and press Save and Done.
Following the step-by-step information below:
Hover over Payroll > Employees and then select your employee.
From Deductions & contributions, choose Start or Edit. Then, click on Edit beside the contribution you want to modify or hit the Trash bin icon to remove the contribution.
Press Save and then Done.
To report employer health insurance on W-2 forms in QuickBooks Online Payroll, go to Taxes > Payroll Taxes > Filings > Resources, edit Box 12/13, enter amounts in Box 12DD and Box 12FF, and click Submit.
Following the step-by-step information below:
Go to Taxes, then select Payroll Taxes > Filings > Resources.
Choose W-2s and then select Edit Box 12/13 on W-2 Copies B, C, & 2 (employee) from Employee W-2s.
Enter the dollar amount for each employee:
Click Submit.
To set up health insurance reimbursement for an employee in QuickBooks Online (QBO), follow these steps:
When managing or recording health insurance expenses in QuickBooks, ensure proper categorization to maintain accurate financial records. Here’s a streamlined approach to categorize health insurance expenses:
Set up a specific expense account for health insurance. Categorize all health insurance-related payments here to separate them from other expenses.
0.00 or None if you notice duplication.If health insurance is paid at the start of the month, categorize it in the banking tab as “Health Insurance Expense.” Adjust liabilities later during reconciliation.
Health insurance is one of the most sought-after benefits an organization offers, especially to those who cannot afford individual insurance plans. The employees do not have to pay the premium for this plan. It is paid by the employer on behalf of the employee.
Employment-based insurance now covers almost 159 million Americans. From its tax benefits for employers to its attractiveness to job seekers and employees, health insurance is a great way to build a competitive company with a positive workplace culture.
Ans. In QuickBooks Online Payroll, navigate to Payroll > Employees, add a deduction or contribution item, choose the health insurance plan, enter the provider’s details, and input the contribution amount. You can then save the setup to ensure the insurance benefit is correctly recorded.
Ans. In QuickBooks Desktop, create a payroll item for the reportable health coverage cost, add it to the employee’s paycheck before year-end, and make sure it is correctly reflected on W-2 forms. In QuickBooks Online, go to Taxes > Payroll Taxes > Filings > Resources, edit Box 12/13, enter amounts in Box 12DD and Box 12FF, and submit.
Ans. Yes, you can create a zero-net paycheck by setting up a dummy addition and company contribution item with no tax tracking. When creating the payroll check, add these dummy items, ensure the check amount is zero, and finalize the payroll.
Disclaimer: The information outlined above for “How to Record Employer Paid Health Insurance in QuickBooks Desktop & Online?” is applicable to all supported versions, including QuickBooks Desktop Pro, Premier, Accountant, and Enterprise. It is designed to work with operating systems such as Windows 7, 10, and 11, as well as macOS.