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How to Record Employer Paid Health Insurance in QuickBooks Desktop & Online?

Contents1 What is Employer Paid Health Insurance?2 Things to

Contents

What is Employer Paid Health Insurance?

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.

Things to do before recording employer-paid health insurance benefits in QuickBooks!

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:

How to Record Employer Paid Health Insurance in QuickBooks

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.

W-2 Forms

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.

Record Employer Paid Health Insurance in QuickBooks Desktop

Recording QuickBooks Desktop Payroll employee benefits insurance plans like health insurance, vision insurance, dental insurance, pre-tax, and after-tax employee benefits needed to perform the following steps:

Part 1: Setting up deduction items for health insurance benefit

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: 

Step 1: Do a custom Setup in Payroll

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. 

Step 2: Choose a deduction or company contribution

Choose Deduction and Company Contribution and then hit the Next tab. 

Step 3: Enter the type of insurance plan

Enter the item names, such as medical, vision, and dental, and click Next.

Step 4: Add the insurance agency

Select the agency name to which liability is paid (or add it) and the account number. Then press Next. 

Step 5: Setup Tax Tracking Type

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.

Step 6: Finishing up

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.

Part 2: Setting up company contribution item in QuickBooks Desktop

Step 1: Do a Custom Setup in Payroll

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.

Step 2: Select Company Contribution 

Choose Company Contribution and then hit the Next icon. 

Step 3: Enter the Item name

Enter a name for the item and click Next again. 

Step 4: Add the Insurance Agency

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.

Step 5: Set up Tax Tracking type

Under the Tax Tracking Type window, select the specific contribution item. Press Next twice.

Step 6: Decide Quantity, Rate and Limit

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. 

Step 7: Finishing up

Press the Finish icon.

Adding, Modifying, and Removing Payroll Items in QuickBooks Desktop

Part 1: Adding the Items to the Employee Profile

Step 1: Type the Employee’s name

Hover over the Employees menu, then choose the Employee Center and click twice on the Employee’s name. 

Step 2: Payroll Info

Select the Payroll Info section.

Step 3: Add the Health Insurance benefit items

Under the section for Additions, Deductions, and Company Contributions, add the health benefit insurance items.

Step 4: Enter the Contribution amount and limit

Enter the contribution amount per period and the limit.

Step 5: Finishing up

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.

Part 2: Modify the payroll item

Step 1: Edit the Payroll Item

Navigate to the Lists menu, and then choose the Payroll Item List. Then, hit right-click on the item and select Edit Payroll Item. 

Step 2: Change/modify the info

Change the info as needed on each window. 

Step 3: Finishing up 

Press the Finish icon. 

Part 3: Remove the payroll item

Step 1: Choose your Employee

Click on Employees and select Employee Center. Then, select your Employee. 

Step 2: Payroll Info

Select the Payroll Info section. 

Step 3: Enter the Amount and the Item name

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.

Step 4: Finishing up

Hit the OK tab. 

Creating Zero-Net Paychecks for employer-paid insurance in QuickBooks Desktop Payroll

Part 1: Set up a Dummy Addition Item

Step 1: Payroll Item List

Navigate to the Lists menu and then choose Payroll Item List. 

Step 2: Do a Custom Setup

Right-click anywhere, then press New and select Custom Setup > Next.

Step 3: Select Addition

Opt for Addition and press Next. 

Step 4: Type the Item Name

Enter the name of the item and click Next twice. 

Step 5: Go for None

Hit the None icon under the Tax Tracking type drop-down menu and click Next three times. 

Step 6: Net pay

Select Net Pay and hit Next.

Step 7: Finishing up

Press the Finish button. 

Part 2: Create a Company Paid Insurance Item

Step 1: Payroll Item List

Hit the Lists menu and then choose Payroll Item List.

Step 2: Do a Custom Setup

Click-right anywhere, then press New and select Custom Setup > Next. 

Step 3: Add Deduction

Select Deduction, then press Next.

Step 4: Type the Deduction Name

Enter the deduction name and double-click on Next.

Step 5: Go for None

Choose None under the Tax tracking type drop-down menu. Then, hit Next three times.

Step 6: Net Pay

Press the net pay radio button.

Step 7: Finishing up

Click Next and then hit the Finish icon.

Part 3: Create the Payroll check

Step 1: Pay Employees

Hover over the Employees menu and then select Pay Employees. 

Step 2: Select Unscheduled Payroll

Choose Unscheduled Payroll. 

Step 3: Enter the current date

Update the date and then click the employee name. 

Step 4: Open Paycheck Detail

Select the Open Paycheck Detail option.

Step 5: Clear all the Items

Remove all the items in the Earnings section.

Step 6: Other Payroll Items

Go to the Other Payroll Items section and then remove any addition or deduction items. 

Step 7: Add the dummy addition & deduction item

Add the dummy addition and deduction item you’ve just created. 

Step 8: Type a Sample Amount

Enter a sample amount (like 100). 

Step 9: Finishing up

Make sure the Check Amount is zeroed out. 

Liability Health Insurance (company paid) adjustment for zero-year-end balance

Step 1: Payroll Taxes and Liabilities

Hit the Employees tab at the top menu bar and then select Payroll Taxes and Liabilities. 

Step 2: Adjust Payroll Liabilities

Choose Adjust Payroll Liabilities.

Step 3: Enter the Specific Date

Type in the Date and Effective Date.

Step 4: Go for Company

Click Company under Adjustment is for.

Step 5: Add the Health Insurance Items

Select the Health Insurance item and enter the Amount.

Step 5: Mark Accounts Affected

Tickmark the Accounts Affected checkbox and then hit OK.

Step 6: Finishing up

Press the OK button.

Reporting Employer Health Insurance on W-2 Forms in QuickBooks Desktop Payroll

Part 1: Create a Company Contribution Payroll item

Step 1: Payroll Item list

Click on List and then select Payroll Item List.

Step 2: New Payroll Item

Hit the New Payroll Item tab.

Step 3: Do a Custom Setup

Select Custom Setup, then press the Next button.

Step 4: Add Company Contribution

Choose Company Contribution and then click Next.

Step 5: Name your Payroll Item

Give a name to the payroll item. For example, “Reportable Health Coverage Cost”. Later, hit the Next icon.

Step 6: Select the Liability Account

Choose the Liability account drop-down menu, and press Add new.

Step 7: Create a New Account

Select Other Expenses and create a new account name (like “Reportable Health Coverage”). Hit the Save & Close tab. 

Step 8: Add the Expense Account 

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.

Step 9: Setup Tax Tracking type

Opt for the tax tracking type drop-down and then choose Health Coverage Cost.

Step 10: Finishing up

Press Next three times and then hit the Finish tab.

Part 2: Report the Amount on a Paycheck before the end of the year

You need to add the healthcare company contribution to your employees’ paychecks and run a payroll before the end of the year.

Record Employer Paid Health Insurance in QuickBooks Online

Recording QuickBooks Online Payroll employee benefits insurance plans like health insurance, vision insurance, dental insurance, pre-tax, and after-tax employee benefits needed to implement the following steps:

Part 1: Setting up Insurance Payroll Items in QuickBooks Online

Note: You are recommended to use the vision insurance item for any other pre-tax insurance not listed in QuickBooks.

Step 1: Type the Employee Name

Navigate to Payroll > Employees and then choose your employee. 

Step 2: Add Deduction/Contribution Items 

Click on Start or Edit under the Deductions & contributions. Then, select + Add Deduction/contribution.

Step 3: Select Health Insurance benefit plans 

Select the following from the dropdown menu:

  • Deduction/contribution: Add deduction/contribution
  • Deduction/contribution type: Health insurance
  • Type: Choose Medical insurance, Vision Insurance, or Dental Insurance. If you’re setting up a pre-tax item not listed like commuter benefit, AFLAC accident or cancer, etc, click on Vision Insurance.

Step 4: Enter the Provider’s name and the amount to be calculated 

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.

Step 5: Add the Insurance Premium Plan 

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.

Step 6: Finishing up

Once completed, press Save, then click Done.

Part 2: Setting up a Company Contribution item in QuickBooks Online

Company contributions are usually exempt from taxes but are reported on some payroll tax forms. Here’s how to set up/ record them: 

Step 1: Type the Employee Name

Navigate to Payroll > Employees and then select your employee. 

Step 2: Add Deduction/Contribution Items 

Click on Start or Edit under the Deductions & contributions. Then, select + Add Deduction/contribution.

Step 3: Select Health Insurance benefit plans 

Select the following from the drop-down menu:

  • Deduction/contribution type: Select the contribution type.
  • Type: Opt for the specific contribution item.
  • Description: Type the name of the contribution or plan provider.

Step 4: Enter the Amount to be calculated 

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.

Step 5: Finishing up

Press the Save button.

Note: Company contribution items are displayed under the Other Pay/Contributions section of pay stubs.

Part 3: Editing or Removing an Insurance Item in QuickBooks Online

If you need to make changes or remove an insurance item, here’s how:

Step 1: Enter the Employee Name

Hover over Payroll > Employees and then select your employee. 

Step 2: Modify and Remove the contribution 

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.

Step 3: Finishing up

Press Save and then Done.

Reporting Employer Health Insurance on W-2 Forms in QuickBooks Online Payroll

Step 1: Add Payroll Taxes, Filings, and Resources 

Go to Taxes, then select Payroll Taxes > Filings > Resources.

Step 2: Select Employee W-2 Forms

Choose W-2s and then select Edit Box 12/13 on W-2 Copies B, C, & 2 (employee) from Employee W-2s.

Step 3: Type the Dollar amount 

Enter the dollar amount for each employee:

  • Use Box 12DD for the coverage you provide your employees.
  • Use Box 12FF for reimbursements you give your employees.

Step 4: Finishing up

Click Submit.

Bottom Line!

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.

By : July 8, 2024
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