How to Setup Health Reimbursement Arrangement (HRA) in QuickBooks?
Are you a new employee or employer looking for information about Health Reimbursement Arrangements (HRA)? No worries, stay tuned to learn how to setup HRA in QuickBooks both Desktop and Online.
What is Health Reimbursement Arrangement (HRA) in QuickBooks?
Health Reimbursement Arrangement is one of the most beneficial programs that allows you to enjoy flexible and reasonable health-related benefits tailored for employees and employers.
With the help of HRA, employers offer all their employees a monthly allowance in the form of health insurance and medical expenses. Also, you get a cost-controlled option so that you can manage your expenses accordingly and your employees can meet their health care requirements. So basically, it’s like a win-win situation for both parties.
There are two types of setup HRA in QuickBooks, such as QSEHRA and ICHRA, and every HRA provides different kinds of benefits to their employers and employees rely on the size of the organization you are working in.
It’s an acronym for Qualified Small Employer Health Reimbursement Arrangement (QSEHRA), also known as small business HRA, designed for employers with 50 full-time employees. All your full-time employees are eligible to participate in this type of reimbursement regardless of their insurance status. So, it can be a nice choice if you have multiple employees with various insurance requirements.
No employer can offer employees more than the maximum limit as the QSEHRA allowance amount is covered at a certain annual limit. However, QSEHRA does not set any minimum allowance limit, so you can select any amount you want to offer to the employees provided that you are not crossing the maximum annual limit.
This is a type of HRA that all sizes of organizations can offer. It provides stand-alone advantages to its employees. You can use this option for employees of different classes who are not qualified for the group health plan, including seasonal workers or part-timers.
In contrast to QSEHRA, there is no annual limit for the allowance amount, so you can offer any amount that goes more than the QSEHRA allowance limits.
To set up tax-free reimbursement for QSEHRA & ICHRA, you must record the new payroll item and adjust payroll liabilities.
Below are the steps to do so:
- First, click the Employees menu and select Manage Payroll Items > New Payroll Item.
- Now, choose Custom Setup and hit the Next tab.
- Select Company Contribution and press Next.
- Enter a unique name for this new payroll item, which will display on employee pay vouchers, pay stubs, and payroll reports. Then, click Next.
- You can leave the agency information blank, as this is only for tracking and reporting items, not for liability items.
- Click the arrow beside the Liability account box. Then, select Add New.
- Under the Add New Account window, choose Other Expense as the Account Type.
- Type a new Account Name such as “Reportable Qual. Small ER HRA.”
- Press the Save & Close button.
- Click on the drop-down menu next to the Expense account option and choose the account you created. Then, hit Next.
Note: If you are creating more than one payroll item to track QSEHRA payments, continue using this account for liability and expense accounts. Under Profit & loss statements, you need to set liability and expense accounts showing a zero amount at the beginning. It lets you track QSEHRA payments for W-2 reporting purposes without affecting your financial reports.
- When you get a warning message stating you have set your liability and expense accounts to the same account, press Yes to ignore it.
- Select the Tax Tracking Type arrow, then choose the new tax-tracking type like Qual. Small ER HRA. Then, click Next.
- To accept the default tax settings, hit the Next tab again.
- Choose the Next icon on the Calculate based on quantity screen to enable the default settings.
- Navigate to the Default rate and limit page, and click Finish to accept the default settings.
From now on, the amount tracked with the new tax-tracking type will be reported on Box 12 of Form W-2 code FF.
Step-by-Step Guide to Setup HRA in QuickBooks Online!
To record the QSEHRA and ICHRA tax-free reimbursements, you just need to choose your employee’s name from the Employee section and record the additional pay types for reimbursement.
To know more, perform the following instructions:
Intuit Online Payroll and Intuit Full Service Payroll
- To begin with, go to the Employees menu and then select the employee’s name option.
- In the Pay section, click Edit.
- Select “Show all pay types” under “What additional ways do you pay employees.”
- Locate and choose the “Reimbursement pay type.”
- You can enter a recurring amount in the provided box or add it when creating the paycheck.
- Also, you can click on Add/edit types > Add Reimbursement name to rename this pay type to something like “QSEHRA Reimbursement” or “ICHRA Reimbursement.”
- If you are using Intuit Full Service Payroll and this option is unavailable, contact Payroll Support for assistance.
- Press OK to save all the changes.
QuickBooks Online Payroll and QuickBooks Online Payroll Full Service
- From the left menu, select Workers and then click on Employees.
- Now, choose the name of the employee.
- Hit the Edit (pencil) icon located next to Pay.
- Click on Add additional pay types under How much do you pay.
- From Even more ways to pay… drop-down menu, choose Reimbursement.
- You can enter a recurring amount in the given box or add it when you run payroll.
- To provide the pay type a custom name like “QSEHRA Reimbursement” or “ICHRA Reimbursement,” hit the pencil icon available beside Reimbursement.
- At last, press Done.
Once done, you can set up HRA in QuickBooks Online Payroll and Payroll Full Service. So next time you create a paycheck for the employee, you will see the Reimbursement item in the Pay column.
After this, you can do the following:
- Enter the reimbursement amount to add it to your employee’s paycheck.
- If required, you can change the amount every month, especially if the reimbursement amount won’t be fixed each month.
- When the reimbursement is successfully added, you can also assign it to another employee.
After assigning the reimbursement to your employee, verify your accounting preferences to be sure it is posted correctly in the account for exporting purposes.
Record Taxable Reimbursements for QSEHRA Only
Almost most reimbursements linked with QSEHRA are tax-free; only one type of allowable reimbursement must be taxed.
Taxable Reimbursements are often reported as income and taxed like regular Wages with income & payroll taxes withheld, including premiums paid pre-tax through a spouse’s employer for a group plan that can be reimbursed on a taxable basis parallel to QSEHRA.
You can add this when needed by setting an “other earnings” type for each employee with taxable reimbursements.
To add the Other earnings pay type for the selected employee, check out the steps listed below:
- On the left navigation bar, select Employees.
- Now, choose the name of the employee you wish to pay.
- Press Edit to update the employee details.
- Click on the Pencil icon From How much you pay the employee section.
- Hit the Other Earnings checkbox and enter a recurring amount in the field.
- Besides that, press the pencil icon near the Reimbursement option to give your other earnings pay type a name like “QSEHRA Reimbursement.’
- If you add more than one other earnings pay type, click Add other earnings type to add another pay type.
- Finally, press Done.
This is how you can record the Other Earnings for your employees.
QuickBooks has a unique tracking code for QSEHRA reimbursements if you want to track. It is to be noted that it won’t affect the money transfer to happen, but it automatically populates QSEHRA reimbursements on your employees’ W2s at the end of the financial year. Always remember what you send on the W-2 for QSEHRA is the amount offered and not the amount claimed. This will display on Box 12, Code FF.
What to Do Before you Start Offering HRA to Your Employees?
As an employer, you are required to go through the below-given steps when providing HRA to your employees.
Step 1: Select Which HRA You Want to Offer
There are three types of HRAs available, including as follows:
- Qualified small employer HRAs (QSEHRAs)
- Individual coverage HRAs (ICHRAs)
- Group coverage HRAs (GCHRAs)
Step 2: Customize the Benefits
HRA has flexible group health insurance plans, and you have an option to customize the benefit with this depending on which type of HRA you choose.
You can decide things like:
- How much monthly allowance to offer
- What expenses are eligible for reimbursement
- Which employees do you want to participate.
Step 3: Choose a Start Date
Your start date will be the date when HRA will begin. The plus point is that HRAs can initiate at any time, so if you’re in a hurry to get something in place, you don’t need to wait for an enrollment period to get started.
However, if you wish to start your plan in the middle of the year, you can pick the date of your choice accordingly, but it is recommended to start it in January so your plan year matches up with the calendar year.
Step 4: Make Required Changes to Your Current Policy
You will have to cancel your organization’s group policy or remove your employees’ class from the policy based on the HRA you want to offer.
For instance, if you provide a QSEHRA, you must cancel any existing group policy in the first place. In case of ICHRA, you’re allowed to keep your group policy but ensure that the employees receiving the ICHRA are not eligible for the group plan.
Step 5: Create and Distribute Plan Documents
You need to generate legal plan documents and make them available to all your employees, including a plan document and a summary plan description outlining your plan details.
Step 6: Tell Your Employees About the HRA You Are Offering
It may be possible that most of your employees have never used an HRA earlier, so you need to clearly communicate the benefits of the HRA you are offering to them. Like, how it works and when it will start. Even if you opt for QSEHRA or ICHRA, you must provide the resources to help your employees purchase individual health insurance.
So when you setup HRA in QuickBooks, you can get benefits for health or medical expenses every month. Also, you can apply for reimbursement after adding the HRA (QSEHRA or ICHRA). However, if you are still in doubt or not so confident to go for it alone, immediately reach out to our customer service to be familiar with all the HRAs criteria.
Frequently Asked Questions
How Do I Account for Reimbursed Expenses in QuickBooks?
To account for reimbursed expenses in QuickBooks, you can follow these steps:
- Create an Expense Account for Reimbursements (Optional)
- Enter the Original Expense
- Create a Reimbursement Check or Bill
- Link the Reimbursement to the Original Expense
- Match or Link the Reimbursement Transaction
By following these steps, you’ll effectively account for reimbursed expenses in QuickBooks.
What is the Difference Between a Refund and a Reimbursement?
A refund and a reimbursement are related concepts, but they refer to different types of financial transactions:
- Refund: A refund is a repayment of money that is provided to a customer or client by a business or organization. It usually occurs when a customer returns a purchased item or cancels a service and is entitled to get their money back.
- Example: If a customer returns a defective product they purchased, the business might issue a refund to the customer’s credit card.
- Reimbursement: A reimbursement, on the other hand, involves repaying an individual or employee for expenses they have personally incurred on behalf of a company or organization. Reimbursements are usually provided to cover costs such as travel expenses, meals, mileage, supplies, or other business-related expenditures.
- Example: An employee travels for a business conference and pays for hotel accommodations and meals out of their own pocket. The company then reimburses the employee for these expenses.
How Do I Record Employer Paid Health Insurance in QuickBooks?
Recording employer-paid health insurance in QuickBooks involves setting up a payroll item and ensuring accurate tracking.
Here’s how you can do it:
- Set Up a Payroll Item for Employer-Paid Health Insurance
- Enter Employee Information
- Record Payroll Transactions
- Review Payroll Reports
- Pay Liabilities (Payroll Taxes and Health Insurance Premiums
Remember that the steps above provide a general overview of recording employer-paid health insurance in QuickBooks.