Paul Sanchez
Life insurance is a type of payroll item in QuickBooks that can be added to an employee's wages. It is important to use the correct tax tracking type when setting up life insurance in QuickBooks, as this will determine how the item affects tax forms and its taxability. This will also determine which taxes are automatically selected by QuickBooks. To set up life insurance in QuickBooks, you must first select 'Payroll Item List' from the 'Lists' menu bar, then select 'Payroll Item' and choose 'New Payroll Item'. Next, click 'Insurance Benefits' and follow the on-screen instructions, answering a series of questions based on the item type.
| Characteristics | Values |
|---|---|
| Type of account | Liability account |
| Account Type drop-down menu | Other Current Liabilities |
| Detail Type drop-down menu | Trust Accounts - Liabilities |
| Tax tracking type | Insurance Benefits |
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What You'll Learn
Recording life insurance premiums
Recording insurance premium transactions in QuickBooks can be done in several ways, depending on the nature of the insurance and the type of entity involved. Here is a detailed, step-by-step guide on how to record life insurance premiums in QuickBooks:
Firstly, it is important to note that the process of recording life insurance premiums in QuickBooks may vary depending on the specific circumstances and the user's QuickBooks plan. However, here is a general step-by-step guide:
- Create a Liability Account: Click on "Accounting" on the left pane, then select "Chart of Accounts". Choose "New", and from the "Account Type" drop-down menu, select "Other Current Liabilities".
- Detail Type and Account Name: From the "Detail Type" drop-down menu, select "Trust Accounts - Liabilities". Enter a name for the account, such as "Life Insurance Premium", or use the suggested name.
- Enter Balance and Save: Input the balance amount, which is the total policy premium quoted to you. Then, click "Save and Close".
- Record Payments: Create expense transactions using the newly created liability account. You can record the premium payments made to the insurance company.
- Increased Premium: If there is an increase in the premium amount, you can record it via a journal entry. Consult your accountant to ensure the transaction is recorded correctly.
- Cancelling the Policy: In case you decide to cancel the insurance policy, you will need to reverse the journal entry to zero out the balance of the liability account. This process requires the assistance of your accountant.
Additional Considerations:
- S-Corp Owner's Life Insurance: If you need to add life insurance premiums for S-corp owners to their wages, ensure that you consult appropriate resources or accounting professionals to accurately categorise and track these transactions in QuickBooks.
- Insurance Claim Payments: To record insurance claim payments received from the insurance company, navigate to Transactions and choose "Add Transaction". Input the date, description, and amount, then select "Business Insurance" and save. This will ensure accurate financial records, reflecting both claim income and associated expenses.
QuickBooks provides extensive support and resources to guide users through various scenarios involving insurance premiums and claim payments. It is always recommended to consult an accounting professional to ensure accurate and compliant record-keeping.
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Tracking life insurance premiums
Recording premium payments can be done by creating expense transactions using the account you just created. You can record the increased premium amount via journal entry, which can be checked by an accountant to ensure it is recorded correctly. If you decide to cancel the insurance, you will need to reverse the JE to zero out the balance of the liability accounts, which will also require the assistance of an accountant.
For S-corp owners, health and life insurance premiums must be added to their wages so that they appear on their W-2s. This can be done by choosing "Workers" on the left, then selecting "Employees", and clicking the edit icon beside "Pay". In section 3, select the edit icon, and enter the amount of the premium.
If you are tracking deductions as income, you can do so by adding another line in the check or bill transactions. Then, select the income account and enter the amount as negative. To create a check, go to the "+ New" menu, select "Check", and choose the payee. Under "Category Details", enter the details of the insurance on the first line, and on the second line, select the income account and enter the amount as negative. Click "Save and Close". To create a bill, follow the same steps, but select "Bill" instead of "Check".
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Adding life insurance to wages
To add life insurance to wages, you must first set up an S-corp payroll item. Here is a step-by-step guide on how to do this:
- Click on "Workers" on the left, then select "Employees".
- Click the edit (pencil) icon beside "Pay".
- Select the edit (pencil) icon in section 3.
- Select "Even more ways to pay employee", then choose "S-Corp Owner's Insurance".
- Add the recurring amount or leave it blank.
- Select "Done".
Once you have set up the payroll item, you can run payroll and enter the S-Corp amount. When you do this, company-paid taxes will increase both Expenses and Liability accounts. You should choose the Liability account when paying the insurance benefit, so it won't show up twice on the Profit & Loss report.
If you are using QuickBooks Desktop Payroll, you can also add insurance premiums as a fully taxable fringe benefit. To do this, you must follow these steps:
- Enter a name, such as "S-Corp Medical Insurance" and select "Next".
- Leave the fields as they are and select "Next" again.
- Click on the drop-down for "Tax tracking type" and select "SCorp Pd Med Premium".
- Click "Next" and do not make any changes on the "Taxes" page.
- Click "Next" again and leave the default set to "Neither".
- Leave the fields blank in the "Default rate and limit" and click "Finish".
Finally, perform a liability adjustment to ensure the premium is reported on the W-2. It is recommended to consult an accounting professional to ensure everything is tracked accurately.
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Selecting the right tax tracking type
When selecting the right tax-tracking type for life insurance in QuickBooks, there are a few key considerations to keep in mind. Firstly, it's important to understand the different types of insurance and how they are reported on tax forms. For example, health insurance and life insurance are typically treated differently for tax purposes.
In the context of QuickBooks, you can set up life insurance premiums as a taxable fringe benefit. This means that the premiums are added to the employee's wages and are fully taxable. This type of plan is supported in QuickBooks Desktop Payroll. To set this up, you can follow these steps: Go to the employee's profile and select the relevant section (usually Section 5). Click on the "+ Add deduction" link and select the appropriate options from the drop-down menus. You will need to choose "Deduction/contribution" or "Garnishment", followed by "Deduction/contribution type: Health Insurance" and "Type: Medical Insurance". You will then need to enter the provider and the amounts for both employee and company-paid fields. Finally, select the "Pre-tax insurance premium" option.
It's important to note that the specific steps may vary depending on the version of QuickBooks you are using. For example, QuickBooks Online and QuickBooks Desktop have slightly different interfaces and processes. Additionally, the tax treatment of life insurance premiums may depend on whether they are paid pre-tax or post-tax. If the premiums are paid pre-tax, the taxes are calculated on the reduced salary amount, resulting in lower income tax. On the other hand, if the premiums are paid post-tax, the taxes will be calculated on the full salary amount.
Furthermore, when running payroll, it's important to consider the impact on Expense and Liability accounts. Selecting the Liability account when paying the insurance benefit will prevent it from appearing twice on the Profit & Loss report. Additionally, payroll liabilities include the money paid to employees, any withholdings from their paychecks, and payroll expenses incurred by the employer.
Lastly, it's always recommended to consult an accounting professional to ensure that everything is tracked accurately. QuickBooks offers a ProAdvisor service where you can connect with experts in your area for guidance and support. By following these steps and considerations, you can select the right tax-tracking type for life insurance in QuickBooks and ensure accurate reporting and compliance.
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Paying life insurance benefits
To pay life insurance benefits, you must first set up a liability account. To do this, go to the "Accounting" tab on the left pane of your QuickBooks dashboard and select "Chart of Accounts". From here, you can select "New", and from the "Account Type" drop-down menu, select "Other Current Liabilities". From the "Detail Type" drop-down menu, select "Trust Accounts – Liabilities". Name the account and enter the balance amount. Then, record the payments by creating expense transactions using the account you just created.
You can also record insurance premium payments by creating a journal entry. To do this, go to the "Accounting" tab and select "Journal Entries". From here, you can create a new journal entry and select the appropriate account type and detail type. Enter the payment amount and date, and then select "Save".
It is important to note that the process for recording insurance premiums may vary depending on the specific circumstances and the version of QuickBooks being used. For example, if you are using QuickBooks Online Payroll, you can access health insurance, 401(k), and workers' comp plans. Additionally, if you are adding S-corp owner's health and life insurance to wages, you will need to choose the Liability account when paying the insurance benefit to avoid it showing up twice on the Profit & Loss report.
Furthermore, if you are dealing with premium tax credits, it is recommended to consult an accounting professional to ensure that everything is tracked accurately. Additionally, Medicare choices or benefits will not be affected by the Health Insurance Marketplace, while Social Security benefits are counted as income when determining eligibility for premium tax credits.
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