How to set up health insurance deduction in QuickBooks

How to set up health insurance deduction in QuickBooks

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How to set up health insurance deduction in QuickBooks

How to set up health insurance deduction in QuickBooks

To use EZ set up to build an insurance benefit object, follow these steps:

  • Select Lists > Payroll Item List from the drop-down menu. 
  • Select New from the Payroll Item drop-down menu.
  • Tap Next after selecting EZ Setup.
  • Follow the setup directions onscreen, which will ask you to answer a series of questions based on the item type.

Please Note that Intuit suggests that you update a payroll item after you’ve created it to make sure you’ve entered all of the required details. There are Help topics on the right side of each screen to assist you with setup.

To build a custom setup for an insurance benefit item:

  • Select Payroll Item List from the Lists drop-down menu. Select New under Payroll Object.
  • Choose Next > Custom Setup.
  • Select Next after choosing Deduction.
  • Select Next after giving the object a name. On pay stubs and payroll records, this is the name that shows up.
  • For the employee-paid liability, enter the Agency, and for the payroll object, enter the account number and liability account. Next should be clicked.
  • Pick the appropriate Tax Tracking Form from the drop-down menu. Next should be clicked.

Please note that for post-tax health insurance deductions, the Tax Tracking Form is Zero, and for pre-tax health insurance deductions, the Tax Tracking Type is Premium Only/125. To find out if the item is taxable, contact the Health Insurance Administrator. To decide the Tax Tracking Form for Health Savings Accounts, Flexible Spending Accounts, or S Corp Medical, click the links below.

  • Select Next without adjusting any of the taxes in the Taxes pane.

Please note that QuickBooks Desktop automatically selects the required taxes. Making no improvements to them.

  • Select Neither in the Calculated Based on Quantity window and click Next.
  • If the sum of the deduction is a percentage (percent) of the employee’s gross earnings, choose Gross in the Gross vs Net section. If the number is a fixed dollar amount, select net. If the measurement differs from one employee to the following, different things must be produced. An item’s taxability is determined by the tax monitoring form chosen rather than the gross vs net estimate.
  • Only use a default rate if all workers’ health insurance premiums are the same.
  • Finish by clicking the Finish button.
  • Add the item to the required employee profiles and assign each payroll deduction a dollar sum.

Health Category of Insurances

  • Health Insurance (Section 125) (pre-tax)
  • Dental Insurance (125) (pre-tax)
  • Other Premium Only Plan 125 (pre-tax)
  • FSA 125 (Medical Care) (pre-tax)
  • 125 – FSA for Dependent Care (pre-tax)
  • Health Care Coverage (taxable)
  • Dental Coverage (taxable)
  • Insurance for your eyes (taxable)
  • Some Types of Employer-Sponsored Insurance (taxable)
  • Medical benefits for officers or 2% owners are taxable group term life medical benefits (S Corporations only)

Please note that if you’re unsure what kind of insurance plan you have, contact your insurance company’s plan administrator.

How to set up a section 125 health insurance (Cafeteria Plan)

Section 125 of the cafeteria There are no plans for any of the W-2 boxes. The IRS does not require this information. Some payroll applications will place this on Box 14, but Intuit has opted not to. 

  • Select Lists > Payroll Item List from the drop-down menu.
  • Select Payroll Item > New from the drop-down menu.
  • Select Custom Setup > Next from the drop-down menu.
  • Select Deduction > Next from the drop-down menu.
  • Select Next after giving your payroll item a name (for example, 125 Health Insurance Plan).
  • Enter the plan company’s or agency’s name, as well as an identification number (for example, a plan or account number).
  • Choose the liability account where you’d like to keep track of the deduction until it’s paid.
  • Next should be picked.
  • Select Next after selecting Premium Only/125 as the Tax tracking form.
  • Unless you’ve been told otherwise by a tax advisor, accountant, or the cafeteria plan administrator, use the default tax setup.
  • Select Next, and select Next again  (For this item, calculating based on quantity is usually unnecessary.)

Please note that if you use the Premium Only Plan (POP) under section 125 of the IRS code, the default tax setup is only correct. An employee can use pre-tax dollars to pay for benefits. To make sure you apply, consult with your plan administrator or an accountant.

  • Join such values if any of the workers would have the same deduction rate and annual cap. Leave the fields blank if you don’t know what you’re doing.
  • Tap on the Finish.
    • To each eligible employee’s record, add the object.
    • Choose Employee List from the Lists menu.
    • Open the Edit Employee window by double-clicking an employee’s name.
    • In the section entitled “Additions, Deductions, and Business Donations,” write:
      • To pull up a drop-down list, pick under Item Name.
      • Select the latest Section 125 Plan payroll item(s).
      • For each pay cycle, enter the sum that needs to be deducted or added to the paycheck.
    • Choose OK.


To conclude, QuickBooks Desktop software is such a good software that allows you to setup health insurance deduction in your accounting software. I hope this blog helps you understand that how can you set up health insurance deduction in QuickBooks Desktop software. 

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