How would a business account for health insurance premiums paid by the employee? For instance, if an employee earns $150,000 and the health insurance contribution by the employee is $12,000 for the year, would you use that to reduce the salary of the employee on the books, or simply reduce the health insurance deductions?

ANSWER

The BIDaWIZ Team's Answer:

You would show the gross salary as a payroll expense (debit) and then offset it with health insurance payments, tax liability accounts and the actual cash payment. You would have a health insurance payable account to include the health insurance payments made by the employee. When the premium payment is made, the liability account would be reduced.

Please also note that Box 1 per the W-2 (excludes non-taxable premiums) and the gross pay per your books are two different figures

References: IRC Section 105(a)(1); IRS Publication 502
State: New York