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    Set up a Section 125 Health Insurance (Cafeteria Plan)

    Article ID: 1000516


    You want to to set up a Section 125 Health Insurance (Cafeteria) plan payroll item.

    Expected Outcome

    You will have a Section 125 Heath Insurance payroll item.


    You have set up a health insurance plan with a provider.


    To set up a Cafeteria Plan Employee payroll item with Custom Setup:

    From the QuickBooks Desktop Lists menu, choose Payroll Item List. Click the Payroll Item button at the bottom of the window, and choose New.

    Select Custom Setup, and then click Next.

    Select Deduction, and then click Next.

    Enter a name for your payroll item (for example, 125 Health Insurance Plan), and then click Next.

    Enter the name of the plan company or agency, and enter an identifying number (for example, a plan or account number).

    Select the liability account where you want to track the deduction until payments are made.

    Click Next.

    Select Premium Only/125 as the Tax tracking type, and click Next.

    Use the default tax setup unless a tax adviser, accountant, or your cafeteria plan administrator has instructed otherwise.

    Click Next, and click Next again. (Calculating based on quantity is generally not needed for this item.)
    Note: The default tax setup is only valid when you use the Premium Only Plan (POP), under section 125 of the IRS code. This allows an employee to pay for insurance with pre-tax dollars. We recommend checking with your plan administrator or an accountant to be sure you qualify

    If most of your employees will have the same deduction rate and annual limit, enter those values. Otherwise, leave the fields blank.

    Click Finish.

    Add the item to each qualified employee record.

    1. From the Lists menu, choose Employee List.
    2. Double-click an employee name to open an Edit Employee window.
    3. Click the Payroll Info tab.
    4. In the Additions, Deductions and Company Contributions section:
      1. Click under Item Name to bring up drop-down list.
      2. Select the new payroll item(s) for the Section 125 Plan.
      3. Enter amount that needs to deducted or added on paycheck for each pay period.
    5. Click OK.

    To set up a Cafeteria Plan company payroll item with Custom Setup:

    1. Choose Lists > Payroll Item List.
    2. Click the Payroll Item button, and select New.
    3. Select Custom Setup > Next.
    4. Select Company Contribution and click Next.
    5. Name the item and click Next. This name appears on pay stubs and payroll reports.
    6. Enter the Agency for the employee-paid liability, and the account number, the Liability account, and the Expense account for the payroll item. Click Next.
    7. Click Tax Tracking Type and select the type required for the correct tax classification. Click Next.
      Note: In most cases, the Tax Tracking Type is None. Contact your Health Insurance Administrator to determine the taxability of the item if you are unsure.
    8. In the Taxes window do not change any of the taxes and click Next. Note: QuickBooks Desktop auto-selects the correct taxes. Do not adjust them.
    9. In the Calculated Based on Quantity window, select Neither and click Next.
    10. In Default rate and limit, enter a default rate only if all employees pay the same amount for health insurance. If the item has an upper limit, enter the amount in the bottom box.
    11. Click Finish.
    12. Add the item to the appropriate employee profiles and enter an amount for each payroll deduction.

    To set up a Cafeteria Plan employee and/or company payroll item with EZ Setup:

    From Lists on top menu bar, click Payroll Item List.

    Select Payroll Item, and click New.

    Select EZ Setup, and click Next.

    Select Insurance Benefits, and click Next.

    Select the insurance item you want to setup on the list.

    Follow the onscreen setup instructions, which prompt you to answer a series of questions based on the item type to create employee and/or company payroll items.

    Important HIPAA information: Each healthcare practice is responsible for ensuring compliance with HIPAA and all applicable laws. We encourage healthcare providers to consult with legal counsel regarding their company's individual information practices and how to comply with HIPAA and any other applicable laws.

    Cafeteria Section 125 Plans do not appear on any box of the W-2. The IRS does not require this information. Some payroll services will put this on Box 14; Intuit has chosen not to do this.

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