If your employees pay a portion of the cost of their health insurance premium, you normally deduct the employee’s share from his payroll check and record those payroll deductions in your accounting general ledger. Your business pays the total cost of coverage to the insurer once a month and posts the entire expense to the accounting general ledger. You need to create a journal entry for the payroll deductions to offset the total cost of the health insurance premium paid.
Record the net payroll amount as a decrease to the business checking account or business payroll account, if you use a separate bank account for issuing payroll checks. The net payroll amount is the total amount of all checks issued for payroll.
Record the gross payroll amount as an increase to the salaries expense account. The gross payroll amount is the total amount of payroll before you take any deductions for taxes, insurance or garnishments.
Record the total amount of taxes withheld from the payroll checks as an increase to the appropriate payroll taxes payable general ledger account. Common taxes withheld from payroll checks include Social Security, Medicare/Medicaid and federal withholdings. Those expenses are recorded in the payables account because you will remit the amounts to the appropriate tax collecting agencies, such as the Internal Revenue Service.
Record the total amount of health insurance premiums withheld as a decrease to the health insurance expense account. That entry will reduce the total cost of the health insurance premium paid by the amount of premium deductions withheld from the payroll checks, properly reflecting the actual business expense on the accounting general ledger and income statement.
If you are not certain how to record payroll entries or set up general ledger accounts for health care premium expense, hire an accounting professional to assist you with general ledger setup and to explain how to properly allocate payroll expense to the general ledger.
Many payroll software packages allow you to assign general ledger account numbers/names to each aspect of payroll, such as gross payroll and Social Security withholdings, and can provide a report that lists the specific accounts and total amounts to post to each account after you process payroll. Setting up this option if it is available will save you time and mistakes in the long run.
- “Principles of Accounting”; A. Douglas Hillman, Richard F. Kochanek, Corine T. Norgaard; 1991
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