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I"m not sure how to book a insurance refund check we

Hello, I"m not sure how...
Hello, I"m not sure how to book a insurance refund check we received due to an employee being over charged. We use Quickbooks. I have already ran the reimbursement through payroll and paid the employee back but now need to deposit the actual check from Insurance and don't know what account to deposit it to.
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Answered in 3 minutes by:
3/14/2018
Kelly McGlynn
Kelly McGlynn, Certified Public Accountant (CPA)
Category: Finance
Satisfied Customers: 30
Experience: President at Exceptional Bookkeeping Inc.
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Hello. Thank you for your question. I'm Kelly and am here to help you today. I am reviewing your question and will be with you shortly.

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When you wrote the check back to the employee you should have debited some kind of receivable account, for example insurance refund receivable. Now that you have received the check from the insurance, you would credit that same account bring the account balance to 0.

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Customer reply replied 1 month ago
Hmm-I ran it through payroll as wages to capture the taxes that needed to be paid on it so Im not sure of debiting some sort of receivable account

Okay, when the employee originally paid these premiums they were withheld from their paycheck correct?

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Customer reply replied 1 month ago
That is correct.
Customer reply replied 1 month ago
It was a pre tax premium he was over charged for his wife

So, if it was pretax, it didn't affect his taxes, so it was withheld to reduce his net pay and credited to some kind of liability account that would need to be paid to the insurance company. His gross wages should not change.

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Customer reply replied 1 month ago
Wouldnt it reduce his taxable income and affecting his withholding amounts?

Sorry about that, when you said you ran it through payroll as wages, I thought you meant that you added it to his wages which it should not be. There would be a difference in withholding due to the change that would be reported as his federal income tax. Then he should receive the net of the refund amount less that withholdin amount. However, there should still be some kind of receivable from the insurance company. For example, let's just use simple amounts and say the refund is $100 and he pays 15% tax. You would have a receivable from the insurance company for $100, $15 payable for federal taxes and the remaining $85 would have gone to the employee. Then when you received the $100 it would go to the bank and reduce the receivable.

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Customer reply replied 1 month ago
Oh shoot-I'm not sure that was handled correctly then.I received direction to run it through payroll to capture the correct taxes that should have been paid. He was overcharged over an entire year (2017) and rather than re file, correct w-2 etc, we ran the reimbursement through payroll as though it were additional wages. This allowed us to correct for the amount of wages that should have been taxed initially for WH purposes, and then pay out the remaining balance by way of a paycheck.

Are you using QuickBooks?

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I'm trying now to think how in QuickBooks to fix it and keep his wages correct.

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I think the easiest way to fix it since you know the tax amount now, would be to just delete the payroll check that was created. Then create a regular check (that you obviously won't give the employee) that debits a receivable, credits the payroll tax liability and is the correct net amount that he received. Does that make sense?

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Customer reply replied 1 month ago
okay-i really appreciate it. This is pretty tricky for me in that I had to recapture WH taxes that were not paid that should have been due to the understated taxable amount from over paying the pre tax insurance premiums.

Right. So I think at least by putting it in payroll it calculated the taxes for you and then you can just enter a regular check so it does not show as income to the employee. I hope I was able to answer all of your questions. If you need more help, please reply to continue our conversation. If you do not require further assistance, your 5 star rating is greatly appreciated. Thank you.

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Customer reply replied 1 month ago
If I ran the reimbursement through wages, won't it show up as income? Or are you talking about the reimbursement check deposit I need to make?
Customer reply replied 1 month ago
Because for the wages, I ran a unscheduled payroll in the amount of the check to get him the cash he should have.What is pending is what account to deposit the actual check from insurance to.

Since you already did the payroll check, I would go back and delete that check completely. That way it won't be included in his wages. Then create a regular check with the same amounts but do not post the total to wages. Post the total overpayment to a new receivable account, show the taxes as a payroll liability and the net check should equal what the employee was given. Now when you deposit the check received from the insurance company, you will credit that receivable account which will zero it out.

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Customer reply replied 1 month ago
I guess I don't understand why it would be part of his wages-isn't the reimbursement essentially wages that he would have normally had if not for being overcharged for the premium? Also, he has already been paid-if that matters...

When the payroll was originally recorded, gross wages should have been recorded. That doesn't change. If for some reason gross wages was not recorded then that is a difference story. His net pay would have been decreased by the withholding that was to be sent in for insurance. That would not affect his gross wages. Now, it is discovered that his net pay should have been higher. This does not change his gross pay which is what is recorded at the time of payroll. So he needs to refunded the difference between what he overpaid the insurance company by, minus that taxes that would have been withheld on that amount. Again, none of this changes his gross wages.

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Customer reply replied 1 month ago
Okay- so how should I have taken care of the amount that was supposed to be withheld but wasnt?
Customer reply replied 1 month ago
Also, he has already been paid-can I still delete that paycheck?

Okay, I just did this in my QuickBooks to see if it would work because I wasn't sure. You should be able to go into the paycheck that you created and edit it. In the earning area, create a new item name. You can name it insurance overpayment. When you add it, QuickBooks should ask you what account you want to track the expenses. You can choose an assets account here. So you can have it coded to a receivable account rather than an expense account. You will probably have to override the federal tax withholding to be what you calculated. That way, it should not show any additional wages for the employee but with show the additional withholding and include it in your payroll liabilities.

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Customer reply replied 1 month ago
okay-let me try this. What sould the new payroll item be?

Do you mean the name? I would just name it insurance overpayment.

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Customer reply replied 1 month ago
No-when I go to create a new payroll item have to pick what type of item it is: Wages, Salary, Commission or Bonus
Customer reply replied 1 month ago
Screen shot

Oh, that one shouldn't really matter since we're not going to actually have it associated with a payroll account so I would just pick salary.

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Customer reply replied 1 month ago
Can I pick an "oTher current asset" account? If so, I have a "Receiveable from Employees" account set up othersie everything else I have doesnt really fit.

Yes, you can. The description is not really correct, but you're going to just zero it out with the deposit anyway so it doesn't really matter.

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Customer reply replied 1 month ago
okay-I have that set up. What should I put for the amount?

The total amount of the refund coming from the insurance company.

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Customer reply replied 1 month ago
Okay-the amount of the check was $5,902.25. I've entered that under insurance overpayment. Should I clear out salary then and do I need to add a WC code?

Yes clear out salary, and manually enter the withholding that was originally calculated when you did the employee paycheck so that the net check will be the same as the one you gave to the employee.

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Customer reply replied 1 month ago
okay-all the withholding amounts acutally stayed the same and the net check is for the same dollar amount as the original.
Customer reply replied 1 month ago
What's next?

okay, save it!!!!! :)

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Customer reply replied 1 month ago
yup-saved! Now do I deposit the check to the account I linked the payroll item to?
Customer reply replied 1 month ago
I got the "Quickbooks lets you do this but its not a good idea"
Customer reply replied 1 month ago
Also, I did not take out and health or dental insurance (pre tax) from the paycheck. Only Fed WH, SS and State WH. Is that correct?

The warning is fine. It thinks you're changing wages so it will warn you. Yes that should all be correct. Now you can go in to make deposits and deposit the check into the bank and choose the receivable account that you used on the "paycheck".

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Customer reply replied 1 month ago
okay-should I use the vendor name for "Received from?" Or something else?
Customer reply replied 1 month ago
Then what do you suggest as the memo?
Customer reply replied 1 month ago
Ha-sorry. And do I need to back date it at all? Or should I just use today?

You can use the vendor name. That is fine. I would include something like overpayment of employee insurance premiums less applicable payroll taxes for the employee check and just refund of employee paid insurance premiums for the deposit. I would date the check the same day it was before, when you gave it to the employee and whenever you actually make the deposit is good for the deposit.

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Customer reply replied 1 month ago
The paycheck date is the same. I'm talking about the date of the deposit of the check received from the insurance company.

I would date that the date that you actually deposit the check into the bank.

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Customer reply replied 1 month ago
okay-that will be tomorrow so I'll do that. Is there a way to check to make sure this all panned out the way it should have?

You could use a payroll summary to verify that his wages are correct and are not including any of this reimbursement. Also, when you go to pay liabilities, those amounts should be listed there as well.

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Customer reply replied 1 month ago
The insurance overpayment now shows up as a line in my payroll summary and is being counted as his gross pay. I don't think that is correct.
Customer reply replied 1 month ago
Screen shot of paycheck detail after edit and payroll summary report.

Well I was hoping by not attaching it to a payroll expense account that it would not be included since it was recording it correctly on the income statement and balance sheet. Let me try something. I will be right back.

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Customer reply replied 1 month ago
okay-thank you!!

Now it's driving me crazy. It makes perfect sense from an financial standpoint and it works on the balance sheet and income statement, but QuickBooks payroll module and it's lists are treating it differently................

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Customer reply replied 1 month ago
Can we do an adjusting JE possibly?

I don't think so because the 'insurance overpayment' isn't an account, it's item. This is where QuickBooks gets confusing. If I am correct, that 5902.25 will not show up anywhere on the income statement. But it's in wages in the payroll reports. Have to figure out how to back it out of there without affecting the balance sheet or income statement.

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Customer reply replied 1 month ago
Ohh I see what you mean-that is difficult. Could we edit the paycheck so it only includes the liabilities and then create a check in the amount of the reimbursement and pay using the vendor account we have set up for the employee that is used for expense rerport reimbursement?

If you go into the payroll section and click on payroll items, are you able to edit the insurance overpayment item?

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Customer reply replied 1 month ago
Ahh possibly. I was on remote connection to my computer hosting QB and lost it-I'll need to go into the office to regain access. If I can edit-what did you have in mind?

I'm not sure. I'm trying play around with it in my QB, but everything I try still wants to put it on the income statement. It doesn't look like you can change the type of item from compensation to something else. I think we would have to add a new one and try it that way.

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Okay, I found way that think it will not be tracked on tax forms.

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I think we can add a new item, change the check to choose that item and I think it will be fixed. We can then delete the original item we added so it's not there for no reason. Let me know when you're ready.

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Although now I'm wondering something else.................... this just gets more and more interesting. Again for financial purposes, his wages should have been recorded at gross at the time of the regular paydays. However, for tax reporting, the pretax amounts would not be included in gross wages. So I think for your 941's, W-2, etc. for 2018, the gross wages would need to be there. Does that make sense????

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Customer reply replied 1 month ago
I should have access in a bit here...RE: Gross Wages- I believe earlier you were saying that this reimbursement was already part of gross wages so that would not change. However, for our liabilities rates to tie out, I do think the reimbursement needs to be there. Also, I'm not sure what impact it has that this took place over the prior two years but the correction is taking place in 2018.

Right, because of all of this, I actually think we are good the way it is. It's not recorded on the income statement because it should have been recorded last year in gross wages, however, it will be reported on the 941's since we are now paying the tax on it. Technically, you would go back and amend but to run it through current year, this is how it has to be done I believe.

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Customer reply replied 1 month ago
Okay, right, I made the call to not go back and amend filings every month this was impacted. I am okay with that because at the time of the filing, the amounts were known to be true. I also think there is a limitation on how far back you can go. Like I said, this took place over two calendar years.

Yes, that's a lot to amend. I do think you are good the way it is now.

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That was fun!! I'm glad I got your question. It really made me think. If you need more help, please reply to continue our conversation. If you do not require further assistance, your 5 star rating is greatly appreciated. Thank you.

Kelly McGlynn
Kelly McGlynn, Certified Public Accountant (CPA)
Category: Finance
Satisfied Customers: 30
Experience: President at Exceptional Bookkeeping Inc.
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Customer reply replied 1 month ago
I really appreciate your help in this. To clear up one thing, for my WH amount I can just use my payroll summary and include normal payroll plus this transaction and my amount withheld will be correct for filing purposes, correct?

Correct.

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Kelly McGlynn
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Category: Finance
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