Health Reimbursement Arrangement (HRA) is a beneficial program. It allows you to get flexible and affordable health benefits designed for employers and employees. With an HRA, employers can provide a monthly allowance for health insurance and medical expenses to the employees. In addition, you receive a cost-controlled option for every month’s budget while your employees can meet their health care requirements. If you are new to such a thing, find out how to set up HRA in QuickBooks Desktop and Online.
The comprehensive guide will show the procedure of setting up HRA in QuickBooks (including QSEHRAs and ICHRAs) in both QuickBooks Desktop and Online.
Learn about HRA in QuickBooks
In QuickBooks, there are different types of HRAs such as QSEHRA and ICHRA. Each type of HRA provides different health benefits for employers and employees depending on the size of the organization.
- QSEHRA: Qualified Small Employer Health Reimbursement Arrangement (QSEHRA) is designed for employers with 50 full-time employees. With this type of reimbursement, your full-time employees can participate regardless of their insurance status. The allowance of QSEHRA amount is covered at a certain annual limit so that no employer can reach more than the maximum limit to the employees. However, QSEHRA does not set any minimum limit so you can select any amount to offer to the employees as long as you are not crossing the maximum amount allowance.
- ICHRA: This is a type of reimbursement that can be used by organizations that may include any size of the organization. ICHRA provides stand-alone advantages to the employees. You can use this option for employees based on different classes who are not qualified for the group health plan such as seasonal workers or part-time. Please note that there is no annual limit for the amount allowance so you can offer any amount that could go more than the QSEHRA among allowance limits.
QSEHRA and ICHRA are not taxable. Hence, these tax-free reimbursements do not appear on the payroll tax or any other tax reports. If you are planning to set up the HRA (QSEHRA and ICHRA) in QuickBooks Desktop and Online, continue reading the information.
How to Set Up QSEHRA in QuickBooks Desktop?
To set up the Qualified Small Employer Health Reimbursement Arrangement (QSEHRA) in QuickBooks Desktop, you are required to set up the new payroll item. Thereafter, you can add the necessary liability adjustments to the new QSEHRA. Here, we will show the whole procedure. Pursue the following setting up HRA in QuickBooks:
Add New Payroll Item for QSEHRA
- Launch “QuickBooks Desktop”.
- Then, click on the “Employees” menu.
- After this, select the “Manage Payroll Items” option.
- Now, click on the “New Payroll Item” option.
- Click on the “Custom Setup” option.
- Press the “Next” button.
- Here, click on the “Company Contribution” option.
- Hit the “Next” button.
- Add the name for the new payroll item. Here, you should enter a unique name. Please note that the same name will display on pay stubs, employee pay vouchers, and payroll reports.
- Press the “Next” button.
- At this point, you can skip the agency information like this only for tracking and reporting items, not for liability items.
- Now, you can choose the arrow located next to the “Liability account” option.
- After this, click on the “Add New” button.
- In an “Add New Account” window, select the “Other Expense” as an “Account Type”.
- Then, add a new “Account Name” such as “Reportable Qual. Small ER HRA”.
- Press the “Save & Close” button.
- Now, you can click on the drop-down menu located next to the “Expense account” option.
- Then, choose the account that you created above.
- Go with the “Next” button.
Note: If you want to create several payroll items to track the QSEHRA payments then you can continue using this account for both expense and liability accounts. Setting both the accounts (expense and liability) the same creates a “wash” item. This shows the “Zero” amount on the Profit and Loss statements which will allow tracking the QSEHRA payments for W-2 reporting purposes without numbers that are affecting the financial reports.
- When you see the message showing you have set the expense and liability account to the same account, click on the “Yes” button to avoid it.
- Now, choose the “Tax Tracking Type” arrow and choose the small tax tracking type such as “Qual. Small ER HRA”.
- Press the “Next” button.
- Click on the “Next” option again to accept the tax settings.
- On the “Calculate” based on quantity screen, hit the “Next” button to allow the default settings.
- When you are on the “Default rate and limit page”, click the “Finish” button to accept the default settings.
Now onwards whenever the amount is tracked with the new tax tracking type, it will be reported on Box 12 of Form W-2 code FF. Please note that the above steps are discussed for the non-taxable payment. Although most reimbursements linked with QSEHRA are not taxable, one kind of reimbursement needs to be taxed.
Adjust Payroll Liabilities to QSEHRA Payroll Item
- Click on the “Employees” menu.
- Click on the “Payroll Taxes and Liabilities”.
- Select the “Adjust Payroll Liabilities” option.
- Here, you can add the relevant date and make sure you add the same date as mentioned in the “Effective Date” field.
- After that, click on the “adjustment is for Employee”.
- Now, select the drop-down menu and choose the employee whose amount you want to adjust.
- Select the drop-down menu located under the column of “Name”.
- Once done, click on the “Qual. Small ER HRA” as tax tracking type.
- Add the amount for the adjustment. If you want to increase the cost then enter the amount as positive numbers. But, if you require to decrease the costs then add the amount as a negative number.
- At this moment, you can skip the “Income Subject to Tax” and “Wage Base” columns.
- If preferred, you can add a description for the liability adjustment in the column of “Memo”.
- In case you wish to add more adjustments for other employees, you can click on the “Next Adjustment” option and add the required details.
- Press the “OK” button to finish the process.
As you follow these steps, the details will be saved for the liability adjustment to the new QSEHRA. Now you have learned the whole procedure of setting up HRA in QuickBooks.
How to Set Up HRA in QuickBooks Online?
In QuickBooks Online Payroll and Payroll Full Service, you can set up the HRA (QSEHRA or ICHRA) for your employees. In the following discussion, we will show you to set up both taxable and tax-free reimbursement in QuickBooks Online.
Record Tax-Free QSEHRA and ICHRA Reimbursements
To add the QSEHRA and ICHRA tax-free reimbursements, you just have to select the name of your employee from the Employee section and add the additional pay types for reimbursement. To know more, you can pursue the following detailed steps:
- Navigate to the “Workers” menu located on the left.
- Then, select the “Employees” option.
- Now, click on the name of the employee for whom you want to set up the reimbursement.
- After this, you can click on the “Pencil” icon to edit the details. This option must be located beside the “Pay” option.
- Here, you can choose the “Add additional pay types” from the “How much do you pay” section.
- Then, choose the “Even more ways to pay” drop-down menu.
- Once done, click on the “Reimbursement” option. At this point, you can enter the recurring amount in the field or you can add it when running the payroll. Besides that, you can rename the pay type such as “ICHRA Reimbursement” or “QSEHRA Reimbursement” by clicking on the pencil icon located near the “Reimbursement” option.
- Click on the “Done” button.
By implementing these steps, you can set up the ICHRA and QSEHRA in QuickBooks Online Payroll and Payroll Full Service. Now whenever you prepare a paycheck for your employee, you will see the Reimbursement item in the Pay column. Thereafter, you can do the following:
- You can add the reimbursement amount in to add it to the paycheck of your employee.
- If required you can change the amount every month especially when the reimbursement amount won’t be fixed each month.
- When the reimbursement is successfully added then you can assign it to another employee.
After you assign the reimbursement to your employee, you can verify the accounting preferences to be sure that it is posted correctly in the appropriate account for export purposes.
Record Taxable Reimbursements for QSEHRA Only
Although most reimbursements linked with QSEHRA are not taxable, one kind of reimbursement needs to be taxed. Taxable reimbursements are usually reported as income and they are taxed as regular Wages and payroll taxes withheld. When needed you can add this by setting a type as “other earning” for each of your employees with the taxable reimbursements.
Now, if you want to add the Other Earning pay type for the selected employee, you can go through the following steps:
- Click on the “Employees” menu located on the left.
- Then, select the employees’ name whom you want to pay.
- After this, click on the “Edit” button to update the employee details.
- Here, you can click on the “Pencil” icon from the “How much do you pay” section.
- Then, choose the “Other Earnings” checkbox.
- Once done, enter the amount in the field.
- Besides that, you can rename the pay type such as “QSEHRA Reimbursement” by clicking on the pencil icon located near the “Reimbursement” option.
- If you wish to add more earning pay types, you can click on the “Add other earnings type” option and add the details.
- Click on the “Done” button.
This is how you can record the Other Earning for your employees. If you want to track, QuickBooks has a unique code for QSEHRA reimbursement. Please note, it won’t cause the money transfer to happen but it will populate QSEHRA reimbursements automatically on the employees’ W2s at the end of the year. Also, remember that what you send on the W-2 for QSEHRA is the amount that is offered not claimed. This will appear on Box 12, Code FF.
Setting up HRA in QuickBooks can serve you numerous benefits for health or medical expenses on a monthly basis. By adding the HRA type such as QSEHRA or ICHRA, you can apply for reimbursement. To make you aware of HRA criteria, we have shown here how to set up HRA in QuickBooks Desktop and Online. Read the guide carefully and apply reimbursements.
If you want to set up HST or recurring invoices in QuickBooks, check out the following links to know the details: