Benefit Setup-U.S. Company


Active Member
Hi all
I am a Canadian guy who needs information in order to setup the benefits for an American affiliate. The company has flex spending accounts (medicare) & some self-insured plans.
I am trying to determine how to set up the chart of accounts in order book the expenses/liabilities related to these self-insured plans, as well as how to actually set up the benefit plans. How do American companies set up their self-insured plans through payroll?
My Canadian setup was relatively simple, as all of our benefit plans have premiums attached to each DBA; therefore it creates a voucher for each carrier right from the DBA setup.
My biggest impediment right now is the fact I am Canadian-we are so used to global medicare-not much self-insurance. LOL
As always, any help would be appreciated.

Brian Getty, CGA
Kinross Gold-Timmins Operation
WorldSoftware A7.3 Cum 11/Coexistence X3 V4R5


Reputable Poster
Hi. From a payroll perspective, you are only really concerned with what
the employee is paying for medical insurance. Most companies do the
employee share of medical insurance through a Section 125 plan, which means
that the employee deduction amount is basically a tax free amount. For
example, if an employee earns $50,000 a year and has deducted $500 in the
year for medical insurance, you report to the federal government taxable
wages of $49,500. Section 125 of the U.S. internal revenue code also covers
medical expense reimbursements and dependent care cost reimbursement.
Medical expense reimbursement is totally different from medical insurance.
For example, let's say the company medical insurance does not cover eye
examinations. The employee can get an eye exam and then apply for
reimbursement for his payroll deduction - basically paying for the exam with
tax free money.
You need a system that is flexible enough to say that these employee
deductions are taxable or nontaxable for each government entity/tax type.
Not all state governments follow federal law, so section 125, being tax free
for federal, might not be tax free on the state/city level.
From a payroll accounting perspective, you debit cost for the employee
cost. You credit the bank account for the employee net pay. The section
125 deductions are credits, and it depends on the company where you want it
to go. Usually the medical insurance deduction is an offset to the medical
insurance premium cost paid by the company to its medical insurance
provider/administrator/self insured plan. The medical expense and dependent
care reimbursements are liabities. As employees apply for reimbursment, you
will credit cash and debit the liability account. Money not paid out can be
reclaimed as income to the company (have to wait for all reimbursement
applications to be processed) though there is talk of allowing carry over to
the next year. I would set up a separate liability account for medical
expense reimbursement and for dependent care cost reimbursement myself.
The medical insurance amount is set by the company based on the
coverage type the employee has (single, family, married, etc.). The expense
reimbursement amounts are what the employee asks for. For example, if paid
each week and the employee applies for a $520 withholding, withhold $10 per
week each week.
That is a very quick overview. Hope this helps some.

John Dickey
(314) 577-1466