Let’s assume that the cost of an employee’s health insurance is $300 per pay period and that the employee is responsible for paying 25% of that cost through payroll withholding. One way to handle the withholding is to credit Health Insurance Expense for the $75 (25% of $300) withheld from the employee. The company will then debit Health Insurance Expense for the full insurance billing of $300. This will result in $225 being reported as the company’s health insurance expense for that pay period.

An alternative would be to credit a liability (e.g., Employee Withholdings for Insurance) for the $75 withheld from the employee. When the company pays the insurance bill of $300, it will debit the liability account for $75.

Under either method, the company’s expense is $225 per pay period.

Learn more about Payroll Accounting.

About the Author: Harold Averkamp (CPA) has worked as an accountant, consultant, and university accounting instructor for more than 25 years.

He is the creator of the AccountingCoach Pro which has been praised for its ability to simplify accounting in a way that anybody can understand.

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