USA FSA journal entries

[cramirez]

My company has just started an FSA for both Health and Dependent Care. I would like to verify that I am setting up the GL accounts correctly. Are the following entries correct?

1. Ex: An employee elects to contribute the entire $2500 to his Health FSA plan year.
Entry from Day 1 of plan:
DR FSA Receivable $2500
CR FSA Liability $2500

1st paycheck contributing $50 to plan:
DR Wages $50
CR FSA Receivable $50

1st claim of $25 reimbursed to the employee:
DR FSA Liability $25
CR Cash $25

2. Ex: An employee elects to contribute the entire $5000 to his Dependent Care FSA plan year.
Entry from Day 1 of plan:
no entry required- Dependent Care FSA money is not available until contribution is made

1st paycheck contributing $95 to plan:
DR Wages $95
CR FSA Liability $95

1st claim of $50 reimbursed to the employee:
DR FSA Liability $50
CR Cash $50

Thank you for the help in advance!

 

[bklynboy]

We handle the accounting a little different and do not recognize a receivable upfront. Their is no receivable - since no service was performed. I also would not touch wages directly as that should be the cost of labor and not impacted. Our method is

Deduct Contribution from pay (100 salary, 10 FSA)
Debit: Salary Expense 100
Credit: Cash 90
Credit: FSA Liab 10

Reimburse for Claims (5 dollars)
Debit: FSA Liab 5
Credit: Cash 5

 

[cramirez]

Thank you for responding!

It sounds like we are on the same page with Wages/Salary. I just didn't list the gross amount of wages.

Don't we need to book the entire amount upfront as a company liability since an employee can be reimbursed up to $2500 before they have contributed anything? Potentially the company could be out $2500 if an employee was reimbursed a claim and then left the company.

I want to use two different accounts so we can track the company liability and the amount that has been reimbursed by employees.

Any other thoughts on how this should be done?

 

[bklynboy]

Its not a liability until used. As I understand FSA its a use it or lose it benefit. Also the liability is not created until its withdrawn from the employee's paycheck - meaning the employee funds this benefit not the company. Its no different than payroll taxes withheld.

Setting up a receivable and liability for the gross amount day 1 is not right as the employer is not owed anything - it simply deducts from the paycheck what the employee elects. Same is true for a liability - it does not exist until the deduction is made from the wage.

 

[cramirez]

I guess I was getting thrown off because the company is liable to pay a claim reimbursement prior to the payroll deduction from the employee.

Thank you for the helpful input!

 

[aeiman]

Its not a liability until used. As I understand FSA its a use it or lose it benefit. Also the liability is not created until its withdrawn from the employee's paycheck - meaning the employee funds this benefit not the company. Its no different than payroll taxes withheld.

Setting up a receivable and liability for the gross amount day 1 is not right as the employer is not owed anything - it simply deducts from the paycheck what the employee elects. Same is true for a liability - it does not exist until the deduction is made from the wage.

Its not a liability until used. As I understand FSA its a use it or lose it benefit. Also the liability is not created until its withdrawn from the employee's paycheck - meaning the employee funds this benefit not the company. Its no different than payroll taxes withheld.

Setting up a receivable and liability for the gross amount day 1 is not right as the employer is not owed anything - it simply deducts from the paycheck what the employee elects. Same is true for a liability - it does not exist until the deduction is made from the wage.

I am totally new to this FSA pre-tax accounting. We started a plan on 01/01/17 and I am wondering how to account for an expense ($350) when only $39. is in the liability account for the employee. Can you please advise? Thanks!

 

[pndaccountants]

The liability can be reduced monthly via a split from my salary. That makes sense because I've basically loaned the money to myself and I pay back the loan over time.