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Can a Paycheck Deduction go straight to a liability account

JCNickell

This is another FSA account. I have the Liability and asset account setup. That much I understand and am comfortable with. What I don't seem to be able to do is use the Paycheck tool to automatically send the Payroll deduction to the liability account. When it lists accounts that I can "transfer to". It's only the asset style accounts.

I've seen what looks like a workaround where I also schedule a transaction to transfer from the asset to the liability account, but this seems like a kludge.

Could someone confirm that you can or cannot route a payroll deduction straight into a liability account?

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Accepted answers

mshiggins

I have had both an FSA liability and an FSA asset account in Quicken for as long as I can remember. I believe I first read about the concept in a Quicken usenet post by R.C. White.

At the beginning of each calendar year, I use the liability account to fund the asset account with the full FSA amount for that year. Over the year, my paycheck FSA deduction pays off the liability. I spend my FSA dollars from the asset account. So at any given point in the year, I know exactly how much liability remains and how much of my year's FSA amount has already been spent.

Here is what the paycheck deduction to the FSA liability account looks like:

All comments

Mark1104

what is the liability account you are contemplating? what does it represent?

since this is money you are receiving in your paycheck, it's an asset by definition.... I don't see how it can be a liability

Chris_QPW

I agree with @Mark1104, a Flexible Spending account is an asset and that is why Quicken is pushing you towards using an asset account for it when you select: Add -> Pre-Tax Deduction -> Flex Spending.

If you absolutely insist on it being a liability account you can use "Other Pre-Tax Deduction", and the category of [Liability Account].

Note that the amount will be a "decrease".

Image: https://us.v-cdn.net/6031128/uploads/editor/mm/bkmq56i6rqg9.png

JCNickell

I do have an asset account for the FSA. I am using the Liability account to fully fund the asset account at the beginning of the year, so that I can spend it down the asset through the year.
The intent for the Payroll deduction would be to "pay back" the liability account.

At the end of the year I will have paid off the liability through payroll deductions and hopefully have spent all of the asset for the year.
I've seen others on the forum recommend a similar approach for tracking a FSA account, and it's how I was doing it in my previous software. I was hoping I could avoid needing to setup a transaction from the FSA asset to the FSA liability each week (my pay schedule) to move the Paycheck Deduction.

Left as it is, if I start with a "fully funded" asset account, the weekly payroll deductions artificially increase the value of my FSA asset. Since I can spend all of the FSA account before I've actually paid for it, I was wanting to show it as fully funded when the year starts.

Boatnmaniac

Before I retired I had FSA deductions from my paychecks and it always bothered me how Quicken allowed for me to manage that. There was always a gap in the process and I couldn't quite place my finger on it.

In my mind, @JCNickell 's logic seems to be spot on as it appears to perfectly eliminate this gap issue. What I think Quicken fails to comprehend is that when an employee enters into an FSA agreement with the employer it becomes a liability event for the employee because the employer fronts the full annual FSA amount to the employee which the employee needs to pay back through paycheck deductions. It is, for all practical matters, a 0% interest loan with a pre-tax deduction benefit.

This obligation to fully repay this employer loan sometimes becomes painfully obvious. When an employee/employer relationship is terminated and when by the time of the termination the employee had spent more of the FSA than had been paid back via payroll deductions the difference will be deducted from the employee's final paycheck (at least that is what happened with me with 3 different employers).

By allowing for a FSA liability account for the FSA paycheck deductions going toward paying off that liability account is appropriate. Using that FSA liability account to then fund a separate FSA spending account (perhaps a type of separate linked checking account instead of an asset account) is also very appropriate. So far I don't see any downside to this...only seeing upside.

mshiggins

Mark1104

if you are posting an entry to an existing liability account as a 'debit' (i.e. reducing the liability), that should work fine..... the original post was suggesting that the entry was a 'credit' to a liability account and that won't work

Boatnmaniac

Yes, that can be done by setting up the FSA liability account and using that liability account to fund the FSA asset account, then using the "Other Pre-Tax Deduction" option, renaming it to what you want it to say and then transferring the FSA deduction to the liability account. It works but it's a manual set up process that the Paycheck tool does not comprehend when it could and perhaps should be automated by Quicken. Or at least Quicken should be providing instructions about how to set up and manage the FSA deductions. And that was the point I was trying to make...the default logic built into Quicken is wrong. It entirely leaves out the creation and use of that liability account.

Chris_QPW

Personally when I did have a FSA I never saw a need for a liability account. Yes, when it is explained it makes sense, but to me it seems like way to much "detail"/work for what seems like very little benefit.
Sure if you quit your job having spent more than what you put in you would have to pay it back, but how often does that happen?

Whereas if you add a liability account, that is one more account to maintain.

Boatnmaniac

Mark1104 said:

if you are posting an entry to an existing liability account as a 'debit' (i.e. reducing the liability), that should work fine..... the original post was suggesting that the entry was a 'credit' to a liability account and that won't work

I did not interpret the original post the way you did. I used @JCNickell 's 2nd post in this thread to confirm the intent (i.e., debit the liability account to reduce the amount of the debt).

JCNickell said:

...I am using the Liability account to fully fund the asset account at the beginning of the year...The intent for the Payroll deduction would be to "pay back" the liability account.

My prior replies were, I believe, aligned with this. If I am mistaken about what @JCNickell intent was then it would be great if clarification were to be provided.

mshiggins

Chris_QPW said:

Personally when I did have a FSA I never saw a need for a liability account. Yes, when it is explained it makes sense, but to me it seems like way to much "detail"/work for what seems like very little benefit.
Sure if you quit your job having spent more than what you put in you would have to pay it back, but how often does that happen?

Whereas if you add a liability account, that is one more account to maintain.

Funding the the asset account via the liability account - 1 transaction per year
Tracking the FSA deduction in your paycheck - I would be doing that anyways

1 extra transaction per year seems a small price to pay for being able to tell at a glance where your FSA funds stand. As California is an at-will employment state and having gone through a number of downsizing and post-merger job exits, I prefer to have the info captured in my Quicken.

To each their own...

JCNickell

Thanks everyone for your responses :smile: I'm not very strong on the what's a credit and what's a debit, but I did want to confirm that what I was after aligned with @Boatnmaniac described.

I'll have to try @mshiggins response. When you follow the "guide" for the pre-tax deductions it will only allow you to deduct from the paycheck into an asset account.

Boatnmaniac

Chris_QPW said:

Personally when I did have a FSA I never saw a need for a liability account. Yes, when it is explained it makes sense, but to me it seems like way to much "detail"/work for what seems like very little benefit.
Sure if you quit your job having spent more than what you put in you would have to pay it back, but how often does that happen?

Whereas if you add a liability account, that is one more account to maintain.

Like so many other things with Quicken, it's a personal choice matter regarding how anal one wants or feels the need to be in using it. I liken this issue to having to chose between Simple Investing and Complete Investing. I've always been a bit of an OCD person my whole life, especially with numbers. If the numbers don't all tie out all the way around I tend to get heartburn. Gee, maybe that's why I have acid reflux.

JCNickell

Wanted to confirm @mshiggins approach. It does look like you can do a direct to liability from the Paycheck tool if you don't take the guided approach for the FSA liability.
Instead of using the "Flex Spending" option, select the "Other Pre-Tax Deduction"
You can then choose a Transfer and take the deduction straight to your FSA liability account. Will be able to fully test later this week, but it look sorted for now.

Thanks All!