Categorizing Cobra Reimbursement and expense

harry askenazi

As part of my separation agreement with my previous employer, I need to pay the Cobra premium directly, and they will reimburse me up to the amount they covered while I was employed, "grossed up" for taxes. I'm struggling to figure out the best way to categorize this.

Below is the flow of transactions, and I use the paycheck feature to enter all my paychecks. Numbers used are for example purposes:

Scenario:
Company covers $2,500/mo of health insurance premium
The total premium was $3,000

Flow of Transactions:
1) I paid Cobra $2,900 (amount of full premium)
2) Employer paid me $3,000 which, after taxes, is $2,500 (equal to the amount they cover)
3) In real life, I should be left with a $400 out of pocket expense for the premium ($2,900-$2,500)

I'm getting tripped up bc the reimbursement from the employer is considered taxable income. If they just reimbursed me like they did ordinary expenses, it would be easy for me to categorize this: (expense out to the same category as reimbursement, or expense out to a [reimbursable expense] account, and reimbursement to the same account which nets out)

Given the nature of the reimbursement being taxable income, and taxes being withheld, how do you recommend categorizing both my payment and the reimbursement? If my payment goes to "health insurance premiums" category, and I put the Gross amount of the employer's reimbursement into that same category, then it will appear that I was reimbursed too much.

Hopefully the above wasn't too hard to follow and you guys have some good suggestions bc I'm stuck!

Sherlock

I suspect you're over thinking this.

The employer is paying you a salary.  I suggest using a paycheck income reminder. 

You're purchasing insurance through COBRA.

harry askenazi

If I went with your approach, I may as well consider everything the employer pays me as "Salary", but that isn't the case. For example, if I paid out of pocket $500 for a flight and categorized as "travel:airfaire", and then categorized the $500 reimbursement from the employer as "Salary", I'd be overstating both travel and salary

Sherlock

harry askenazi said:

If I went with your approach, I may as well consider everything the employer pays me as "Salary", but that isn't the case. For example, if I paid out of pocket $500 for a flight and categorized as "travel:airfaire", and then categorized the $500 reimbursement from the employer as "Salary", I'd be overstating both travel and salary

There is a difference between taxable income (a salary) and reimbursement.

There are a variety of ways of managing reimbursements.  We use a company specific category for our company expenses and a subcategory for the reimbursements.   If we paid out of pocket for a flight, we categorize the transaction with the company category and when we received the reimbursement we would categorize it with the company category's reimbursement subcategory.

harry askenazi

To make your example concrete, if you pay for a flight for which you will be reimbursed, you categorize something like this:

Travel:Airfaire

Travel:Airfaire:Reimbursement

Is that correct?

I'm always thinking about the best way to handle reimbursable expenses and used to use tags, but then switched to a separate "Reimburseable expenses" Account, with the tag indicating the company/person who owes me the money. But lately I've been thinking that isn't the cleanest approach. I'd think something along the lines of what you do would work best, but more like:

Travel:Airfaire:Reimburseable
Travel:Airfaire:Reimburseable

This way, if your reimburseable subcategory isn't=0, you know you're owed money

Sherlock

harry askenazi said:

To make your example concrete, if you pay for a flight for which you will be reimbursed, you categorize something like this:

Travel:Airfaire

Travel:Airfaire:Reimbursement

Is that correct?

I'm always thinking about the best way to handle reimbursable expenses and used to use tags, but then switched to a separate "Reimburseable expenses" Account, with the tag indicating the company/person who owes me the money. But lately I've been thinking that isn't the cleanest approach. I'd think something along the lines of what you do would work best, but more like:

Travel:Airfaire:Reimburseable
Travel:Airfaire:Reimburseable

This way, if your reimburseable subcategory isn't=0, you know you're owed money

Not quite.  Suppose we work for Acme Inc. and pay for a flight which we will be reimbursed.  We would use

Acme: Travel    for the expense and 

Acme: Expense Reimbursement    for the reimbursement

A report that includes the Acme subcategories should balance out.  We use subcategories that match the company's reimbursement form.  The reimbursement we receive is not itemized.

This approach allows us to easily keep our work expenses separate from our personal expenses.