Health Savings Account Showing up in Liabilities

Arasay16 · ‎April 12, 2021

Hello. I have an interesting issue that has arisen. I recently started working for a small company that has been limping by on QB Desktop that has been vastly mismanaged. My most recent discovery is what I need help figuring out.

They offer their employees a health savings account (HSA). The funds are deducted from the paycheck BUT the funds do NOT get sent to a vendor, we keep the money in the same bank account that the payroll is drawn from (if the employee does not use the funds by year end then they forego the funds i.e. we get to keep the funds). To use the employee's funds that he has built up, we receive an invoice from the HSA vendor for medical uses that the employee incurred, to which we pay the invoice (and it should be deducted back from that category where his funds are built up).
This current HSA payroll item has been set up as an "other liability" (which I believe could be incorrect) to track the deduction from the employee paycheck. And the agency to be paid is the HSA Vendor name (but like I mentioned the money never leaves our bank account). The prior bookkeeper had been creating “checks” from the liability area to the "agency" which results in completely screwed up bank reconciliations and reports (because like I mentioned before, the money never leaves from in-house).
Our main goal is to deduct the HSA funds from the paycheck, reflect those in an account for tracking purposes, be able to tell him an accurate balance any time he requests it and to code invoices paid out to that same account.
Which setup could possibly just remove the liability side of it all together so it doesn’t show in that payroll tab anymore?

Rubielyn_J · ‎April 12, 2021

I can share with you steps on how to deduct the HSA funds from your paycheck in QuickBooks Desktop, @Arasay16.

Let's start creating a pretax employee deduction HSA payroll item. This item supports employee contributions and QuickBooks automatically flows the contribution to the employee's Form W-2 in box 12 with code W.

Here's how:

Go to Lists and choose Payroll Item List.
Select the Payroll Item button and click New.
Choose Custom Setup and then choose Next.
Select Deduction and click Next.
Name the item and click Next.
Choose the Liability account and select Next.
Set the Tax Tracking Type as HSA Emp. (Pretax) and click Next.
In the Taxes window, select Next.
In the Calculate based on quantity window, choose Neither and select Next.
Enter a Default rate and limit, if applicable. Otherwise, leave the default rate and limit blank and enter the rate and annual limit in the individual employee's Payroll Info window. Lastly, click Finish.

To remove the liabilities accumulated, let's create a payroll liability check in QuickBooks. For more detailed steps, please see this article: Set up and pay scheduled or custom (unscheduled) liabilities. Also, I recommend contacting our support team. This way they can provide further guidance in setting this up that will suit your business needs.

I'm also adding this link to help you correct year-to-date (YTD) additions or deductions on a paycheck in QuickBooks.

Feel at ease to comment down below if you have other payroll concerns with QuickBooks. I'll make sure to answer them all. Have a pleasant day.

Rubielyn_J · ‎April 13, 2021

Hi, @Arasay16.

Hope you’re doing great. I wanted to see how everything is going about the HSA funds concern you had the other day. Was it resolved? Do you need any additional help or clarification? If you do, just let me know. I’d be happy to help you at any time.

Looking forward to your reply. Have a pleasant day ahead!

Arasay16 · ‎April 14, 2021

Hello. Your answer was not what I am looking for.

EEIAdmin · ‎March 10, 2023

I have a similar question. We have two employees who set up their own personal health savings accounts. The money is deducted from their paycheck on a bi-weekly basis and deposited into their health savings account. However, the transaction is being reported on the company's P & L statement, and it should not be because the company is not contributed to the amount. Should I change the HSA deduction to "liability" in the chart of accounts, similar to a Garnishment?

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Health Savings Account Showing up in Liabilities