A client processes own payroll and has recently setup an HSA. The employee has $120 each pay withheld pre-tax. This appears to be functioning correctly for tax purposes. The challenge is that the employee's net pay does not include the $120 HSA. Direct Deposit is set up. The employee's net pay should be $804.88 with $120 going to HSA and $684.88 to Checking. Instead $120 is going to HSA and 564.88 to Checking. What is our snag?
Once HSA is part of a cafeteria plan (Section 125), you'll have to set it up as a pre-tax deduction separate from any cafeteria plan. Pre-tax deductions are exempt from federal taxes but are taxable in some states and local jurisdictions.
I'd recommend verifying the HSA setup into your client's account. This way, you're able to verify that it's created accordingly. Here's how:
Go to the Lists menu.
Select Payroll Item List.
Double-click the HSA to pull-up its details.
When there's a need to correct employees’ year-to-date (YTD) or quarter-to-date (QTD) payroll info, you can create a liability adjustment. You can refer to this article for the step-by-step guide: Adjust payroll liabilities in QuickBooks Desktop.
Once done, I'd recommend pulling up a payroll summary report. This will let you get a quick view of your client's payroll totals, including employee taxes and contribution. You can check out this article for the detailed steps: Create a payroll summary report (QuickBooks Desktop section).
Please know that you're always welcome to comment below if you have other concerns or follow-up inquiries about managing HSA contributions in QBDT Payroll. I'm just around to help. Take care.
Thank you for your reply. I will need to know how the pretax HSA setup in QBD18 should look to be able to ensure that it is setup correctly. I searched for QBD18 directions, but could not find any. The tax calculation is correctly eliminating the EE HSA, but the net pay is reduced by the EE HSA twice. Is there something in the setup that will correct that or does the client need to setup a nontaxable payroll item adding the HSA amount to counter that.