Yes, your understanding is spot on, MLom. Health Savings Accounts (HSA) employer contributions made to a more than 2% shareholder-employee of an S-corporation are treated as wages for tax purposes in QuickBooks Online (QBO) Payroll. Let me provide additional details to ensure everything is clear and accurate.
While HSA contributions are treated as wages, They are included in gross income and are deductible by the S-Corp. However, they're not subject to FICA (Social Security (SS) and Medicare) taxes.
Regarding the W-2 Reporting, These contributions should be reported in Box 1 of the W-2 as wages. However, they're not included in Box 3 (SS wages) because they're exempt for FICA taxes.
In QuickBooks Payroll, the reports for HSA contributions are generally correct for most employees, with pre-tax employee contributions typically reported in Box 12 of the W-2. However, for >2% of S-Corp shareholder-employees, these contributions should be reported differently.
According to IRS guidelines, contributions to HSAs for individuals who are more than 2% shareholders should be included in Box 1 of the W-2 as wages, but they should not be included in Box 3, as these contributions are exempt from FICA taxes. QuickBooks adheres to these guidelines, and users can ensure accurate reporting by properly categorizing these contributions for shareholder-employees.
Refer to this article, for more details about S-corp medical contributions in QBO Payroll: Set up an S-corp medical payroll item for your corporate officers.
Additionally, you can refer to these articles to generate payroll reports in QBO specific to worker's compensation and customize them to see details according to your preferences:
Whenever you need additional assistance in managing your Payroll in QBO, don't hesitate to hit the Reply button. We're only a click away.
