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How to set up the tax tracking type HSA Emp. (Taxable) for employee contributions to health savings accounts

SOLVEDby QuickBooksQuickBooks Desktop PayrollUpdated 1 year ago

Overview

This article describes how to set up a taxable HSA payroll item for employee contributions.

HSA Emp. (Taxable) is for an employee's contributions to a health savings account (HSA) that are not made through a cafeteria plan (Section 125 plan). This type of contribution is included in income as wages and is subject to federal income tax withholding, Social Security, Medicare, and FUTA taxes. This type of contribution is not reported on the employee's Form W-2 in box 12.

Note: Your insurance policy administrator can advise you whether to set up your employees' contributions to their HSAs as pretax or after tax.

If prior to payroll update 21006 you set up a custom deduction payroll item to support an employee's taxable contribution to their HSA, keep this payroll item for historical purposes but set up a new deduction payroll item using the Tax Tracking Type HSA Emp. (Taxable):

 

HSA pre-tax deductions may not be valid for 2% shareholders, see How to set up S-corporation medical payroll items for more details.

Details

Note: Before you begin, verify whether the HSA payroll item you want to set up is a company (employer) contribution or an employee deduction, and ensure you follow the correct setup procedure.

To create a taxable employee contribution HSA payroll item:

  1. In QuickBooks Desktop Pro/Prem, go to Lists > Payroll Item List.For QuickBooks Desktop Simple Start:
    1. Click Payroll on the top.
    2. Click Setup and Maintain and choose View/Edit Payroll Items.
  2. In QuickBooks Desktop go to Lists > Payroll Item List.
  3. At the bottom left of the Payroll Item List, click the Payroll Item dropdown button, and choose New.
    For QuickBooks Desktop Simple Start, from the Related Activities list on the left, click the Add a payroll item link.
  4. Select Custom Setup and click Next.
  5. Select Deduction and click Next.
  6. Name the item and click Next.
  7. Select the Liability account and click Next.
  8. Set the Tax Tracking Type as HSA Emp. (Taxable) and click Next.
  9. In the Taxes window, click Next.
  10. In the Calculate based on quantity window, select Neither and click Next.
  11. In the Gross vs. Net window, select Net pay and click Next.
  12. 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.
  13. Click Finish.

About W-2 reporting of the employee contribution for only Standard, Enhanced, and Assisted payroll customers:

  • A payroll item set up with the HSA Emp. (Taxable) Tax Tracking Type supports employee contributions and QuickBooks Desktop automatically flows the contribution to the appropriate boxes on the employee's Form W-2. However, this contribution does not flow to box 12 per IRS requirements.
  • For more information about HSAs, go to the IRS website www.irs.gov. Consult with your professional tax advisor, accountant, or attorney about your specific business and tax concerns.

 

If you would like to have the HSA employee deduction direct deposit directly into the a HSA account, click to expand.

  1. Follow the steps above to create a HSA Employee payroll item.
    • Exception, Step 6.  Choose an Asset or Expense account instead of a liability account.
  2. From the Payroll Item List, create a new Addition type payroll item with a Tax Tracking type of None.
    • In the Expense account, choose the same account used when creating the HSA item.
  3. From the Employee Center, double-click to open the employee affected.  Click Payroll Info > Direct Deposit.
  4. Select Use Direct Deposit and Split Payment.  Enter the following:
    • Deposit Portion of Payment: enter the amount of the HSA to be deposited and the HSA Bank, Account and Routing information.
    • Deposit the Remainder: enter the employee direct deposit information.
  5. Click OK twice to save your changes.
  6. Next time you pay the employee, the following should be on the paycheck:
    • The HSA deduction item for the employee
    • The Addition item (created in step 2) - in the Rate column enter the HSA amount (the same amount as the HSA deduction item).
    • In the Employee Summary there should be two Deposit to transactions listed.  The one to the HSA account should match the amounts on the previous two payroll items.

Note:  At this time you cannot direct deposit any company contributions to the Employee's HSA account.

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