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Set up a Health Savings Account (HSA) item in QuickBooks Payroll

by Intuit Updated 7 months ago

Learn how to track HSA contributions in QuickBooks Online and QuickBooks Desktop Payroll.

An HSA is a savings account that your employee can use for out-of-pocket medical expenses. HSA-qualified health plans cost less and the money in an HSA never expires. 

Here’s how to set up an HSA contribution in QuickBooks.

Step 1: Understand HSA qualifications

Both you and your employees can contribute to an HSA. Determine the following before you set up your HSA plan:

Your employees must meet certain requirements before they can contribute to an HSA. Check with your plan provider and review IRS Publication 969 for details.

Your employees can contribute to HSA in two ways: 

Pre-tax - HSA contributions are pre-tax if it’s made pursuant through a cafeteria plan (Section 125 plan). The HSA amount will then be reported on Form W-2 in Box 12 with a “W” code. 

After-tax - If the contributions are deducted from the employees payroll after the taxes have been calculated.

The IRS sets an annual limit that may be contributed to the HSA. The amount you and your employee can contribute depends on many factors. Check with your plan provider and review IRS Publication 969 for details.

HSA Contribution Limits

The contribution limits for 2023 and 2024 are as follows.

20232024
HSA contribution limit (employer and employee)
Self-only: $3,850 
Family: $7,750
Self-only: $4,150 
Family: $8,300
HSA catch-up contributions (age 55 or older)
$1,000$1,000

Step 2: Set up HSA contributions

The steps to set up HSA contributions depend on your payroll product.  Select your product below.

Note: Not sure which payroll service you have? Here's how to find your payroll service.
  1. Go to Payroll, then select Employees (Take me there).
  2. Select your employee.
  3. From Deductions & contributions, select Start or Edit.
  4. Select + Add deduction/contribution.
  5. From the ▼ dropdown menu select:
    • Deduction/contribution type: HSA plans
    • Type: Pretax HSA or Taxable HSA.
  6. Enter a Description(appears on paycheck).
  7. Select how your contribution is calculated. Then enter the amount or percentage.
  8. Add an Annual maximum amount.
  9. When finished, select Save then Done.

There are 2 tax tracking types you can use when you set up HSA employee contributions.

  • HSA Emp.  (Taxable) is used for employee contributions to an HSA. This type of tax tracking is associated with employee deductions. It’s included in income as wages and is subject to federal taxes.  
  • HSA Emp. (Pre-tax) is used for employee pretax contributions through a cafeteria plan (Section 125 plan) to a Health Savings Account. This type of tax tracking is associated with employee deductions and isn’t included in income as wages and isn’t subject to federal taxes. 
  1. Go to Lists, then Payroll Item List.
  2. Select Payroll Item and select New.
  3. Select Custom Setup and select Next.
  4. Select Deduction and select Next.
  5. Enter the item name (like HSA Employee taxable or HSA employee pretax) and select Next.
  6. Select the name of the agency to which liability is paid (or add it),  and the account number. Then select Next.
  7. Set the Tax Tracking Type as HSA Emp. (Taxable) or HSA Emp. (Pre-tax) and select Next.
  8. In the Taxes window, select Next.
  9. In the Calculate based on quantity window, select Neither and select Next.
  10. In the Gross vs. Net window, select Net pay (only applies to HSA Emp. (Taxable) tax tracking)  and select Next.
  11. Leave Default Rate and Limit fields blank. You can add the rate and limit when the item is added to the employee profile.
  12. Select Finish.

Direct deposit your employee’s HSA contribution into the HSA account (Optional)

  1. Go to Lists, then Payroll Item List.
  2. Select Payroll Item and select New.
  3. Select Custom Setup and select Next.
  4. Select Addition and select Next.
  5. In the Expense account, select the same account used when creating the HSA item. Select Next.
  6. Set the Tax Tracking Type to None. Select Next.
  7. In the Gross vs. Net window, select Net pay and select Next then Finish.
  8. From the Employee Center, double-click the employee affected.  Select Payroll Info. Select Direct Deposit.
  9. 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.
  10. Select OK twice to save your changes.
  11. Next time you pay the employee, the following should be on the paycheck:
    • The HSA deduction item for the employee
    • The Addition item - in the Rate column enter the HSA amount (the same amount as the HSA deduction item).
    • In the Employee Summary there should be two Deposits to transactions listed.  The one to the HSA account should match the HSA deduction amount.

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

  1. Go to Payroll, then select Employees (Take me there).
  2. Select your employee.
  3. From Pay types, select Start or Edit.
  4. In the Additional pay types section, select Company HSA Contribution.
  5. When finished, select Save.

There are 2 tax tracking types you can use when you set up HSA company contributions.

  • HSA Co. (Taxable) is used for company contributions to an employee’s HSA that are included in federal taxable wages. 
  • HSA Co. (Nontaxable) is used for company contributions to an employee’s HSA that are exempt from federal taxes.
  1. Go to Lists, then Payroll Item List.
  2. Select Payroll Item and select New.
  3. Select Custom Setup and select Next.
  4. Select Company Contribution and select Next.
  5. Enter the item name (for example, HSA Company taxable or HSA Company nontaxable) and select Next.
  6. Select the name of the agency to which liability is paid (or add it),  and the account number.
  7. If you want to use a specific liability or expense account to track your HSA company contributions, select them here. Then select Next.
  8. Set the Tax Tracking Type as HSA Co. (Taxable) or HSA Co.  (Nontaxable) and click Next.
  9. In the Taxes window, select Next.
  10. In the Calculate based on quantity window, select Neither and select Next.
  11. Leave Default Rate and Limit fields blank. You can add the rate and limit when the item is added to the employee profile.
  12. Select Finish.
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