The problem with using the Addition payroll item is that it adds the QSEHRA payment through payroll to Gross Pay.  Even though QB calculates this item as non taxable, THIS IS NOT GROSS PAY.  It is a reimbursement in the same way that a travel reimbursement is not gross pay.  Including it in gross pay causes any calculation made on percentage of gross pay to be wrong.  If an employee has a 5% of gross pay deduction for their 401k and a 3% 401k company match, both numbers are inflated by the reimbursement.

I set up the payroll item to include QSEHRA, however, when I process payroll for our employees, some of them show a deduction for federal withholding from the QSEHRA payment, while others do not. Is there something in our withholding calculation for each employee which is different for these employees?

I'll show you how to set up contribution reimbursement, @David620.

Federal calculation depends on the employee's W4 information such as the items for pretax withholding and their taxable wage.

The following are potential causes for QuickBooks' incorrect calculation of federal taxes:

• Total annual salary exceeds the salary limit.
• The gross wages of the employees last payroll are too low.
• Ensure to run the latest payroll update to keep your taxes updated.

If your employees' profile is properly configured, you can review them if the federal withholding is not being deducted correctly. The following criteria are used by QuickBooks to determine the federal withholding:

• Taxable wages
• Number of allowances/dependents
• Pay frequency
• Filing status

Here's how to review your employees’ payroll information:

1. Go to Employees menu.
2. Choose Employee Center.
3. Double-click the employee’s name, one at a time.
4. Select Payroll Info on the left.
5. Please make sure the Pay Frequency is correct.
6. Click the Taxes button.
7. In the Federal tab, review the Filing Status and Allowances fields. Make the necessary corrections.
8. Hit OK.
9. Click OK again.

You can read this article to learn more about the Federal taxes not calculating properly: Troubleshoot paychecks calculating incorrectly.

Let me know if you have questions about payroll deductions. I'm always here to help. Have a great day. 

Thank you for sharing that information. I have a question regarding the W-2 form. I would like to know how to include the taxable amount of QERHRA in box 1 on the W-2 form. I am not sure how to do this without having to issue a check to the employee. This would be the amount in excess of the 2023 limit. The reimbursements were not paid through QuickBooks Payroll. I've been able to edit the W-2 to include the payments in box 12, but

I need to report the taxable amount.  I prefer not to manually amend the W-2s and file the tax returns.

Any advice or workaround would be greatly appreciated.

I appreciate you for sharing detailed information about your concern, AnneB8. I'll go over how Box 1 in W2s works in QuickBooks Desktop in more detail. Let me also ensure you can add the taxable amount of on the W-2 form within the program.

Please note that the information in Box 1 of the W2 form is derived from wages, tips, and other compensation (for Federal Income Tax): 50,000.00. That said, the total amount in this box is based on the employee's paycheck generated in the program.

Since you don't want to amend the W-2s and file the tax return manually, you can create a liability adjustment to include the taxable amount of QERHRA in box 1 on the W-2 form. This is done to adjust the wage base amount, and this also helps you to correct employees’ year-to-date (YTD) or quarter-to-date (QTD) payroll info in QBDT. You can read this article to see the steps on how to perform the process: Adjust payroll liabilities in QuickBooks Desktop Payroll. 

I've also added a screenshot below for visual reference.

In case you need steps on how to run a report in QBDT to quickly view your payroll totals, including employee taxes and contributions, you can read this article: Create a payroll summary report in QuickBooks.

Let me know in the comment section if you have other W2 questions or any QuickBooks concerns. I’ll get back to answer them for you, AnneB8. Have a good one!

I have added a payroll item for Qsehra non-MEC. The directions state to mark it to "none" for tax tracking" and use "net pay". My question is, if you do that, it shows on the payroll summary under net pay, but I need to show it as "income" (not taxed) in box 1 & 16 on the w-2.  So do I  add that amount to my employee's gross wages or should it be "gross pay"?  How do I show the amount paid on the QB reports for the w-2.  Any help would be very welcome.  Thank you.  Jamie Cooper

I'd be glad to share some insights and help you with your QSEHRA reimbursement, @JBORNC. 

Box 1 of the W-2 form includes all taxable wages, tips, and other compensation paid to your employee during the year. However, it doesn't contain elective deferrals such as employee contributions to a section 401(k) or 403(b) plan, except for section 501(c)(18) contributions. For more detailed information, please refer to pages 16-17 of the 2023 General Instructions for Forms W-2 and W-3: https://www.irs.gov/pub/irs-pdf/iw2w3.pdf.

Additionally, Boxes 16 through 19 (not applicable to Forms W-2AS, W-2CM, W-2GU, and W-2VI) contain the total of state and local wages and income tax shown in their corresponding boxes on the Forms W-2 included with this Form W-3. If the Forms W-2 display amounts from more than one state or locality, report them as one sum in the appropriate box on Form W-3. Verify that the amount reported in each box is an accurate total of the Forms W-2. For federal employers reporting income taxes paid to the CNMI under the 5517 agreement, enter the total of CNMI wages on the Forms W-2 in box 16. For reference, please visit page 24 of the same document mentioned above.

Moreover, the tax tracking type will determine how the payroll item appears on tax forms. It's essential to choose the correct tax tracking type to ensure your forms are accurate. You can follow the detailed steps in the "Step 1: Create a company contribution payroll item" section of this article: Report employer health insurance on W-2s. Also, you can consult your accountant for further guidance.

Just in case you want to invite your employees to see and print their own pay stubs and W-2s online, check out this article to know how: Invite your employees to QuickBooks Workforce to see pay stubs and W-2s if you use QuickBooks Deskto...

If you have any further questions or need additional help with your QSEHRA reimbursement, please return to this thread. We're always ready to help.

Did you set the item up with limits?  If you set limits up then it will stop at that line and not allow any additional amounts to be reimbursed.  You can deal with a monthly dump in and a yearly top limit or you can set the whole limit in and let them spend it all at one time and hope they don't quit before the end of the year.  I have done this with many types of deductions and garnishments, it keeps us all in line and on track.

I have solved the dilemma one and all!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!

Setup the company contribution as the instructions state, make sure the QSEHRA is an expense account on the P&L of course.

Now onto the reimbursement of the employee.  Since you setup a company contribution it setup a payable, so now do we get rid of said payable?  With the reimbursement ladies and gentlemen and aliens from all types of planets.  So direct your reimbursement to the payroll liabilities account so it will cancel it out, that is what you want it to do anyway.  It will debit the payable and credit the checking account just like it should.  All the little green men can get their reimbursements so they can UFO home in peace.

It took me several hours to figure this out and had that stupid aha moment and went duh and had to get the good ole T accounts out and figured it out.  I hope this helps everyone out, this should work on QBO as well, I use desktop but the concept is the same no matter what.  

When it comes to the EOY, make sure you go in and do a W-2 setup and direct FF to box 12 or it will not work.

Robin (aka Ursula)