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    Set up Tax Tracking Type HSA Co. (Nontaxable) for company contribution to health savings account

    Article ID: 1000936

    Overview

    With payroll update 21006, released on 02/11/2010, a new Tax Tracking Type called HSA Co. (Nontaxable)is supported in QuickBooks. This new tax tracking type can be used beginning intax year 2010.

    HSA Co. (Nontaxable) is for the employer health savings account (HSA) contribution (company contribution) that is not subject to federal income tax withholding, Social Security, Medicare, or FUTA tax, because it is reasonable to believe at the time of the payment that the contribution will be excluded from the employee's income. An employer contribution using this Tax Tracking Type reports the contribution on the employee's Form W-2 in box 12 with code W beginning with the 2010 Form W-2.

    If it is not reasonable to believe at the time of payment that the contribution will be excluded from the employee's income, employer contributions are subject to federal income tax withholding, Social Security, Medicare, and FUTA tax, and must be included in wages reported on the employee's Form W-2 in boxes 1, 3, and 5. Employer contributions are also reported in box 12 with code W on the Form W-2.

    If prior to payroll update 21006 you set up a custom payroll item or a payroll item using the Tax Tracking Type Health Savings Account (or HSA - Do Not Use) for your company contributions to an employee's HSA, keep this payroll item for historical purposes, but set up a new company contribution payroll item using HSA Co. (Nontaxable). Click here for instructions on how to use liability adjustments to move amounts from the old payroll item to the new payroll item.

    This article explains how to set up an HSA Co. (Nontaxable) payroll item for company contributions.

    Details

    Before you begin, verify whether the HSA payroll itemshould be set up as acompany contributionor an employee deduction, and ensure you follow the correct setup procedure.

    To create a nontaxable company contribution HSA payroll item using the new HSA Co. (Nontaxable) Tax Tracking Type:

    Choose Lists > Payroll Item List. Click the Payroll Item button and select New.

    Select Custom Setup and click Next.

    Select Company Contribution and click Next.

    Name the item and click Next.

    Select the Liability account and Expense account and click Next.

    Set the Tax Tracking Type as HSA Co. (Nontaxable) and click Next.

    In the Taxes window, click Next.

    In the Calculate based on quantity window, select Neither and click Next.

    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 & Compensation Information window.

    Click Finish.

    W-2 reporting of the employer contribution - Standard, Enhanced, and Assisted Payroll customers only:

    A payroll item set up with the HSA Co. (Nontaxable) Tax Tracking Type supports employer contributions associated with an employee and QuickBooks automatically flows the contribution to the employee's Form W-2 in box 12 with code W.

    Only employee contributions to an HSA made by a salary reduction arrangement through a cafeteria plan (Section 125 plan) are also reported on Form W-2 in box 12 with code W along with the employer's contribution.

    For more information about HSAs,go tothe IRS web site at www.irs.gov. Consult with your professional tax advisor, accountant, or attorney about your specific business and tax concerns.

    4 comments

    Ann6/26/2013

    10

    I have set up the HSA payroll item as a company contribution for our 2 employees. They have their accounts set up. How do I enact the Payroll Liability to write a check for each employee that will be a one time/year contribution?

    Reply

    Haleigh7/3/2013

    10

    Hi Ann,

    If you are wanting to create a check to pay the liability you can follow this article Set up and pay scheduled or custom (unscheduled) liabilities I hope this helps!!

    Noel5/23/2013

    Ok, the article discusses setting up the account, which I have done. Now how do I enact a HSA transaction/contribution. I want to make a one-time Employer HSA contribution to an Employee. I don't want it associated with an ongoing paycheck schedule. I just want to make 1 HSA contribution. How do I do this using the account I just setup from above?

    Reply

    Haleigh6/21/2013

    Hi Noel,

    If you want to make a one time contribution then you will add the item in the paycheck detail when you create the check. I hope this helps.

    Haleigh

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