How to set up the tax tracking type HSA Emp. (Pre-tax) for employee contributions to health savings accounts
This article explains how to set up a pretax employee deduction HSA payroll item.
With payroll update 21006, released on 02/11/2010, a new Tax Tracking Type called HSA Emp. (Pretax) is supported in QuickBooks. This new Tax Tracking Type can be used beginning in tax year 2010.
HSA Emp. (Pretax) is for employee contributions to a health savings account (HSA) that are made by a salary reduction arrangement through a cafeteria plan (Section 125 plan) and are not included in income as wages and are not subject to federal income tax withholding, Social Security, Medicare, or FUTA taxes. An employee deduction 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 prior to payroll update 21006, you set up a custom deduction payroll Item to support the employee's pretax contributions 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. (Pretax):
To create a pretax employee deduction HSA payroll item:
Choose Lists > Payroll Item List. Click the Payroll Item button and select New.
Select Custom Setup and click Next.
Select Deduction and click Next.
Name the item and click Next.
Select the Liability account and click Next.
Set the Tax Tracking Type as HSA Emp. (Pretax) 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 Info window.
W-2 reporting of the employee contribution - Standard, Enhanced, and Assisted Payroll customers only:
For more information about HSAs, go to the IRS website at www.irs.gov. Consult with your professional tax advisor, accountant, or attorney about your specific business or tax concerns.
If you would like to have the HSA employee deduction direct deposit directly into the a HSA account, click to expand.
- Note, this method described below it NOT a preferred method. Contact your HSA provider for alternate options. If a direct deposit is lost, using the method described below, you may be unable to trace and reverse it.
- Follow the steps above to create a HSA Employee payroll item.
- Exception, Step 5 - choose an Asset or Expense account instead of a Liability account.
- 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.
- From the Employee Center, double-click to open the employee affected. Click Payroll Info > Direct Deposit.
- 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.
- Click OK twice to save your changes.
- 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.