With payroll update 21006, released on 02/11/2010, a new Tax Tracking Type called HSA Co. (Taxable) is supported in QuickBooks. This new Tax Tracking Type can be used beginning in tax year 2010.
HSA Co. (Taxable) is for the employer health savings account (HSA) contribution (company contribution) if it is not reasonable to believe at the time of payment that the contribution will be excluded from the employee's income. This type of contribution is 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. The contributions are also reported in box 12 with code W on the Form W-2.
This Tax Tracking Type can also be used for Subchapter S corporations, owners and officers with greater than 2% share where any contributions made to their HSA by the corporation are considered taxable as income. In this case, you might have to adjust the taxability settings based on applicable state rules, and set up 2 payroll items (one for employees and one for S Corp owners and officers with greater than 2% share).
If prior to payroll update 21006 you set up a custom payroll Item for your company contributions to an employee's HSA that are included in federal taxable wages, keep this payroll item for historical purposes, but set up a new company contribution payroll item using HSA Co. (Taxable). Click here for instructions on using liability adjustments to move amounts from the old payroll item to the new payroll item.
This article explains how to set up a taxable HSA payroll item for the company contribution.
You will create a taxable HSA payroll item for the company contribution using the new HSA Co. (Taxable) Tax Tracking Type.
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Before you begin, verify whether the HSA payroll item you want to set up is a company contribution or an employee deduction, and ensure you follow the correct setup procedure.
To create a taxable company contribution HSA payroll item:
- 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. (Taxable) 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.
- Click Finish.
W-2 reporting of the company contribution - Standard, Enhanced, and Assisted Payroll customers only:
A payroll item set up with the HSA Co. (Taxable) Tax Tracking Type supports company contributions associated with an employee and QuickBooks automatically flows the contribution to the employee's Form W-2 in box 12 with code W.
Note: 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 to the IRS web site at www.irs.gov. Consult with your professional tax advisor, accountant, or attorney about your specific business or tax concerns.