Learn how to setup and assign voluntary deductions in Online Payroll.

Do you need to set up voluntary deductions for your employees? Voluntary payroll deductions include things like medical, dental, vision and retirement. In this article, we explain what voluntary deductions are and how they work. And we'll show you how to set up your employees.

Deduction vs. Contribution.

First thing to know is the difference between deduction and contribution. A deduction is an amount paid by an employee and deducted from each paycheck. A contribution is paid by the employer and often counts as additional pay or wages.

For example: An employee and an employer might pay some part of the cost for a health insurance plan. The employee-paid portion is called a deduction. The portion paid by the employer is called a contribution.

Learn about the types of voluntary deductions

Voluntary payroll deductions include medical, dental, and vision insurance premiums (both pretax and post-tax). (NoteGarnishments are not voluntary deductions.)

The chart below explains which deductions are supported in Online Payroll.

Category Taxability Types
Health Insurance Taxable or Pretax Medical, Dental, or Vision Insurance
Retirement Plans Varies* 401(k), SIMPLE 401(k), 403(b) , SARSEP, SIMPLE IRA, Company-only plan, Roth 401(k), Roth 403(b), and catch-ups
FSA Plans Pretax Dependent Care FSA** and Medical Expense FSA
HSA Plans Taxable or Pretax Taxable HSA and Pretax HSA
Other Deductions Taxable Cash Advance Repayment, Loan Repayment, other after-tax deduction

* All retirement plans except Roth plans are exempt from income taxes and subject to other payroll taxes. Roth plans are subject to all payroll taxes.

** We don't support the Dependent Care FSA in Pennsylvania.

Set up ongoing deductions

In most cases you'll create ongoing deductions for all or some of your employees. Follow these steps to set up the deduction in the system.

QuickBooks Online Payroll/QuickBooks Full Service Payroll

  1. From the left menu select the Gear icon. Then select Payroll Settings.

  2. Select Deductions/Contributions.

  3. Select Add a New Deduction/Contribution.
  4. Select the deduction type and category.
  5. Enter the description or name of the provider, the description or name must differ from deductions you already have entered into the system, and amount
  6. Select Ok.

Intuit Online Payroll

  1. Go to Setup. Then select Deductions/Contributions.
  2. Select Add a New Deduction/Contribution.
  3. From the drop-down list, select the category. (If you select the Health Insurance category, you'll specify the taxability when assigning the deduction to the first employee.)
  4.  Select a deduction type from the drop-down list. (If you do not see a type you need, contact us.)
  5. Enter a description (up to 36 characters) that helps you identify this deduction when you set up employees. This description appears on your pay stubs. And must differ from any current deduction you already have entered into the system. For retirement plans, we automatically enter the maximum amount allowed by federal regulations.
  6. Select Ok.

Intuit Full Service Payroll

Please contact Support to set up a deduction.

Set up a one-time deduction

Occasionally you may wish to set up a one-time deduction for an individual employee instead of a for a group.

QuickBooks Online Payroll/QuickBooks Full Service Payroll

  1. From the left menu, select Workers, then Employees.

  2. Choose the employee's name.
  3. Select the edit (pencil) icon beside Pay.
  4. In section 4, select the edit (pencil) icon.
  5. From the drop-down list, select Deductions/contributions.
  6. Select the deduction type and category.
  7. Enter the description and amount.
  8. Select Ok.

Intuit Online Payroll

  1. Select the Employees tab. Then select the employee's name.
  2. In Deductions & Contributions section, select Edit.
  3. Select Add a Deduction under Deduction for Benefits.
  4. From the Deduction drop-down, select New deduction.
  5. Choose a Category and Type.
  6. Add a description.
  7. Enter a $ amount or % of Disposable Income.
  8. Select Save then OK.

Intuit Full Service Payroll

Please contact Support to set up a deduction.

Assign deductions to employees

As you set up each employee, you specify their deductions and the amount to withhold from each paycheck. You can add a deduction to the setup of an employee at any time.

Quickbooks Online Payroll

  1. From the left menu, select Workers, then Employees.

  2. Choose the employee's name.
  3. Select the edit (pencil) icon beside Pay.
  4. In section 4, select the edit (pencil) icon.
  5. From the drop-down list, select Deductions/contributions.
  6. Select the deduction type and category.
  7. If assigning a Health Insurance deduction for the first time, select Taxable Insurance Premium or Pretax Insurance Premium.
  8. Enter the description or name of the provider and amount.
  9. Select Ok.

Intuit Online Payroll

  1. Go to Employees. Then select the employee's name.
  2. In the Deductions & Contributions section, select Edit.
  3. Select Add a Deduction under Deduction for Benefits.
  4. Select the Category and Type of deduction.
  5. If assigning a Health Insurance deduction for the first time, select Taxable Insurance Premium or Pretax Insurance Premium.
  6. Select % of Gross Pay or $ Amount from the Amount drop-down. If using the same amount for every paycheck, enter the amount in the box. If varying the amount by paycheck, leave the box blank. (You'll enter the amount when creating the employee's paycheck.)
  7. Enter an annual maximum amount (optional). (This will be prefilled for some deduction types.)
  8. Select Save then OK.

Intuit Full Service Payroll

  1. Select the Employees tab.
  2. Select an employee from the list.
  3. In the Deductions and Contributions section, select Edit.
  4. Select Add new deduction or contribution.
  5. In the new window, select the name of the deduction you'd like to add.
  6. As applicable, define the per-pay period deduction and annual maximum for the deduction you're adding. Do the same for your company's contribution.
  7. Select Done.

Understanding deduction guidelines

Retirement plans, taxes, and contribution limits

Federal and state tax laws permit certain retirement plan contributions to be made pretax. The employee's wages are reduced by the amount of the contribution before certain taxes are calculated. As a result, the employee pays less tax. State laws vary as to whether retirement plan contributions are subject to state income tax, state unemployment tax, or other state taxes.

Important  After-tax Roth 401(k) and 403(b) aren't available as company contributions through our service.  This is because the entire contribution should be paid and reported separately through the provider and not through the same account as the employee after-tax deduction funds. (For more information, see IRS Retirement Plans FAQs on Designated Roth Accounts.)

Each kind of plan limits the amount an employee can contribute in a year, with higher limits for employees age 50 and older (called catchup plans). We automatically enforce these limits. An employee who will reach age 50 on any day in the current calendar year is eligible for the higher limit, so you should set up a catchup deduction right away and assign that employee to it now (don't wait until the birthday).

For contributions you make as an employer, check your retirement plan for limits. We do not set these values.

Cafeteria plans (Section 125 plans) and flexible spending accounts

  • If you have a cafeteria plan (also known as a Section 125 plan), your employees can pay medical, dental, and vision insurance premiums with pretax paycheck deductions.
  • The amounts deducted are exempt from federal income tax, Social Security, Medicare and federal unemployment taxes. State laws vary as to whether contributions to a cafeteria plan are subject to state income tax, state unemployment tax, or other state taxes.
  • We also support dependent care and medical expense flexible spending accounts. We use the law of your state when calculating these deductions.

Health savings account contributions and limits

An employee is eligible to set up a health savings account (HSA) if they satisfy all federal requirements, such as participating in a high-deductible health plan (HDHP). Both you and the employee can contribute to their HSA.
The HSA contribution limits for 2019 are:

  • $3,500 self
  • $7000 family

Additional amounts for catchup (age 55 or older) are:

  • 2009-2019 - $1,000