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Health Savings Accounts (HSAs)

W2

A Health Savings Account is a special kind of medical expense savings account, created by the federal Medicare Prescription Drug, Improvement, and Modernization Act of 2003. An HSA allows an individual who is covered by a high-deductible health insurance plan to put aside money for medical expenses.

Typically, contributions made to an employee's HSA by an employer do not count as part of the employee's gross income. Instead, they are treated as employer-provided coverage for medical expenses. As such, these contributions are not subject to withholding from wages for federal income tax, and they are not subject to FICA, FUTA, Medicare or Railroad Retirement tax. However, some employer contributions--for example, to certain owners and officers of a corporation--may be taxable to the recipient.

In addition, employees may be able to contribute to their HSAs through payroll deductions, and these contributions may be pretax or subject to taxes. Generally, only employee contributions to an HSA made by a salary reduction arrangement through a cafeteria (Section 125) plan are nontaxable.

Note: Some states have rules about the taxability of HSA contributions that differ from the federal rules.

For more information about HSAs, consult your tax advisor or benefits professional or visit the Go online IRS web site.

Tracking HSA contributions

Beginning with tax year 2010, you can set up payroll items in QuickBooks to track both employer and employee (taxable and nontaxable) contributions to an employee's HSA and report them on the employee's W-2.

What if I set up HSA contributions before 2010?

Prior to tax year 2010, the only tax-tracking type for HSAs that QuickBooks supported was Heath Savings Acct for nontaxable employer contributions. If you set up payroll items using this tax-tracking type or set up custom payroll items to track employee contributions, please visit the Go online Payroll Support site for advice.

To set up an HSA payroll item for employer contributions

  1. Set up a company contribution payroll item.

  2. In the Tax Tracking Type window of the payroll item wizard, choose HSA Co. (Nontaxable) or HSA Co. (Taxable).

Employer-contributed HSA information on Form W-2

  • Amounts collected under the HSA Co. (Nontaxable) payroll item appear in Box 12 of the employee's W-2. QuickBooks also enters Code W in Box 12, to indicate that the amount represents HSA contributions. The amounts are not included in the wages reported in Boxes 1, 3, and 5 of the employee's W-2.

  • Amounts collected under the HSA Co. (Taxable) payroll item are included in the wages reported in Boxes 1, 3, and 5 of the employee's W-2. They also appear in Box 12, and QuickBooks enters Code W in Box 12 to indicate that the amount represents HSA contributions.

To set up an HSA payroll item for employee contributions

  1. Set up a deduction payroll item.

  2. In the Tax Tracking Type window of the payroll item wizard, choose HSA Emp. (Pretax) or HSA Emp. (Taxable).

  3. At the Calculate based on quantity window, select Neither.

Employee-contributed HSA information on Form W-2

  • Amounts deducted under the HSA Emp. (Pretax) payroll item decrease the employee's wages before federal taxes are calculated. These amounts appear in Box 12 of the employee's W-2, and QuickBooks enters Code W in Box 12 to indicate that the amount represents HSA contributions.

  • Amounts deducted under the HSA Emp. (Taxable) payroll item are considered federal taxable wages and are included in the wages reported in Boxes 1, 3, and 5 of the employee's W-2. (These amounts do not get reported in Box 12.)

KB ID# H_PAY_HEALTH_SAV_ACCT
12/4/2016 6:18:36 AM
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