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Health Savings Account (HSA)

Nina Tchistiakova Updated by Nina Tchistiakova

A deduction item is not provided by the program for Health Savings Accounts (HSA). To add an HSA item for an employer, go to the Payroll Setup tab on the Edit Employer/Payer Information screen. Under the Deduction Items list click the Add button. Type the desired name for the item in the Full Name field and complete the remaining fields appropriately depending on the type of HSA. See Deduction Items for more information on adding deduction items.

Three types of HSA items can be added. Each type must be set up by the user. One type is employee contributions to an HSA that are not part of a pre-tax cafeteria plan. To support this type, a deduction item would be added that is fully taxable for withholding purposes (federal tax, social security, Medicare, FUTA, state tax, state UI). Employee contributions are deductible, within limits, on the employee's Form 1040. State taxability varies by state. Since the deduction item is not exempt from taxes, do not check any of the tax boxes. Leave the income item boxes checked. This type of HSA is not reported on Form W-2, box 12. It may optionally be reported in box 14.

A second type is employee contributions that are part of a pre-tax cafeteria plan. To support this type, a deduction item would be added that is exempt from all federal taxes (check the exempt from taxes boxes). State taxability varies by state. This type of HSA is reported on Form W-2 in box 12, Code W (both employer and employee contributions to cafeteria plans). Be sure to set up the W-2 section correctly.

The third type is employer contributions that are part of a cafeteria plan. To support this type, an INCOME item would be added that is exempt from all federal taxes (uncheck the tax boxes). State taxability varies by state. Check the box to not include this in net pay. This type of HSA is reported on Form W-2 in box 12, Code W (both employer and employee contributions to cafeteria plans). Be sure to set up the W-2 section correctly.

See Form W-2 instructions for further information.

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