Health Savings Accounts [HSA]

Overview

The standard transaction type for Health Savings Account deductions have the pre-tax deduction designation of HSA – 125 Individual, HSA – 125 Family, or HSA – 125 Catchup. This means that the transaction types will reduce taxable wages by the contribution amount for most mandatory withholding taxes. However, it will only do so up to the designated annual limit. HSA plans are unique in that both the employee and employer contributions aggregate to the limits in the chart below:

• Click here for the 2022 and 2023 Benefit Plan limits

What this means is that if you are contributing $100 per pay period into a HSA – 125 Individual plan and your YTD employer contribution was $2000 and your YTD employee contribution was $1500, on the next payroll run, your taxable wages would only be reduced by $50 instead of the entire $100 contribution. This is because you met the annual limit of $3550 between the employer and employee contributions. Thus, the pretax contribution stops. The employer contribution does not reduce taxable wages.

Note:  Employer ONLY HSA accounts can exist with no Employee contribution.

These new transaction types will need to have their pre-tax deduction code configured. Do this in the Admin Tools > Transaction Type > Detail tab.

Create a Health Saving Accounts [HSA] Transaction Type

You will need to create a new transaction type to account for the HSA deductions that need to be taken pre-tax. 

1. Open Admin Tools > Transaction Type > Detail.
2. Click Add New.
3. Name this transaction type "HSA - Individual" or something that will prompt your users to understand it is for Health Savings Account contributions.
4. Set the Type field to Permanent.
   
   Note: If an HSA is set up as "Deduction + Contribution", then the Contribution also counts towards the federal Yearly Limit.
   
   
5. Set the Deduction Category to OtherHealthInsurance.
   
6. The Pre-Tax Deduction code must be one of the codes used above in the table. This is the most important step!
7. Select all the branches with which this deduction should be shared.
8. Click Save.