Health Savings Accounts [HSA]

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 2024 and 2025 Benefit Plan limits

HSA Deduction Limits and Tax Treatment

When you select HSA – 125 Individual, HSA – 125 Family, or HSA – 125 Catchup from the Vertex Deduction Code dropdown, the system automatically applies the current year's contribution limit.

How it works:

• Deductions are taken pre-tax and reduce taxable wages up to the annual limit
• Once the year-to-date (YTD) contributions reach the limit, any excess deductions automatically switch to post-tax
• The system will still attempt to process these excess deductions from the employee's paycheck

To prevent over-contributions: Set the annual limit manually in the employee's deduction setup. This ensures deductions stop once the limit is reached rather than switching to post-tax treatment.

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 $4300 between the employer and employee contributions. Thus, the pretax contribution stops. The employer contribution does not reduce taxable wages.

To set up HSA you will need to set up transaction type by going to Admin Tools > Transaction Type > Detail tab.

Create a Health Saving Accounts [HSA] Transaction Type WITHOUT Employer Contributions

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

1. Open Admin Tools > Transaction Type > Detail.
2. Click Add New.
3. Select a name for your transaction type; something that will prompt your users to understand it is for Health Savings Account contributions. Examples would be "HSA - Individual" or "HSA – Family".
4. Set the Type field to Permanent Deduction.
    
5. Set the Deduction Category to the group you want to have this mapped to for GL purposes.
    
6. The Vertex Ded Code must be one of these codes: HSA – 125 Individual, HSA – 125 Family, or HSA – 125 Catchup. This is the most important step to ensure correct taxation.
7. Set the W2Box and W2Label fields so that the contributions show correctly on Form W-2.
8. Select all the branches that will need to use this transaction type.
9. Click Save. 

Create a Health Saving Accounts [HSA] Transaction Type WITH Employer Contributions

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

1. Open Admin Tools > Transaction Type > Detail.
2. Click Add New.
3. Select a name for your transaction type; something that will prompt your users to understand it is for Health Savings Account contributions. Examples would be "HSA - Individual" or "HSA – Family".

4. Set the Type field to Deduction + Contribution.
    

   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 the group you want to have this mapped to for GL purposes.
6. Set the Vertex Pay Code to HSA or 125HSA so that all contributions are correctly taxed.
7. The Vertex Ded Code must be one of these codes: HSA – 125 Individual, HSA – 125 Family, or HSA – 125 Catchup. This is the most important step to ensure correct taxation.
8. Set the W2Box and W2Label fields so that the contributions show correctly on Form W-2.
9. Select all the branches that will need to use this transaction type.
10. Click Save. 

Create a Health Saving Account Over 55 Catch Up [HSA] Transaction Type

There must be a separate transaction type for catch up. Set that up in Admin Tools and add it to applicable employee deduction records. For employees eligible that elect catch up, they must have a regular HSA deduction and an HSA catch up deduction.

1. Open Admin Tools > Transaction Type > Detail.
2. Click Add New.
3. Name this transaction type "HSA – 125 Catch-up" or something that will prompt your users to understand it is for Health Savings Account contributions.
4. Set the Type field to Permanent.
    
5. Set the Deduction Category to the group you want to have this mapped for GL purposes.
    
6. The Vertex Ded Code must be "HSA – 125 Catch-up" for the over 55 extra amount. This is the most important step since Vertex will stop at the limit for pre-tax.
7. Set the W2Box and W2Label fields so that the contributions show correctly on Form W-2.
8. Select all the branches with which this deduction should be shared.
9. Click Save.