If you offer insurance or other benefits through providers outside of Gusto, you can follow the steps below to set up pre-tax payroll deductions for your team. This lets you collect employee contributions through payroll deductions, which your company is responsible for remitting to the provider. Reported employee and company contributions are included on employee paystubs, on payroll reports, and on year-end tax forms.
If your health insurance is Gusto-managed (including the broker integration) or if you've set up an integrated 401(k) through Gusto, deductions for these benefits are automatically integrated with payroll.
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Certain types of benefits have specific instructions:
HSA—see "Set up Health Savings Account (HSA) deductions" below
For all other benefit types, follow the steps below to set up a new benefit deduction for your company. First you'll enter the amount and frequency, then you'll choose which employees you want to be deducted.
Go to the Benefits section.
You must have benefits or global permissions to view and set up benefits.
Find the type of benefit you're adding and click Set up.
Click I already have benefits.
For health benefits: If you're applying for health insurance through Gusto or adding a line of coverage to your Gusto-managed health benefits, you'll be put in touch with a licensed advisor.
Choose Manually enter deductions.
Select the type of benefit.
If you choose medical/dental/vision, you’ll be prompted to indicate whether this is an individual or group plan.
If you have any questions about the plan type, you can schedule a call with our benefits advisors to learn more.
Click Save and continue.
Add a benefit name that will appear on employee paystubs.
Select the insurance carrier.
Indicate the month in which this benefit renews. This is often the same month it began, but refer to your policy to confirm.
Click Save and continue.
Add participants to the benefit. For each employee who should be included, click the toggle in the Coverage status column to change them to Covered. Enter each person's company contribution and employee deduction per pay period.
Once you add all the participating employees, click Save and continue.
On the next regular payroll you run, the deduction will show up on each enrolled employee's paystub as its own line item under Employee Earnings.
All benefit deductions remain in your company bank account so you can pay your company's insurance premiums directly to your carriers in a lump sum. If your company has multiple bank accounts set up, the money remains in the account you used to process that specific payroll.
To set up deductions or report company contributions for an HSA you offer through a third party:
Go to Benefits.
You must have benefits or global permissions to view and set up benefits.
Find the Health Savings Account tile and click Set up.
Select Yes — We currently offer a Health Savings Account to our employees.
If you select No — We want to start offering a Health Savings Account, you'll be shown options to offer an HSA through Gusto.
Click Continue.
Choose I'll manage myself.
Add a name for the benefit. This will appear on employee paystubs.
Select the default deduction and contribution settings. For employees with different deductions, limits, or contributions, you can edit their individual settings later.
Employee deduction per pay period: Select whether this is a percentage of gross pay or a set dollar amount. Then enter the percentage or amount.
Annual contribution limit: Select whether the individual or family limit should apply by default.
Catch-up limit: Select whether the default limit should be the standard IRS limit or the special catch-up limit for individuals age 55 or older.
Contribution maximum: This is where you enter a company contribution, if any. If the company contributes, select whether it's with or without an annual maximum.
Click Save & continue.
Select each employee who should be added to this benefit.
Click Save.
If you need to customize anyone's deductions, limits, or company contributions:
Click Back to benefits.
Under Manual payroll deductions, find the HSA benefit you just created and click Manage.
Find the name of the employee you're editing and click Edit benefit.
Make your change and click Save.
On the next regular payroll you run, deductions will appear on each enrolled employee's paystub in a line item under Employee Earnings.
All benefit deductions remain in your company bank account so you can pay your company's provider in a lump sum. If your company has multiple bank accounts set up, the money remains in the account you used to process that specific payroll.
Once you've already set up deductions for a benefit that the company offers, you can add employees anytime.
Go to the Benefits section.
Under "Manual payroll deductions," click the benefit you'd like to add the employee to.
Click Add employees to benefit.
Check the box next to the name of each employee you're adding.
Enter the employee deduction. This is the amount that will be deducted from the employee each pay period.
If different employees have different deductions, enter a default amount for now. You can customize each person's deductions in step 10.
Enter the company contribution per pay period. We'll keep track of this amount for your records and year-end taxes.
If different employees have different company contributions, enter a default amount for now. You can customize each person's contributions in step 10.
Click Save.
If you need to edit any employees' individual deductions or contributions, find the name of the employee and click Edit benefit. Enter their personal deduction and contribution amounts and click Save.
If you need to customize any employees' deductions or contributions, find the name of the employee and click Edit benefit. Enter their personal deduction and contribution amounts and click Save.
On the next regular payroll you run, the deduction will appear on the employee's paystub as its own line item under Employee Earnings.
All benefit deductions remain in your company bank account so you can pay your company's insurance premiums directly to your carriers in a lump sum. If your company has multiple bank accounts set up, the money remains in the account you used to process that specific payroll.
Gusto calculates deductions automatically. If you want to understand the behind-the-scenes math, here's how it works:
The premium you enter is first annualized to find the total amount that the employee should be deducted for per year.
The annualized amount is divided by the number of pay dates your company has per year. This is based on your normal pay schedule:
Weekly: 52 pay dates
Bi-weekly: 26 pay dates
Semi-monthly: 24 pay dates
Monthly: 12 pay dates
The resulting number is the amount that the employee will be deducted per regular paycheck.
Example: Say your team is paid bi-weekly, and an employee enrolled in medical coverage with a premium of $250 and an employee portion of $125 a month. After you enter this amount and frequency into Gusto, here's how the deduction per pay period is calculated:
First, Gusto annualizes the premium amount.
$125 x 12 months = $1,500 due per year.
The annualized amount is divided by the number of pay dates your company has per year. With a bi-weekly payroll schedule, there are 26 pay dates.
$1,500 ÷ 26 paycheck dates = $57.69 per paycheck.
The employee will be deducted $57.69 pre-tax from every regular paycheck.
Edit an individual employee's deduction or company contribution
If your employees' benefit amounts have changed, or if you need to catch up on a missed deduction, follow these steps to edit employee deductions or company contributions.
Go to the People section.
Select the employee.
Go to their Benefits tab.
Next to the benefit you created, click Edit.
Modify the benefit details for this employee.
Click Save.
The next time you run payroll, we'll deduct the employee's benefit amount from their pay and leave the funds in your company's bank account. We'll also record the employee and company contributions on the paystubs. You can then pay all of the benefit contributions to your insurance carrier.
Change the name of a benefits deduction
If you'd like to update the name of a benefit or the carrier, here's how to edit these details:
Go to the Benefits section.
Click the tile of the benefit you'd like to update.
Look for the Benefits Details box and select Edit Details.
Make your update to the benefit name or carrier.
Note: Updating a benefit's name will retroactively adjust previous paystubs.
If you've stopped offering a benefit for your whole team or just one employee, follow the steps below to disable benefit deductions.
If an employee is no longer enrolled in a benefit you offer, follow these steps to disable the benefit deductions.
This disables deductions for just the selected employee. Other enrolled employees are not affected, and you can re-enroll the employee if needed.
Go to the Benefits tab.
Under "Manual payroll deductions," click the benefit you'd like to remove.
Below the employee's name, click edit benefit.
If you don't see this option for an insurance benefit, it may be because the plan is managed by Gusto. If Gusto's your broker, the employee can submit a Qualifying Life Event if they need to change their coverage. If you change their employment status, Gusto will automatically terminate their coverage if their eligibility changes.
You have two options to remove the deduction:
To unenroll this employee from the benefit and make it easy to re-enroll them later: Under "Currently Active?" select No, stop making deductions and contributions for now. In the employee's profile under their Benefits tab, the benefit is still listed but labeled "inactive."
To unenroll the employee and remove the benefit from their Benefits tab altogether: Click the red text that says Remove this benefit. In the employee's profile under their Benefits tab, the benefit is removed from the list. If you need to re-enroll them later, you can still add them back from your Benefits dashboard.
The next time you run payroll, the employee will not be deducted for the benefit you disabled.
If you no longer offer a benefit to your team, you'll want to disable their payroll deductions.
This disables deductions for enrolled employees and removes the benefit from your dashboard. If you want to re-enroll employees, you'll need to set it up as a new benefit.
Click Benefits.
Find the benefit you'd like to remove and click Manage.
For each employee currently listed under the benefit, click Edit benefit. Choose Remove this benefit from [Name].
Once you remove the benefit from all the participating employees, scroll to the lower-right corner of the page. Click Disable Benefit.
Make sure you’ve set up the benefit and added the employee to it.
If you’re not seeing payroll deductions as expected, it could be that:
Your company may have run payroll before the deduction change was made.
An employee did not have enough pay to cover all taxes and deductions.
The employee was skipped on payroll.
If you need to catch up on missed deductions for an employee, edit their deductions to add and remove corrections as needed. Corrections are not automatic if an external deduction is missed.
For S-Corp or LLC companies, the IRS requires that health insurance premiums paid by the company to employees who own more than 2% of the company be reported as wages (not as pre-tax benefits) and included on their W-2s. For more information, review Notice 2008-1 from the IRS.
Note: If you have benefits with Gusto (including the broker integration) and if your company is an LLC or S Corporation, we'll manage benefits for anyone listed as a 2% shareholder in Gusto.
If you offer benefits outside of Gusto, follow these steps to set up benefits for 2% shareholder-employees:
Go to the People section.
Click on the employee's name.
Under the "Work" section, make sure the employee is marked as a 2% shareholder.
Set up a new benefit deduction and add the employee to it.
If you have already set up the benefit for other employees, you can also add the shareholder to an existing deduction.
Add or edit the shareholder’s company contribution per pay period and employee deduction per pay period. Here's how they'll be taxed:
Company contributions: Taxable at the employee level only, for both federal and state income tax. We add company contributions to box 14 of the W-2.
Employee deductions: Fully taxable as wages at both the employee and employer level.
Q: Which benefits must be taxed as wages for 2% shareholders?
A: Medical, dental, vision, HSAs, and more must be taxed as wages. Review Publication 15-B to view a full list of benefits that are treated as wages.
Q: What if a 2% shareholder status changes partway through the year?
A: Change the 2% shareholder status in the employee's account. Employees who are 2% shareholders at any point during the year must be taxed as such for the entire year.
Q: How do I pay taxes on the premiums if they aren't being deducted from me?
A: The total premium amount is added to the 2% shareholder's gross earnings so that the income is taxed appropriately.
When you want to contribute additional amounts to your 401(k) (common at the end of the year), use this additional payroll option by following the steps below.
Heads up:
Running a 401(k) only payroll is only available for a 401(k) plan you have not integrated with Gusto. If your 401(k) provider is integrated with Gusto, contact your 401(k) provider directly to make additional contributions that sync to Gusto.
If you need to correct historical contributions to your 401(k) from previous payrolls, submit a benefits correction.
Run a 401(k) only payroll
If you missed adding deductions or contributions to Gusto for reporting purposes, or if you need to update this information before we file your quarterly or annual taxes, follow these steps.
Before you run a 401(k) only payroll to “top off” contributions, consult with your 401(k) provider to determine 401(k) contribution amounts. It's important to keep retirement deductions or contributions up to date throughout the year so that we can be sure to create accurate W-2s for your employees.
Go to the Pay section and choose Run payroll.
Click More payroll options.
Choose Run 401(k) only payroll.
Enter a pay period to show on your employees' pay stubs.
Select a payment date.
Indicate whether you'd like other deductions and contributions to be included on this payroll.
For each employee you want to include, enter the desired deduction and contribution amounts, if applicable.
The list only includes employees who have a 401(k) selection.
Click Calculate taxes and totals.
Review the payroll details, then click Submit payroll.
Q: What's the difference between pre- and post-tax deductions?
A: Pre-tax deductions: Money is taken out of an employee’s paycheck before federal income taxes are calculated. This reduces their taxable income and may lower their overall tax liability. Examples:
Health, dental, vision, life, and disability insurance premiums
Health Savings Account (HSA) contributions
Flexible Spending Account (FSA) contributions
Traditional 401(k) contributions
Post-tax deductions: Money is taken out of an employee’s paycheck after taxes. It does not lower their taxable income. Examples:
Roth 401(k) contributions
Wage garnishments
401(k) loan repayment
Q: How do deductions show up on tax and payroll reporting?
A: Reported employee and company contributions are included on:
Employee paystubs
Payroll reports
Year-end tax forms
Q: Who pays our benefits providers?
A: It’s the employer’s responsibility to remit withheld funds directly to the appropriate entities, such as your insurance carriers or retirement plan administrators. Gusto does not pay your benefits providers. Deducted funds remain in the company bank account for your company to pay in a lump sum to your benefit provider. If your company has multiple bank accounts set up, the money remains in the account you used to process that specific payroll.
Q: Why doesn’t Gusto debit employee bank accounts directly for deductions?
A: Gusto does not generally debit employee bank accounts for deductions. Gusto is only authorized by the employer to debit funds from the company bank account, not by employees.
Q: If a benefit correction is made, how should I reimburse my employee?
A: If a correction is made to a benefits deduction and an employee must be reimbursed, Gusto will notify the company admin of the reimbursement amount. Admins, make sure to reimburse the employee on the next regular payroll or on an off-cycle payroll.
Q: How do I dismiss the task called "Review and add any missing benefits to Gusto"?
A: If you do not need to add missing benefits to Gusto, here's how to remove the task on your dashboard:
Sign in to your Gusto admin account.
Under Tasks, find the one called Review and add any missing benefits to Gusto.
Click Start.
On the right side of the task's page, click the three dots ⋮ icon.
Select Dismiss.
The task will be removed from your "Needs attention" list.