If you offer insurance or other benefits outside of Gusto, you can set up pre-tax payroll deductions for your team. This lets you collect employee contributions through payroll deductions, and we'll also include the reported employee and company contributions on year-end tax forms.
Where the deducted money goes: all benefit deductions remain in your company bank account so you can pay your company's insurance premiums directly to your carriers. If your company has multiple bank accounts set up, the money remains in the account you used to process that specific payroll.
If Gusto is the broker of your health insurance or you've set up a Guideline 401(k) through Gusto, you don't need to take any action to manage deductions — they're automatically integrated with payroll.
Follow these steps 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.
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."
Once you've already set up deductions for a benefit that the company offers, you can add employees anytime.
On the next regular payroll you run, the deduction will show up on the employee's paystub as its own line item under "Employee Earnings."
Gusto calculates deductions automatically but if you want to understand the behind-the-scenes math, here's how it works:
Example: say your team is paid semi-monthly, and you receive a garnishment court order that an employee owes $125 every two weeks. After you enter this amount and frequency into Gusto, here's how the deduction per pay period is calculated:
If your employees' benefit contributions have changed, you can edit their payroll deductions.
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.
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.
The next time you run payroll, the employee won't be deducted for the benefit(s) you disabled.
If you no longer offer a benefit to your team, you'll want to disable their payroll deductions.
This disables the deduction for all 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.
For S-Corp or LLC companies, the IRS requires that health insurance premiums paid by the company to employees with a greater than 2% ownership be reported as wages (not pre-tax benefits, and included on their W2s). For more information, review Notice 2008-1 from the IRS.
To set up benefits for 2% shareholder employees:
Note: If you have benefits with Gusto, your 2% shareholder-employee settings will be managed internally.
If you need assistance understanding how this will affect payroll, please contact customer support from the Help section of your Gusto account.
FAQs about 2% shareholders:
Q: Which benefits must be taxed as wages for 2% shareholders?
A: Medical, Dental, Vision, HSAs, and more must be taxed as wages. Please review Publication 15-B to view all a full list of benefits that are treated as wages.
Q: What if a 2% shareholder status changes part way 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.
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. If you missed adding these to Gusto for reporting purposes, or need to update this information before we file your quarterly or annual taxes, follow the steps below to add them retroactively.
Step one: Add retirement benefits
First, make sure your retirement benefits are set up properly by following the steps in the Set up a benefit deduction dropdown—you'll find retirement options under the "Financial Health" section.
Step two: Run an off-cycle payroll
Once you have everything set where you like it, you save these deductions and contributions by running an off-cycle payroll with a $0 net deduction. Follow these steps:
Note: your employee will not be paid by running this off-cycle payroll. This will just make sure the imputed pay is recorded, and the taxes will be paid and remitted to the appropriate agencies.
Step three: Disable or adjust benefit amounts
Once steps one and two are complete, either disable the benefit entirely by removing it OR, adjust the amounts to reflect the per-payroll deduction amount that you’d like apply to future payrolls. This option will make sure the deductions and contributions are being recorded for your employees' W2s moving forward.