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 must then remit 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, you do not need to set up deductions—they're automatically integrated with payroll.
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A few types of benefits have their own instructions—click a link below to learn more about a specific benefit.
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.
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.
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 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:
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:
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.
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:
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 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.
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:
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 with a greater than 2% ownership be reported as wages (not 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:
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:
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.
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 taxes. It lowers their taxable income and can lower their taxes. Examples:
Post-tax deductions: Money is taken out of an employee’s paycheck after taxes. It does not lower their taxable income. Examples:
Q: How do deductions show up on tax and payroll reporting?
A: Reported employee and company contributions are included on:
Q: Who pays our benefits providers?
A: It’s the employer’s responsibility to send withheld funds directly to the appropriate entity (your insurance carrier, retirement plan administrator, etc.). 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 let the company admin know the reimbursement amount. Admins, make sure to reimburse the employee on the next regular payroll or on an off-cycle payroll.