This article is for employers who need to set up payroll deductions or contributions for benefits offered through providers outside of Gusto.
This lets you collect employee contributions through payroll deductions and report employer contributions. Your company is responsible for remitting these payments to the provider. We include the reported employee and company contributions on employee paystubs, payroll reports, and 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.
Related articles:
To correct a benefit deduction that was already taken from a prior payroll, see Correct a benefit deduction that has already been taken.
To take a one-time post-tax deduction while running payroll, see Take a one-time post-tax deduction while running payroll.
To enter previous payroll info when you onboard to Gusto, see Enter previous payroll info when onboarding to Gusto.
Where you go to set up a deduction depends on the benefit type. Find your benefit type below to see where to go:
401(k) – see the 401(k) setup instructions.
Life insurance – see the life insurance setup instructions.
SIMPLE IRA – see the SIMPLE IRA setup instructions.
Medical, dental, and vision – see “Set up health benefit deductions” below.
S-corp owner (2% shareholder) medical, dental, and vision – see “Set up health benefits for S-corp 2% shareholder-employees” below.
HSA – see “Set up Health Savings Account (HSA) deductions” below.
Any other benefit type – see “Set up any other benefit type” below.
Set up any other benefit type
To set up a benefit deduction for a type not listed above, follow these steps. First, you'll enter the amount and frequency. Then, you'll choose which employees to include.
Go to the Benefits section.
You need to have benefits or global permissions to view and set up benefits.
Click Add existing benefit under Already have benefits?.
Find and click the type of benefit you're adding.
If prompted, select Manually manage benefit.
If you're interested, learn more about transferring your company's benefits to Gusto.
Fill out the requested details and click Save and continue.
Set a default employee deduction amount and employer contribution amount that will apply automatically to all the employees you enroll. If some employees have unique amounts, you can edit them after you finish setting up the benefit.
If you need to catch up on any missed amounts, you can enroll the employee at a higher amount. Make sure you reduce the amount once they're caught up.
Select all participating employees and click Save and continue.
Select the insurance carrier.
Indicate the month in which this benefit renews. This is often the same month it began, but check 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 your next regular payroll, the deduction and any contribution will show up as line items under Employee Earnings on the employee's paystub.
Note: All benefit deductions stay in your company bank account, so you can pay your provider directly in a lump sum. Invoices are always paid directly to your insurance carrier. If your company has multiple bank accounts, the money stays in the account you used for that payroll.
To set up deductions or report company contributions for group health insurance—including medical, dental, or vision plans covered under Section 125—follow these steps.
If your company is taxable as an S-corp and has owners (2% shareholders) enrolled in the group plan, as long as they're marked as a shareholder in Gusto, the deductions and contributions will be taxed as wages per IRS regulations.
Go to the Benefits section.
You need to have benefits or global permissions to view and set up benefits.
Click Add existing benefit under Already have benefits?.
Select the benefit type you need to set up (medical, dental, or vision).
Select Manually manage benefit.
If you're interested, learn more about transferring your company's benefits to Gusto.
Confirm that this is a group health plan and click Continue.
The exception is if you're setting up company contributions or reimbursements to an S-corp owner's (2% shareholder) individually owned insurance. If that's you, see “Set up health benefits for S-corp 2% shareholder-employees” below.
Employees enrolled in this benefit who have deductions will have those deductions applied pre-tax. Reimbursements to an employee's individual health plan typically cannot be pre-tax.
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 check 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.
After you set up your first health benefit deduction, you may be prompted to confirm that you have the appropriate Section 125 compliance documentation. This documentation is required to apply employee deductions pre-tax on payroll. If you're not sure, select Yes, I'd like to explore this with Gusto, and a licensed benefits advisor will contact you.
To set up deductions or report company contributions for an HSA you offer through a third party, follow these steps.
Go to Benefits.
You need to have benefits or All access admin 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: Enter a company contribution here, 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 your next regular payroll, deductions will appear on each enrolled employee's paystub as a line item under Employee Earnings.
Note: All benefit deductions stay in your company bank account, so you can pay your provider directly in a lump sum. Invoices are always paid directly to your insurance carrier. If your company has multiple bank accounts, the money stays in the account you used for that payroll.
Once you've set up deductions for a benefit, you can add employees to it anytime. To add an employee to an existing deduction, follow these steps.
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 deduction in step 9.
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 contribution in step 9.
Click Save.
If you need to edit or customize any employee's individual deductions or contributions, find their name and click Edit benefit. Enter their deduction and contribution amounts, then click Save.
On your next regular payroll, the deduction will appear on the employee's paystub as its own line item under Employee Earnings.
Note: All benefit deductions stay in your company bank account, so you can pay your provider directly in a lump sum. Invoices are always paid directly to your insurance carrier. If your company has multiple bank accounts, the money stays in the account you used for that payroll.
We apply the amount you enter for each employee to every payroll. Here's how we recommend calculating that amount:
Annualize the amount. Take the employee's premium, separate it into employee and employer portions, and multiply it by the number of months they'll be enrolled (typically 12).
Divide that number by the number of pay dates your company will run during the enrollment period. Pay dates per year depend on your payroll schedule: weekly is 52, bi-weekly is 26, semi-monthly is 24, and monthly is 12.
The result is the amount the employee will be deducted per regular paycheck.
Example: Your team is paid bi-weekly. An employee enrolls in medical coverage with a $250 premium, of which their portion is $125 a month. Here's how Gusto calculates the deduction per pay period:
First, we annualize the premium amount. $125 x 12 months = $1,500 due per year.
We divide the annualized amount by the number of pay dates your company has per year. With a bi-weekly schedule, that's 26 pay dates. $1,500 ÷ 26 paycheck dates = $57.69 per paycheck.
The employee's deduction is $57.69 pre-tax from every regular paycheck.
If you need to fix a discrepancy, you can temporarily edit the employee's per pay period amount. Just make sure to change it back once the employee is caught up.
Edit an individual employee's deduction or company contribution
If your employee's benefit amount changed, or you need to catch up on a missed deduction, follow these steps to edit their deduction or contribution.
Go to the People section.
Select the employee.
Go to their Benefits tab.
Next to the benefit you created, click Edit.
Update 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 the benefit contributions to your insurance carrier.
If you increase deductions or contributions temporarily to make up for missed amounts, remember to reduce them once the employee is caught up. Otherwise, the increased amount will apply to all future payrolls.
Rename a benefit deduction
To update the name of a benefit or its carrier, follow these steps.
Go to the Benefits section.
Click the tile of the benefit you'd like to update.
Find the Benefit Details box and select Edit Details.
Update the benefit name or carrier.
Note: Updating a benefit's name retroactively changes previous paystubs.
If you've stopped offering a benefit to your whole team or to one employee, follow the steps below to disable the deduction.
If an employee is no longer enrolled in a benefit you offer, follow these steps to disable the deduction.
This disables deductions for the selected employee only. Other enrolled employees are not affected, and you can re-enroll this employee later 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 do not see this option for an insurance benefit, the plan is probably managed by Gusto. If Gusto is your broker, the employee can submit a Qualifying Life Event to change their coverage. If you change their employment status, we'll automatically end their coverage if their eligibility changes.
Choose how you want to remove the deduction:
To unenroll the employee but make it easy to re-enroll them later: under Currently Active? select No, stop making deductions and contributions for now. The benefit stays listed on the employee's Benefits tab but is labeled Inactive.
To unenroll the employee and remove the benefit from their Benefits tab completely: click Remove this benefit. If you need to re-enroll them later, you can 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, check for these common causes:
Your company ran payroll before you made the deduction change.
An employee did not have enough pay to cover all taxes and deductions.
The employee was skipped on payroll.
The annual contribution limit has been met (like with an HSA, or 401(k)).
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. Shareholder benefits are only taxable for state and federal income tax, not FICA taxes (Social Security and Medicare). 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 your company offers group health insurance and your 2% shareholders participate, follow the steps under “Set up health benefit deductions” above. As long as your 2% shareholders are marked appropriately in Gusto, we'll apply the right taxes to their deductions and contributions.
To set up payroll reporting when your company contributes to, pays for, or reimburses a 2% shareholder for a health plan they own (through the marketplace, a spouse's plan, and more), follow these steps.
First, go to the People section to confirm the employee is marked as a 2% shareholder.
Click the employee's name.
Under Work, make sure 2% Shareholder says Yes.
If you're unable to update their status, contact us by clicking the help icon in the top-right corner of the page.
Next, set up a new benefit deduction.
Go to the Benefits section.
You need to have benefits or global permissions to view and set up benefits.
Click Add existing benefit under Already have benefits?.
Select the benefit type you need to set up (medical, dental, or vision).
Select Manually manage benefit.
Select No, our employees buy their own individual plans when asked if this is a group plan.
Select Yes when asked if this is for an S-corp owner.
If this question does not appear, your company is likely not set up as an S-corp, or as a C corp or LLC taxed as an S-corp. Change your entity type first.
Fill out the benefit name.
Select a carrier and renewal month if known.
Add the 2% shareholder to the benefit with the desired per pay period contribution amount (see “How to calculate per pay period benefit amounts” above for help), then click Save and continue.
If no employees are listed, no one is marked as a 2% shareholder yet. Go back to step 2.
If you need to make up for missed contributions, add the total amount due here—it will apply on the next payroll. Remember to come back and edit the amount before the following payroll.
Here's how these amounts are 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, subject to federal and state income tax only — not FICA tax.
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 for a full list of benefits that are treated as wages. These amounts are subject to federal and state income tax only, not to Federal Insurance Contributions Act (FICA) tax.
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: We add the total premium amount 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.
Important:
Running a 401(k) only payroll works only 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 add extra contributions, consult your 401(k) provider to determine the contribution amounts. Keeping retirement deductions and contributions up to date all year helps us 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' paystubs.
Select a payment date.
Indicate whether you'd like to include other deductions and contributions in this payroll.
For each employee you want to include, enter the desired deduction and contribution amounts, if applicable.
This 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 come out of an employee's paycheck before we calculate federal income taxes. This reduces their taxable income and may lower their overall tax liability. Examples include:
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 come out of an employee's paycheck after taxes. They do not lower taxable income. Examples include:
Roth 401(k) contributions
Wage garnishments
401(k) loan repayment
Fringe benefits and imputed pay (like personal use of a company car)
Q: How do deductions show up on tax and payroll reporting?
A: We include reported employee and company contributions 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, like your insurance carriers or retirement plan administrators. Gusto does not pay your benefits providers. Deducted funds stay in your company bank account so you can pay your benefit provider in a lump sum. If your company has multiple bank accounts, the money stays in the account you used for that payroll.
Q: Does Gusto debit employee bank accounts directly for deductions?
A: No. Gusto is only authorized by the employer to debit funds from the company bank account, not from employees directly.
Q: If a benefit correction is made, how should I reimburse my employee?
A: If we make a correction to a benefits deduction and an employee needs to be reimbursed, we'll 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: An employee's benefit amounts have been under- or over-reported. How do I fix that?
A: If you have remaining payrolls in the applicable tax year, you can temporarily increase or decrease the employee's per pay period benefit amount to address the discrepancy. It's important to remember to change the amount back to the correct per pay period value once the employee is caught up.