[US] Payroll Deduction Features

In Wave, you can enter deductions that will reduce employees' taxable earnings and will be reflected on the Form W-2.

To enter a deduction to an employee's wages, go to the Payroll menu on the left-hand side:

  1. Click Employees
  2. Click the name of the employee
  3. Click Benefit & Deductions
  4. Choose to Deduct from Pay
  5. You will be able to choose which type of deduction you are using, and how often you would like it to occur

Insight on each deduction option are included below:

 

Section 125 - cafeteria plan should be used for any health, dental and vision deductions as well as life insurance up to $50,000. These amounts reduce taxable wages reported in Boxes 1, 3, and 5 on Form W-2, Wage and Tax Statement, as well as under Box 12 with Code DD. It's important to note that although Health Savings Accounts (HSA) and Flexible Spending Accounts (FSA) Dependent Care and Medical contributions are reported separately, the premium health plan amounts (including a Health FSA) are to be deducted using the Section 125 deduction. Additionally, employer contributions will only need to be reported on Form W-2 if you have 250 employees or more during the year.

 

Health Savings Account (HSA) is a savings account to which both employees and employers can contribute, and can be used to pay or reimburse medical expenses. Contribution amounts roll over year after year. The contribution limit can vary from person to person and are determined by a number of different factors. Please note that this feature in Wave is for HSA contributions only and not for your employees health premium contributions (such as a High Deductible Health Plan)
The employee contribution amount reduces wages in Boxes 1, 3, and 5 and is also reported in Box 12 with Code W on Form W-2.

At year-end, if you have made any employer contributions to the HSA, these must be reported as well. Please reach out to Support to let us know the employer amount you have contributed, as well as the employee name for whom the reporting is needed. We don’t need to know the employee contribution amount as this should already be recorded in Wave.

 

Flexible Spending Arrangement (FSA) Dependent Care & Medical Contributions are contributions your employees can make through their FSA that also reduces taxable income. There is a limit to how much can be contributed to both, as well as specific reporting requirements on Form W-2:

  • Dependent Care Contributions: Reduces wages in Boxes 1, 3, and 5 and is also reported in Box 10 on Form W-2. The contribution limit for 2019 is $5,000.
  • Medical Contributions: Reduces wages in Boxes 1, 3, and 5 on Form W-2 but is not reported in a separate box. The contribution limit for 2019 is $2,700 regardless of marital status.

 

401(k) contributions should be used for employee contributions to their 401(k) plan - this includes Traditional 401(k), safe harbor 401(k), and SIMPLE 401(k) plans. These contributions will reduce amounts in Box 1 on Form W-2, but not 3 and 5, as this kind of deduction is still subject to Social Security and Medicare. Contribution amounts will also appear in Box 12 with Code D, and Box 13 will be marked under "Retirement Plan." Please be advised that this deduction feature in Wave is not to be used for Designated Roth contributions. The maximum employee contribution for 2019 is $19,000.

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