Track Employee Benefits

You can track employee benefits and determine if benefits are exempt from various taxes. A benefit is money deducted from an employee's paycheck for special services, such as 401(k) investments, medical insurance, and dental insurance. These deductions have specific tax consequences.
  1. On the Payroll tab, click Tax Setup > Benefits/Allowances > Employee Benefits.
  2. Enter the necessary information.
    • Name—Enter a unique name for the benefit.
    • W2 Letter—Enter a letter code for this type of benefit from the list on the back of the W-2 form. The code letter prints in Box 12 of the W-2. Some common codes used for Box 12 include:
      • Code C – Taxable cost of group-term life insurance over $50,000.
      • Code AA – Designated Roth contributions under a section 401(k) plan.
      • Code DD – Cost of employer-sponsored health coverage.
        Note: The Affordable Care Act requires employers to report employer-provided health coverage costs on employees' Form W-2. For more information, see the IRS requirements for reporting employer-provided health coverage.
    • Exempt From—Select the appropriate checkboxes if the benefit is exempt from that tax. If an item is selected as exempt, the benefit is subtracted before taxes are calculated.
  3. At the top, click Save.