Managing Deduction Types & Limits with BambooHR® Payroll
What are the different payroll deduction types, federal limits, and contribution amounts? How are they taxed and reported on the W-2?
Purpose: To help you understand each payroll-related deduction type, how it’s mapped on the W-2, and its contribution limits.
It is important to think of deductions in two categories—benefit deductions and non-benefit deductions. Benefit deductions are commonly those that make your employees excited, like healthcare or retirement, and help your employees, hence the name “benefit.” Non-benefit deductions are most commonly post-tax deductions like child support, cash advance repayments, garnishments, etc. BambooHR Payroll will help support both to ensure your payroll is all-encompassing and accurate.
Deduction Types and Taxes
The table below maps out the different deduction types that sync to Payroll, its taxability, and which box each type is reported to on Form W-2:
| Deduction Type | Taxability | W-2 Box Code | Notes |
|---|---|---|---|
| 401(a) | Pre-Tax - subject to FICA tax and tax in some states | Box 14 401a | A governmental plan is an IRC Section 401(a) retirement plan established and maintained for the employees of: the United States or its agency or instrumentality; a state or political subdivision, or its agency or instrumentality; or an Indian tribal government or its subdivision, or its agency or instrumentality (participants must substantially perform services essential to governmental functions rather than commercial activities.) |
| 401(k) | Pre-Tax - subject to FICA tax and tax in some states | ||
| 401(k) After Tax | Post-Tax | After-tax contributions to a 401(k) plan are similar to Roth contributions in that they're made with after-tax dollars and don't reduce taxable income in the year the employee makes them. Unlike Roth contributions, after-tax contributions aren't subject to the annual maximum limit. | |
| 401(k) Loan Repayment | Pos-Tax | Box 12 AA | |
| 401(k) Roth | Post-Tax | Box 12 BB | |
| 403(b) | Pre-Tax - subject to FICA tax and tax in some states | ||
| 403(b) Loan Repayment | Post-Tax | ||
| 403(b) Roth | Post-Tax | ||
| 408(k) - SEP | Employer-only contribution - post-tax for the employee | Box 12 F | A Simplified Employee Pension (SEP) is a written arrangement (a plan) that allows an employer (including a self-employed individual) to make contributions toward its employees’ retirement without becoming involved in more complex retirement plans. A SEP must satisfy the requirements outlined in Internal Revenue Code (IRC) section 408(k), as well as the top-heavy requirements of IRC section 416 and the limitations on annual additions under IRC section 415. The contributions are made to traditional Individual Retirement Arrangements (not Roth or SIMPLE IRAs) of the plan participants. Under a SEP, IRAs are set up for each eligible employee. |
| 408(k) - SEP Roth | Post-Tax | Section 601 of the Secure Act 2.0 allows employers to offer employees the option to treat employee and employer SEP contributions as Roth contributions (in whole or in part). Section 601 is effective for taxable years beginning after December 31, 2022. | |
| 408(p) - Simple IRA | Pre-Tax - subject to FICA taxes and taxes in some states | ||
| 408(p) - Simple IRA Roth | Post-Tax | Section 601 of the Secure Act 2.0 allows Simple IRAs to accept Roth contributions. Section 601 is effective for taxable years beginning after December 31, 2022. | |
| 409A - Non-qualified Deferred Comp | Pre-Tax | Box 12 Y is optional and we do not report | |
| 457(b) | Post-Tax | ||
| 457(b) Roth | Post-Tax | Box 12 EE | |
| Cash Advance Repayment | Post-Tax | Deducting post-tax funds from the employee. | |
| Child Support | Post-Tax | Deducting post-tax funds from the employee. | |
| Flexible Spending Account | Pre-Tax | Optional to be reported on the W-2 but we do not report. | A General Health FSA is a tax-advantaged savings account that lets you set aside pre-tax money to pay for eligible medical, prescription, dental, and vision care expenses. |
| Garnishment | Post-Tax | Calculated based on disposable earnings. | |
| Health Savings Account | Pre-Tax | Box 12 W | A Health Savings Account (HSA) is a tax-exempt trust or custodial account you set up with a qualified HSA trustee to pay or reimburse certain medical expenses you incur. You must be an eligible individual to qualify for an HSA. |
| Limited Health FSA | Pre-Tax | Optional to be reported on the W-2 but we do not report. | A Limited Health FSA is a tax-advantaged savings account that lets you set aside pre-tax money to pay for eligible dental and vision expenses only. |
| Other Garnishment | Post-Tax | Deducting post-tax funds from the employee. | |
| Other Loan Repayment | Post-Tax | Deducting post-tax funds from the employee. | |
| Other Post Tax Deduction | Post-Tax | ||
| PFML NH | Post-Tax | ||
| PFML VT | Post-Tax | ||
| Section 125 Dep Care Benefits | Pre-Tax | Box 10 | A Dependent Care FSA is a tax-advantaged savings account that lets you set aside pre-tax money to pay for eligible dependent care expenses. |
| Section 125 Health - ER Sponsored | Pre-Tax | Box 12 DD | Qualified employer-sponsored health insurance that qualifies as section 125. |
| Section 125 Hospital Indemnity - ER | Pre-Tax | Box 12 DD | |
| Section 125 - Other | Pre-Tax | Section 125 - Other is optional and we do not report. | Used for pre-tax plan types including Accident, Cancer, Critical Illness, Dental, and Vision plans. This plan deduction type is rarely used as those plan types are normally post-tax and don't qualify as Section 125. |
| Section 132/Commuter Benefit | Pre-Tax | This deduction type is a compensation reduction agreement. A compensation reduction agreement is a way to provide qualified transportation benefits on a pre-tax basis by offering your employees a choice between cash compensation and any qualified transportation benefit. A compensation reduction arrangement can be used with a bona fide reimbursement arrangement. For each month, the amount of the compensation reduction can't exceed the monthly limits for transportation benefits described in Exclusion from wages, later. *set up as an “Other” benefit plan in BambooHR with a Plan Type of “Commuter Benefit”* |
|
| Tax Levy | Post-Tax | Calculated based on disposable earnings. |
Adding Annual Max and Cap Amounts to Deductions
There are a few deductions that allow you to set up annual max and cap amounts in BambooHR. You can add maximum contribution amounts when enrolling an employee in one of the following benefit plan types.
Once the employee is enrolled in the benefit plan, the Annual Max and Cap Amount fields will be editable for that specific benefit plan on the employee's Benefits tab or under the Deductions section of their Pay Info tab.
| Benefit Plan | Plan Type | Employee Pays | Company Pays |
|---|---|---|---|
| Retirement | ALL except 409A and 501(c)(18)(D) | Annual Max | Annual Max |
| Retirement | 409A | - | Annual Max |
| Health Savings Account (HSA) | - | Annual Max | Annual Max & Cap Amount |
| Flex Spending Account (FSA) | General Healthcare | Annual Max | Annual Max |
| Flex Spending Account (FSA) | Limited Healthcare | Annual Max | Annual Max |
| Life Insurance | - | Annual Max & Cap Amount | Annual Max & Cap Amount |
| Disability | - | Annual Max & Cap Amount | Annual Max & Cap Amount |
| Other | Post-Tax Deduction | Annual Max & Cap Amount | Annual Max & Cap Amount |
| Other | Commuter Benefit | Annual Max | Annual Max & Cap Amount |
Federal Limits
BambooHR does not collect and remit payments for third-party vendors for any benefit plans.
BambooHR® Payroll automatically recognizes the annual maxes for some retirement plans and catch-up amounts based on the employee's birth date in BambooHR. These include 401(k), 401(k) Roth, 403(b), 401(b) Roth, 457(b), and 457(b) Roth.
The following deductions, ages, and federal limits are hard-coded in BambooHR. Please note that you will receive an error if the amount you enter for the employee's annual max exceeds the federal limits listed below.
| Deduction Type | Age From | Age To | Federal Limit | Federal Limit Includes Total of Employee Pays & Company Pays |
|---|---|---|---|---|
| 401(k) | 0 | 49 | $23,500 | No |
| 401(k) | 50 | 59 | $31,000 | No |
| 401(k) | 60 | 63 | $34,750 | No |
| 401(k) | 64 | 130 | $31,000 | No |
| 401(k) Roth | 0 | 49 | $23,500 | No |
| 401(k) Roth | 50 | 59 | $31,000 | No |
| 401(k) Roth | 60 | 63 | $34,750 | No |
| 401(k) Roth | 64 | 130 | $31,000 | No |
| 403(b) | 0 | 49 | $23,500 | No |
| 403(b) | 50 | 59 | $31,000 | No |
| 403(b) | 60 | 63 | $34,750 | No |
| 403(b) | 64 | 130 | $31,000 | No |
| 403(b) Roth | 0 | 49 | $23,500 | No |
| 403(b) Roth | 50 | 59 | $31,000 | No |
| 403(b) Roth | 60 | 63 | $34,750 | No |
| 403(b) Roth | 64 | 130 | $31,000 | No |
| 457(b) | 0 | 49 | $23,500 | Yes |
| 457(b) | 50 | 59 | $31,000 | Yes |
| 457(b) | 60 | 63 | $34,750 | Yes |
| 457(b) | 64 | 130 | $31,000 | Yes |
| 457(b) Roth | 0 | 49 | $23,500 | Yes |
| 457(b) Roth | 50 | 59 | $31,000 | Yes |
| 457(b) Roth | 60 | 63 | $34,750 | Yes |
| 457(b) Roth | 64 | 130 | $31,000 | Yes |
| Health Savings Account | 0 | 54 | $8,550 | Yes |
| Health Savings Account | 55 | 130 | $9,550 | Yes |
| **Health Savings Account (Single) | 0 | 54 | $4,300 | Yes |
| **Health Savings Account (Single) | 55 | 130 | $5,300 | Yes |
| **Flex Spending Account | 0 | 130 | $3,300 | No |
| **Flex Spending Account - Limited | 0 | 130 | $3,300 | No |
| **FSA Dependent Care (Single or Married Filing Jointly) | 0 | 13 (dependent's age) | $5,000 | Yes |
| **FSA Dependent Care (Married Filing Separately) | 0 | 13 (dependent's age) | $2,500 | Yes |
**Please be aware of FSA and HSA (Single) limits. Unlike the others listed in this table, BambooHR will not automatically cap these deductions, and you should manually monitor them for the individual employees on the payroll as they apply.