As the business owner or plan administrator, you have some options and get to make the choice! Remember, the tax-free nature of the QSEHRA or ICHRA comes from having your plan documents in place, staying compliant, and having the proper year-end W-2 reporting. With our HRA platform at Take Command Health, we'll take care of that part for you. We'll track your employees' claims, and then each month, we'll deliver a Reimbursement Statement so you know exactly how much to reimburse your employee.
Getting your employees the money is the final part. Here are some of the common reimbursement methods we see:
Reimburse through your payroll system (recommended)
Write a check
Pay cash
Use Paypal or another transfer service
In this article, we'll explain how to setup and make HRA reimbursements through your payroll system. We recommend reimbursing through payroll because it makes it easy to track reimbursements, will direct deposit into your employees' accounts (assuming they have that set up), and can roll-forward automatically each month to make your job, as the administrator, much easier.
General Instructions for HRA and Payroll
Depending on the payroll provider you use, you may need to talk with your payroll administrator to help. In general though, we have some directions to help you. Employers and employees play distinct roles in the ICHRA reimbursement process. Employees pay their insurance premiums directly and submit claims for eligible expenses, while employers reimburse these claims based on detailed monthly statements provided by Take Command. These statements include employee allowances and any carryover information, ensuring accurate reimbursements.
TAX-FREE REIMBURSEMENTS (ICHRA & QSEHRA)
Because these payments aren't taxable, they don't appear on payroll tax or other tax reports.
Remember, what goes on the W-2 for QSEHRA is the amount offered and not the amount claimed. This goes on Box 12, Code FF. There are no specific tax reporting requirements for ICHRA.
To set up tax-free reimbursements:
Open or edit your employee's pay template
Add a recurring, non-taxable expense or reimbursement-type
Enter the amount provided on the Reimbursement Statement from Take Command Health and verify the accuracy of amounts to protect employee privacy and compliance with reimbursement policies.
Save or schedule for the next pay run
Most payroll systems will carry that amount forward each month. For example, if you added a $200/mo reimbursement for an employee, the recurring settings should carry that forward so that the employee will get the same $200/mo until changed. That means you'll only need to make adjustments when there is a change. This makes it super easy for premium-only HRAs, as the amounts will not change very often and can roll forward. For HRAs that include medical expenses, you'll need to make a quick edit each month beforehand if the amount is different. To help, you can choose the day of the month you'd like Take Command Health to deliver the Reimbursement Statement so that you have time to make these changes before a pay run (In the admin settings, under Reimbursements, you can change the day of the month for the Reimbursement Statement). Take Command also allows for flexible reimbursement cadences such as semi-monthly or bi-weekly in addition to the default monthly cadence. This flexibility helps align with various payroll schedules and ensures timely reimbursements for employees.
TAXABLE REIMBURSEMENTS (QSEHRA Only)
While most reimbursements through QSEHRA are tax-free, there are a few types of allowable reimbursements that must be taxed. Under IRS rules, group plan premiums paid pre-tax through a spouse's employer cannot also qualify for tax-free QSEHRA reimbursement, avoiding double benefits. To qualify for tax-free reimbursement, you must demonstrate the premium was paid post-tax, which is rare.
Taxable reimbursements are reported as income and taxed like regular Wages with income & payroll taxes withheld. You can usually enter this as an "Additional Income" or "Other Earnings" line item, but check with your payroll company on the best way to categorize it. The only taxable reimbursements through QSEHRA include premiums paid pre-tax through a spouse's employer for a group plan. Your employer has the option to allow taxable reimbursements in these instances, based on company discretion.
Correcting Reimbursement Tax Status
If an error occurs in the reimbursement tax status, you can correct it using the Take Command admin portal:
Log into the admin portal and go to 'Employee Reimbursements.'
Select the affected employee and locate the month in question.
Adjust the tax fields: Ensure the "Tax-Free" and "Taxable" fields reflect the correct amounts.
Save changes. The updated status will be reflected in your records and payroll exports.
You can choose whether or not to allow for these taxable reimbursements through your QSEHRA- if you're not sure if you allow these or not, just reach out to us and we can let you know! Additionally, the Take Command admin portal allows you to manage and adjust taxable versus non-taxable reimbursements efficiently.
Verifying Eligible Expenses under ICHRA
To confirm if specific medical expenses, such as a Direct Primary Care (DPC) membership, are reimbursable, follow these steps:
Check Your Insurance Plan: Review eligible expenses listed in the specific health insurance plan selected by the employee.
Consult the Plan Documents: Verify that the desired expense is covered under the chosen plan, as coverage depends on the plan's terms rather than the expense's origin.
End of Year W-2 Reporting (QSEHRA Only)
Although that takes care of the month-to-month reimbursements, you'll want to be aware of year-end requirements too. QSEHRA offerings have to be reported on each employee's W2 form in Box 12 with code FF. Not a big deal now, but you'll want to talk with your CPA or payroll admin to figure out how to add that amount. Some payroll systems have codes you can use to do it automatically; some may require manual edits.
Specific Providers
Ok, so those are the general instructions that should work for most payroll providers (again, you may need to ask someone at the payroll firm you use to help or share these instructions). If you use Gusto, Zenefits, or QuickBooks/Intuit Payroll, we have specific instructions to help you get started!
Click here for instructions for ADP Run When setting up ADP, use the earning category labeled "Employer Paid Individual Coverage HRA" or a similar option like "ER-Sponsored Healthcare" for accurate classification as employer-paid, non-taxable healthcare reimbursements.
Click here for instructions for Gusto Click here for instructions for Paycom Click here for instructions for Quickbooks and Intuit Online Payroll Click here for instructions for Quickbooks Desktop Click here for more information for Paychex Take Command generates a CSV format reimbursement statement tailored for Gusto, simplifying the process by directly integrating with payroll. These payments appear on employees’ paychecks, categorized as tax-exempt or taxable based on the expense type.