What to know: Reporting QSEHRA benefits on W-2s
The employer must report the amount of payments and reimbursements that the eligible employee is entitled to receive from the arrangement for the calendar year in box 12 of the W-2 using code FF.
*Please note, this amount may differ from what the employee actually received. The IRS is only interested in the amount the employee was entitled to.
- Example: A QSEHRA provides a permitted benefit of $3,000/year. Employee receives reimbursements of $2,000 from the arrangement. Employer reports a permitted benefit of $3,000 in box 12 of W-2 using code FF.
If the employee was not eligible to participate the entire year the amount must be prorated.
- Example: A QSEHRA provides a permitted benefit of $3,000, prorated by month for employees not eligible for the full year. Employee becomes eligible on May 1 for a permitted benefit of $2,000 ($3,000 x 8/12) for the year. Employer reports a permitted benefit of $2,000 in box 12 of W-2 using code FF.
If your QSEHRA only allows for tax-free reimbursements, then that's it! There is no where else you have to report the benefit on the W-2.
There are two types of claims that are eligible for taxable reimbursement under QSEHRA:
- over-the-counter drugs purchased without a prescription
- premiums paid on a pre-tax basis for coverage under a group health plan sponsored by the employer of the eligible employee’s spouse
As the employer, you have the option of whether or not to include taxable reimbursements for one or both of these types of claims in you QSEHRA.
If you do offer taxable reimbursements, you will still report the offered benefit in box 12 as explained below.
You will also include the actual amount reimbursed on a taxable basis as Wages:
(a) The taxable reimbursements are wages subject to income tax withholding, and are included in box 1.
(b) The taxable reimbursements reported in box 1 are included in wages for purposes of FICA taxes (including Social Security and Medicare taxes) and FUTA taxes. Thus, the taxable reimbursements included in box 1 must also be included in box 3 and box 5.
End of Year Support from Take Command Health
Take Command Health will send you a final annual report after December reimbursements in the first week or two of January to specify exactly how much to report and where. We're here to help!