The amount reported on the W-2 is the amount of payments and reimbursements that the eligible employee is entitled to receive from the arrangement for the calendar year. 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.
Who is an "Eligible Employee?"
When determining which employees have to have the benefit reported on their W-2, remember that their eligibility is determined by how you structure your QSEHRA, not whether they have eligible coverage. For example, if you structure your QSEHRA to allow all employees who:
- Are regularly scheduled to work 35+ hours per week and
- Have been employed at your company for at least 30 days
Then all full-time employees who have been employed for 30+ days are "Eligible Employees."
Whether or not they have insurance or have an eligible reimbursement claim to make does not matter as long as they are "Eligible" according to your plan documents.
How to Calculate the Benefit
Example 1: Employee is eligible all year.
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.
Example 2: Employee was not eligible until mid-year.
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 the employee was not eligible to participate the entire year, the amount must be prorated.
Example 3: Employer did not begin QSEHRA until mid-year.
Employer provides a QSEHRA that begins on April 1, 2020. From April 1, 2020 to December 31, 2020 the QSEHRA provides a permitted benefit of $2,000.
On the 2020 W-2, the employer reports a permitted benefit of $1,500 ($2,000 x 9/12) for calendar year 2020.
If the QSEHRA was not in effect for the entire year, the amount must be prorated.