The QSEHRA may not reimburse the medical expenses incurred by an individual without Minimum Essential Coverage (MEC). However, if the employer discovers that a reimbursement was mistakenly made during a month the individual did not have MEC, the employer must report the following on the W-2:

(a) The amount of the taxable reimbursement received during any month or months when the individual whose medical expense was reimbursed did not have MEC is included in the gross income of the employee as other compensation in box 1, Wages, tips, and other compensation. 

(b) The taxable reimbursements reported in box 1 are excluded from wages under sections 3121(a)(2)(B) and 3306(b)(2)(B) for purposes of Federal Insurance Contributions Act (FICA) taxes (including social security and Medicare taxes) and Federal Unemployment Tax Act (FUTA) taxes, respectively. Thus, the taxable reimbursements included in box 1 should not be included in box 3, Social security wages, or box 5, Medicare wages and tips. 

(c) The taxable reimbursements are also excluded from wages for purposes of federal income tax withholding. See section 3401(a)(20).

(d) The permitted benefit reported in box 12 using code FF will be the same amount that would have been reported had there been no failure to maintain MEC. 

(e) If the employer discovers the lapse in MEC after filing the Form W-2 with the Social Security Administration (SSA) for the calendar year, the employer must furnish the employee a Form W-2c, Corrected Wage and Tax Statement, and file the Form W-2c with SSA.  

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