Small business HRAs, known as QSEHRAs, were defined in December 2016 as part of the 21st Century Cures Act. The idea behind QSEHRA is that small employers with fewer than 50 full-time employees can offer their employees reimbursement for health insurance premiums and eligible medical expenses tax-free. Since its inception, the IRS has issued guidance outlining how QSEHRA is set up and run. 

For the most comprehensive source of information, check out QSEHRA Guide for a detailed description of all of the rules, requirements, and benefits!

Here's an overview of the QSEHRA rules to know before getting started.

Key QSHERA Rules to know

For the Employer

  • Must have fewer than 50 full-time employees

  • Must not offer a group health plan to employees

Eligible Employees

  • QSEHRAs can exclude employees who have not completed 90 days of work, are under 25 years of age, part-time or seasonal employees

  • Employees must provide proof of coverage of their health insurance plan that meets the standards for Minimum Essential Coverage (MEC).

  • Health insurance that meets MEC must be maintained in order to receive reimbursements tax-free.

  • If employees receive a premium tax credit for their insurance premiums from the marketplace they must notify HealthCare.Gov or their marketplace of the QSHERA benefit. The QSEHRA benefit will reduce the premium tax credit of the employee dollar for dollar.

Contribution Amounts

  • Must be funded solely by the employer (i.e., employees cannot contribute to the fund)

  • Annual maximum contributions for 2022 are $5,450 ($454.16/month) for single employees and $11,050 ($920.83/month) for families.There are no minimum contribution amounts. 

  • Provided to all eligible employees under the “same term requirement”- the allowance can vary based on age or number of individuals covered such as “individual” or “family”

Written Notice

  • Employer must provide its eligible employees a written notice to each eligible employee at least 90 days before the beginning of each year or, for an employee who is not eligible to participate at the beginning of the year, the date on which the employee is first eligible to participate in the QSEHRA. 

  • Penalty of $50 per employee (up to a maximum of $2,500 per calendar year per eligible employer) for failure to provide the written notice.

  • We prepare this document for you, and it will be available to both you and your employees in your member portals.


  • The QSEHRA can be set up to reimburse premiums only or premiums plus medical expenses.

  • Employers reimburse their employees directly.


  • For all QSEHRA reimbursements, the employer must report the amount of benefit the employee was eligible for on the W-2 box 12 using code FF

  • In addition, if the reimbursement is taxable (either for over-the-counter drugs purchased without a prescription, or premiums paid on a pre-tax basis for coverage under a spouse's employer group health), they are also reported as wages subject to income tax withholding, and are included in box 1, box 3, and  box 5 of the Form W-2.

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