Qualified Small Employer Health Reimbursement Arrangements, also known as QSEHRAs, were defined in December 2016 as part of the 21st Century Cures Act. The idea behind QSEHRA was to give employers with fewer than 50 full-time employees the opportunity to offer their employees tax-free reimbursements for both health insurance premiums and eligible medical expenses. 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 our 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 QSEHRA 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, are 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 either their state or national marketplace (such as Healthcare.gov) they must notify the marketplace of the QSEHRA benefit. The QSEHRA benefit will reduce the premium tax credit of the employee dollar for dollar. (NOTE: This can vary according to the calculated affordability of the benefit, for more information, click here!)
Contribution Amounts
Must Be:
Funded solely by the employer (i.e., employees cannot contribute to the fund)
Annual maximum contributions for 2023 are $5,850 ($487.50/month) for single employees and $11,800 ($983.33/month) for families. There are no minimum contribution amounts.
Annual maximum contributions for 2024 are $6,150 ($512.50/month) for single employees and $12,450 ($1,037.50/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 in the employee’s account such as a spouse or children.
Written Notice
The 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.
A 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.
Reimbursements
The QSEHRA can be set up to reimburse premiums only or premiums and medical expenses.
Employers reimburse their employees directly.
Reporting
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 (e.g. 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 boxes 1, 3, and 5 on Form W-2.