In addition to meeting the company size requirement, an eligible employer can’t offer a QSEHRA in conjunction with any other group plan. Employers who currently provide a group health insurance policy can cancel it if they want to offer a QSEHRA in its place. Employers cannot offer a group health plan to any employees, ensuring that QSEHRA benefits remain the sole health benefit provided.

Employers should review their current offerings to confirm compliance with this requirement. A QSEHRA is a Health Reimbursement Arrangement (HRA) designed for small businesses that do not provide group health insurance. Employees can utilize the pretax funds alongside a Marketplace health plan or Medicare. Although that takes care of the month-to-month reimbursements, you’ll want to be aware of year-end requirements too.

Exploring coverage options for small businesses

Please note that vitamins, supplements, and probiotics are not classified as over-the-counter drugs and will require a letter from a doctor stating the medical need for reimbursement. Although the individual MEC option won’t work with Cash Benefit Plans, the MEC may still be worth it so that your Medical Expenses and OTC Drugs are reimbursable if allowed by the QSERHA’s plan design. Let our team of experienced and licensed professionals help you adp qsehra evaluate your options. Limits in 2023 were $487.50 per month for employee-only contributions and $983.33 per month for contributions towards employees with families/dependents. This resource provides you with seven proven strategies to maximize your benefits. Here’s the best part—unlike working with a third-party QSEHRA administrator, our software simply acts as a support system for self-administrators, so you’re always the one calling the shots.

Flexibility for Employees

You qualify for a Special Enrollment Period if you’ve had certain life events, including losing health coverage, moving, getting married, having a baby, or adopting a child. Small businesses can choose how much they want to reimburse, but each full-time employee must be eligible for the same reimbursement amount. For each subsequent reimbursement request, employees must prove MEC is still in place for the period during which the medical expense was incurred. Finally, businesses can also adjust the contribution amounts to QSEHRAs based on their budget and financial circumstances.

Create a summary plan description

Employer-sponsored benefits can help attract and retain employees, but group health insurance plans may be too costly for some small businesses. A qualified small employer health reimbursement arrangement (QSEHRA) is one option for certain employers who want to offer health care perks to employees without breaking their budget. In its W-2 instructions, the IRS added a new stipulation, specifically for employers with a QSEHRA. Note that the IRS is only interested in what the employee was entitled to, and this amount may vary from what the employee actually received. The allowed benefit amount should not include carryovers from previous years, only the permitted available funds for the current year.

• Employers are also free to set maximum reimbursement limits without the fear of locking their employees into a particular plan, network or insurance company.
• While reimbursement amounts can vary based on family status or age, such variations must be applied uniformly.
• The Qualified Small Employer Health Reimbursement Arrangement (QSEHRA) offers a practical solution by enabling employers to reimburse employees for medical expenses, including insurance premiums.
• As a small business owner, it can be challenging to offer competitive employee benefits that attract and retain top talent.
• Instead, employers reimburse employees for qualified medical expenses up to the specified annual allowance.

Before joining the team in 2023, Holly worked in television news as a broadcast journalist. QSEHRAs are a health benefit for businesses with under 50 full-time employees. They allow a company to offer its staff a tax-free reimbursement for health insurance premiums and other qualifying health expenses. It’s essentially an IRS-approved HRA for small businesses that don’t have the ability or need to provide traditional group plan health insurance to their employees. Offering an ICHRA to employees meets the employer mandate set forth in the Affordable Care Act for companies with more than 50 full time equivalent employees. With QSEHRAs, employers also have control over how much they contribute to each employee’s healthcare expenses.

Cash Benefit Plans

In IRS Publication 502, these plans fall under “Insurance Plans You Can’t Include” on page 9. All premiums for individual Major Medical plans meet the MEC requirements and are considered eligible for reimbursement on a pre-tax basis. One type of HRA is a QSEHRA, specifically designed for small businesses that do not offer their employees a group health insurance plan. This amount is usually consistent for all employees within a specific category. Once the employee’s Marketplace or Medicare health insurance coverage applies, the person may use the money to cover any remaining out-of-pocket expenses. Running a QSEHRA involves some administrative responsibilities which can be burdensome for smaller businesses without dedicated HR resources.

An ICHRA is a specialized type of HRA that first came about in 2020. They’re designed to allow employers of all sizes to compensate their employees for individual market premiums. Employers are also free to set maximum reimbursement limits without the fear of locking their employees into a particular plan, network or insurance company.

Yes, provided you are a citizen or resident of the United States that has established your tax home in a foreign country. See IRS Section 5000A(F)(4) and Section 911(d)(1) for more information and consult your tax advisor. For more information about using a QSEHRA abroad, see this blog article. Sharing Ministry members have a special exemption under the Affordable Care Act from maintaining MEC; however, Sharing Ministries themselves do not meet the MEC requirements. The goal of this guide is to help you understand all of the things that can be reimbursed by a QSEHRA. Not only does an ICHRA fit any budget, it’s also easy to set up and manage.

How does a QSEHRA compare with other HRAs?

But the IRS does set an annual limit for maximum employer contributions that changes every year. Offering a QSEHRA can be a game-changer for small businesses looking to support their workforce with medical costs. One other key point on medical expenses – if you have a Health Savings Account (HSA) or other reimbursement account, you can continue to use it, but you can’t use a QSEHRA to fund it. If you have a medical expense, say a $100 doctor bill, you can choose to use either your HSA or your QSEHRA to cover it pre-tax. Even though QSEHRA was brand-new in 2017, regulations governing health plans have changed significantly since then and IRS guidance has not yet caught up.

• QSEHRA is a health benefit designed specifically for small businesses with fewer than 50 employees.
• Accurate reporting is crucial to avoid penalties and maintain compliance with IRS requirements.
• However, they can use the funds with either a Marketplace insurance plan or Medicare or Medicaid if they qualify.
• The yearly period (November 1 – January 15) when people can enroll in a Marketplace health insurance plan.

Get excited too—you’ll find you have much greater flexibility on how to spend your benefit dollars to fit your needs rather than a one-size-fits-all group plan or worse yet, nothing at all. Under the ACA, « excepted benefits » are those not covered by traditional health plans. For example, you can use employee classes to provide different allowances to full-time employees and part-time employees. Or offer an ICHRA exclusively to salaried employees or hourly employees.

Employers review the expenses and, if it qualifies under the terms of their QSEHRA, they approve the request. Since QSEHRA reimbursements are tax-free, both the employer and the employee benefit from tax breaks under this structure. In this article, we’ll explain how to setup and make QSEHRA reimbursements through your payroll system (since the other methods are a bit more self-explanatory). The introduction of QSEHRA has helped many small businesses stay on top of their budgets, while also offering health benefits to their employees. Integrated HRAs are sponsored by the employer and consist of a health plan provided to employees with a reimbursement of their medical expenses.

You’re likely to see conflicting guidance if you search around the internet—some stuff is just out-of-date (“HRA” guidance before QSEHRA) and some of it is just wrong. We’ll do our best here to keep things up to date and will provide as many references and links to authoritative sources as we can. A time outside the yearly Open Enrollment Period when you can sign up for health insurance.

Typically, health insurance plans available on the exchange meet the MEC requirements, too. To use a QSEHRA, a small business must offer minimum essential coverage to its employees as defined by the Affordable Care Act. If those two qualifications are met, then the employer can set up the QSEHRA. QSEHRAs are also portable, meaning employees can take their reimbursement funds with them if they leave the company.

Thus, the employee can get these medical procedures done, and the employer can get a tax break without the high cost of a full coverage plan. It’s also important to note that reimbursements are only tax-free to your employees if they have a health insurance plan that meets MEC. If you mistakenly reimburse an employee who doesn’t have MEC, they may need to pay back their reimbursement or pay taxes on that amount.