What Is a Qualified Small Employer Health Reimbursement Arrangement (QSEHRA)?
A Qualified Small Employer Health Reimbursement Arrangement (QSEHRA), also known as a small business HRA, allows businesses with fewer than 50 full-time workers that don’t provide group insurance coverage to help subsidize their employees’ healthcare costs. Any money reimbursed through the plan is tax-free for employees and tax-deductible for employers.
Unlocking the Benefits of QSEHRAs
- Tax-Free Reimbursements: Employees enjoy tax-free reimbursements for medical expenses, while businesses can benefit from tax-deductible contributions.
- Wide Range of Covered Costs: From health insurance premiums to out-of-pocket healthcare expenses, QSEHRAs cover a vast range of health-related costs.
- Scalable Contribution Limits: Contribution limits are adjusted annually based on the cost of living, ensuring they remain relevant and supportive.
How QSEHRAs Revolutionize Small Business Employee Benefits
Small businesses that can’t provide group health insurance can still assist their employees with healthcare costs annually by establishing a QSEHRA. Funded solely by the employer, these arrangements prohibit any salary reduction contributions from employees.
Businesses must offer identical terms to all full-time employees. Employees are not required to contribute towards these arrangements, and they must use reimbursements only for permissible medical expenses. Enrolled workers can offset premium costs and other out-of-pocket medical expenses with QSEHRA funds. However, to be eligible, employees and their covered household members must have minimum essential health coverage.
Annual Contribution Limits for QSEHRAs
The IRS sets QSEHRA contribution limits yearly. For 2024, the maximum allowable contribution is $6,150 for individual employees and $12,450 for employees and their eligible household members. Contributions are prorated for employees not covered for the entire year.
The History Behind QSEHRAs
QSEHRAs were introduced under President Barack Obama on Dec. 13, 2016, through the 21st Century Cures Act, with benefits becoming available from March 13, 2017. This act resolved compliance issues and penalties that impacted small businesses offering HRAs between 2014 and 2016.
Eligibility Guidelines for QSEHRAs
To offer a QSEHRA, a business must have fewer than 50 full-time employees, offer the arrangement equitably, and not have a group health plan or flexible spending arrangement. Notably, QSEHRAs are distinctly for small businesses and are separate from medium and large company HRAs.
Ensuring Compliance With QSEHRAs
To comply, QSEHRAs must be offered equally to all full-time employees. Employers report the annual reimbursement entitled for each employee in box 12 of Form W-2 using code FF. Detailed plan benefits must be communicated through summary plan descriptions under ERISA guidelines.
If an employer introduces group health insurance, it must terminate the QSEHRA plan as they cannot coexist.
Navigating Employer Deductions
As long as businesses meet QSEHRA eligibility and contribution limits, their contributions remain fully tax-deductible, making these arrangements cost-effective employee benefits.
Comparing QSEHRA with Individual Coverage HRAs
While both QSEHRAs and individual coverage HRAs cater to companies of varying sizes, QSEHRAs are exclusively for businesses with fewer than 50 full-time employees. Conversely, individual coverage HRAs can be offered by any side, including a combination plan with group health insurance.
Understanding Excepted Benefit HRAs
Excepted Benefit HRAs (EBHRAs) can be offered alongside group health plans, with no requirement for employees to enroll in the main group plan to access HRA benefits.
Conclusion
QSEHRAs provide an innovative solution to support employees’ health costs for small businesses without traditional group insurance. They serve as a tax-advantaged way for companies to help their full-time workers handle healthcare expenses, promoting employee wellbeing while remaining fiscally responsible.
Related Terms: Flexible Spending Account, Health Reimbursement Account, Affordable Care Act, Essential Health Coverage, Group Insurance.
References
- HealthCare.gov. “Exploring Coverage Options for Small Businesses: Health Reimbursement Arrangements (HRAs) for Small Employers”.
- Internal Revenue Service. “Publication 15-B: Employer’s Tax Guide to Fringe Benefits”, Page 7.
- HealthCare.gov. “Health Reimbursement Arrangements (HRAs): 3 Things to Know”.
- Congress.gov. “H.R.34 – 21st Century Cures Act”.
- Federal Register. “Health Reimbursement Arrangements and Other Account-Based Group Health Plans”.
- Nolo. “Small Businesses Can Reimburse Employees for Health Costs”.
- HealthCare.gov. “Exploring Coverage Options for Small Businesses: Individual Coverage Health Reimbursement Arrangements (HRAs)”.
- IRS.gov. “FAQs on New Health Coverage Options for Employers and Employees”, Page 5.
