The complete list: QSEHRA rules to remember

QSEHRA rules are important to understand before you set up a Qualified Small Employer HRA. 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. 

QSEHRA Rules

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

QSHERA Rules for Employers

Here are the QSEHRA rules that employers need to abide by.

• Must have fewer than 50 full-time employees
• Must not offer a group health plan to employees

Let's expound upon that.

To offer a QSEHRA, the business must be a “small employer” in the eyes of the IRS with less than 50 full-time employees (defined in IRS section 4980H(c)2). The second rule is that the business can't have a group health plan. The small business or non-profit cannot have a traditional group health plan (defined in IRS section 5000(b). This makes sense—the purpose of a QSEHRA is to reimburse for individual health insurance, so a business cannot have a group health plan at the same time. This restriction does not apply to non-health group benefits like life insurance or disability insurance.

QSEHRA Rules for Employees 

Here are the QSEHRA rules that employees need to remember. 

• 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.

→ Read up on how ARPA affects COBRA and QSEHRA. 

To be QSEHRA eligible, employees must be covered by a plan that provides Minimum Essential Coverage.  MEC plans include major medical plans, Medicare, Medicaid, etc. Faith-based sharing ministries, short-term plans, and indemnity plans are not MEC but may be able to be supplemented with a MEC offering in order to qualify. An employee can also be covered by a spouse's plan or parent's plan. The employee must also be an actual employee; 99% of the time that means they are W-2 employees.

QSEHRA contribution maximum  

• Must be funded solely by the employer (i.e., employees cannot contribute to the fund)
• For 2024 QSEHRA limits, businesses with less than 50 employees can contribute a maximum of $6,150 for individual employees and a contribution of $12,4500 for employees with a family.
• 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”

Find more on 2024 QSEHRA limits here.

QSEHRA 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.

QSEHRA Reimbursement Rules 

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

QSEHRA Reporting Rules 

• The employer must report the amount of benefit the employee was eligible for on the W-2 box 12 using code FF. 

→ Learn about what to expect from a QSEHRA provider

Special enrollment periods and QSEHRA

A new update as of January 2020, employers who decide to offer a QSEHRA now prompt an open enrollment period, which gives employees 60 days to purchase qualifying plans. This is a big improvement and makes finding a plan easier for employees!

Owner Eligibility and QSEHRA

Wondering if you can participate in your own QSEHRA as an owner? It depends on how your company is set up. 

Here's the gist.

1. 1. C Corps are legal entities separate from the owners, so the business owner and dependents can utilize a QSEHRA.

   2. S- Corps prevent businesses from being taxed by passing any profits and losses through shareholders personal income tax returns. Because of this set-up a share-holder is considered self-employed, and not an employee, therefore making them ineligible to participate in a QSEHRA. IRS rules extend to family members including: spouse, parents, children, and grandchildren. Even if family members are W-2 employees at your business they are still not able to participate in the QSEHRA. The owner is not an employee and will not qualify for the QSEHRA. For an S-Corp, the owner's dependents cannot participate as a W-2 employee, either. 

   3. Partnerships also are not subject to income tax. Partners are directly taxed, making them self-employed and not eligible for participation. Bottom Line: business owner cannot participate in QSEHRA. The Loophole: if the partner’s spouse is a W-2 employee (and not a partner spouse) then the owner can participate in the QSEHRA as a dependent of the spouse.

Still have questions about QSEHRA rules?

Take Command makes setting up an HRA for your business easy. Our team will help you set your budget, take care of the admin paperwork, and help your employees pick a plan that suits their needs. No need to worry about finding the perfect plan that has the right doctor network or prescription coverage, ultimately leaving someone left out and disgruntled. With the HRA, each employee picks the perfect plan for them that fits within your budget.  Sounds like a win-win to us!

Hungry for more? Check out our reimbursement rules chapter in our handy new QSEHRA Guide!