Wondering how QSEHRA works? As a small business owner looking to offer employees health benefits, the Qualified Small Employer HRA (QSEHRA) is a great benefit for you to utilize. QSEHRA gives you flexibility when offering your employees health benefits. No longer forced to settle with a one size fits most group plan, your employees can purchase their own health insurance from the individual marketplace and then be reimbursed for premiums and medical expenses.
How does QSEHRA work?
The way QSEHRA works is super simple.
- Employers choose a monthly allowance that works for their budget.
- Then, employees purchase an individual health insurance plan that works best for their family.
- After that, employees get reimbursed for premiums and qualified medical expenses.
The best part? This is all tax-free. No income tax, no employer tax, no payroll tax.
The nice thing about Qualified Small Employer HRA QSEHRA is that there is no minimum contribution requirement. If you have never offered health benefits before, this gives you a chance to ease your way into the benefit world.
Typically we recommend at least 50% of a Bronze plan premium, but ultimately the contribution amount is up to you.
While there is no minimum contribution requirement, there is a maximum contribution amount. For 2023 QSEHRA contribution limits, businesses with less than 50 employees can contribute a maximum of $5,850 for individual employees (this adds up to $487.50 per month) and a contribution of $11,800 for employees with a family (this adds up to $983.33 per month).
Can I change the QSEHRA reimbursement amount I want to offer anytime?
Yes, contribution amounts can be changed during the year with a 90 day notice required. While you can adjust the contribution amounts during the year, we recommend changing at the end of the year when your employees will be able to change plans during open enrollment (Nov-Dec 15).
Do I have to setup a separate bank account for the company or each employee for a QSEHRA?
HRA stands for Health Reimbursement Arrangement (not account). You are not required to set up a separate bank account to manage the HRA. Larger companies may find it easier to run the HRA through a special dedicated account though.
Can I contribute different QSEHRA reimbursement amounts for my employees?
To remain compliant, the HRA must be made available in a fair manner to your employees. You can vary rates based on employee stats (full-time vs part-time), employee age, or family status (single, couple, or family). As long as everyone that fits the criteria you set is treated fairly, you are good to go.
Part-time, contractors, and seasonal workers can be excluded or reimbursed at a different rate.
If you're interested in offering different amounts to different types of employees (like salary vs, hourly) check out the Individual Coverage HRA (ICHRA), which allows you to do that.
Are QSEHRA contributions and reimbursements subject to payroll and income tax?
Nope! There are many things to like about small business HRA’s but not having extra taxes to pay are definite perks!
Still wondering how QSEHRA would work for you?
Still wondering the best way to get started? Take Command can help. Our new small business platform will handle all the accounting and legal legwork of QSEHRA, take care of onboarding each of your employees, and make tax time easy and painless. You'll never have to hassle with receipts or worry about setting up a health plan again.
Hungry for more? Check out the overview chapter in our handy new QSEHRA Guide!
This post was originally published in 2017 and has been updated in 2023 to reflect all the exciting changes going on in the HRA world.
