The IRS released the 2026 QSEHRA limits in October 2025,¹ providing small businesses with updated reimbursement maximums for the upcoming year. For employers with fewer than 50 full-time equivalent employees, these QSEHRA contribution limits determine how much you can reimburse employees tax-free for health insurance premiums and qualified medical expenses.
Understanding the 2026 QSEHRA reimbursement maximum is essential for budget planning and ensuring your health benefits remain competitive. This guide covers everything you need to know about QSEHRA limits 2026, from the specific dollar amounts to how these limits work in practice.
What is a QSEHRA?
A Qualified Small Employer Health Reimbursement Arrangement (QSEHRA) is a tax-advantaged health benefit designed specifically for small businesses. Instead of offering traditional group health insurance, employers provide employees with a monthly allowance to purchase their own individual health coverage and pay for medical expenses.
QSEHRAs work through a straightforward reimbursement process. Employers set a monthly contribution amount within IRS limits, employees purchase their own health insurance and pay for qualified medical expenses, then submit documentation for tax-free reimbursement up to their allowance.
Who can offer a QSEHRA?
To offer a QSEHRA, businesses must meet specific eligibility requirements:
- Have fewer than 50 full-time equivalent (FTE) employees
- Not offer a traditional group health insurance plan
- Offer the QSEHRA to all full-time W-2 employees on equal terms
Employees must have minimum essential coverage (MEC)—such as individual marketplace health insurance—to receive reimbursements. The QSEHRA is exclusively for W-2 employees, not independent contractors.
2026 QSEHRA reimbursement maximum
The IRS announced the 2026 QSEHRA limits through Revenue Procedure 2025-32, released on October 9, 2025.¹ These QSEHRA contribution limits reflect inflation adjustments using the chained Consumer Price Index.
2026 QSEHRA limits
Self-only coverage
- Annual maximum: $6,450
- Monthly maximum: $537.50
Family coverage
- Annual maximum: $13,100
- Monthly maximum: $1,091.66
2026 vs. 2025 QSEHRA limits
The 2026 QSEHRA limits increased from 2025:²
- Self-only coverage: $100 increase (1.57% from $6,350)
- Family coverage: $300 increase (2.34% from $12,800)
These modest increases reflect ongoing cost-of-living adjustments while maintaining the tax-advantaged structure that makes QSEHRAs attractive to small businesses.
How QSEHRA contribution limits work
QSEHRA contribution limits are structured as annual maximums with monthly distribution. Understanding how these limits function is important for both budget planning and employee communications.
Annual limits with monthly availability
While the IRS sets annual QSEHRA limits,³ funds become available to employees monthly. Employees cannot access the full annual amount in January. Instead, their reimbursement allowance is distributed evenly across 12 months.
If an employee has a large medical expense exceeding their monthly allowance, reimbursement can be carried forward to subsequent months until fully paid, up to the annual maximum.
Proration for Mid-Year Eligibility
Employers must prorate QSEHRA limits for employees who become eligible mid-year.⁴ The annual limit is multiplied by the fraction of the year the employee is eligible.
For instance, an employee with self-only coverage hired in May would be eligible for 8 months. Their prorated annual limit would be $6,450 × (8 ÷ 12) = $4,300, distributed at $537.50 per month across those 8 months.
Why QSEHRA contribution limits exist
QSEHRA limits ensure tax compliance while providing structure for the benefit. Staying within these IRS contribution limits preserves the tax-advantaged status of reimbursements for both employers and employees. Exceeding the limits results in excess amounts becoming taxable income to employees.
Historical QSEHRA contribution limits
Looking at QSEHRA limits over time provides context for planning and helps employers understand the benefit's trajectory. The IRS adjusts these limits annually for inflation.
Setting contribution amounts within QSEHRA limits
Employers have flexibility in setting contribution amounts within the IRS maximums. The key requirement is that contributions must be applied fairly and consistently to all eligible employees.⁹
Common contribution approaches
Uniform contributions: Offer the same amount to all employees regardless of coverage type. This approach is simple to administer but doesn't reflect varying healthcare needs.
Maximum contributions: Provide each employee with the full IRS maximum based on their coverage category. This maximizes benefit value but represents the highest cost for employers.
Tiered by family size: Create multiple contribution levels based on number of dependents. When varying by family size, contributions must be based on a percentage of marketplace plan premiums or QSEHRA limits.
Age-based contributions: Vary amounts based on employee age, following marketplace premium structures (typically a 3:1 ratio).¹⁰ This aligns with actual healthcare cost patterns but requires more complex administration.
Fair contribution requirements
Regardless of approach, QSEHRA contribution limits must be applied consistently within employee classes. Employers cannot vary contributions based on health status or claims history. All contribution structures should be clearly documented and communicated to employees.
Tax advantages of QSEHRA
QSEHRAs provide significant tax benefits for both employers and employees, making them cost-effective alternatives to traditional group health insurance.
Employer tax benefits
All QSEHRA contributions are fully tax-deductible business expenses¹¹. Reimbursements are not subject to FICA, Medicare, or federal unemployment taxes, providing additional savings compared to salary increases. Unlike group health insurance with unpredictable annual renewals, QSEHRA costs remain entirely under employer control.
Employee tax benefits
Employees receive QSEHRA reimbursements completely tax-free when they maintain minimum essential coverage¹². These reimbursements are excluded from employees' gross income and not reported as wages in Box 1 of the W-2, though they appear in Box 12 with code FF.
A $6,450 QSEHRA reimbursement provides significantly more value than a $6,450 salary increase, which would be subject to federal, state, and payroll taxes.
Planning for 2026 QSEHRA limits
Strategic planning ensures your QSEHRA contribution amounts align with both your budget and local healthcare market conditions.
Evaluate local healthcare costs
Before setting contribution amounts, research individual marketplace premiums in your area. The 2026 QSEHRA limits may fully cover premiums in lower-cost markets while leaving gaps in high-cost metropolitan areas. Understanding local premium costs helps determine whether the QSEHRA contribution limits provide adequate employee support.
Budget considerations
Calculate your total QSEHRA costs based on eligible employee count and projected family status distribution. Factor in the tax deductions you'll receive and payroll taxes you'll save. Compare these costs to traditional group health insurance premiums to understand your options.
Competitive positioning
Consider what other employers in your market offer for health benefits. Your QSEHRA contribution amounts should be competitive enough to attract and retain talent while fitting within your financial capacity. Remember that you can adjust contribution amounts annually, though reductions should be communicated well in advance.
Planning for growth
As your business grows, ensure your QSEHRA structure remains sustainable. Consider whether you have room to increase contributions as QSEHRA limits rise annually. Plan for how approaching 50 employees might affect your eligibility, since QSEHRAs are only available to businesses under that threshold.
Get expert help with QSEHRA 2026
Understanding QSEHRA contribution limits and implementing them effectively requires careful planning. Take Command specializes in helping small businesses navigate QSEHRA limits 2026 and design contribution structures that work within their budgets.
Our team can help you determine whether the 2026 QSEHRA reimbursement maximum provides adequate support for your employees based on local marketplace premiums, calculate total costs and tax savings, and structure contributions fairly within the new limits.
Ready to make the most of QSEHRA limits 2026? Talk to a Take Command expert for personalized guidance on maximizing your health benefits budget.
FAQ
What are the QSEHRA limits for 2026?
The 2026 QSEHRA limits are $6,450 annually for self-only coverage ($537.50/month) and $13,100 annually for family coverage ($1,091.66/month). These represent the maximum amounts employers can reimburse employees tax-free for health insurance and medical expenses.
How much did QSEHRA limits increase from 2025 to 2026?
QSEHRA contribution limits increased $100 for self-only coverage (from $6,350 to $6,450) and $300 for family coverage (from $12,800 to $13,100). These increases reflect inflation adjustments using the chained CPI.
Can I offer less than the maximum QSEHRA limits?
Yes. The IRS sets maximum QSEHRA contribution limits, but employers can offer any amount up to those maximums. Many businesses offer partial amounts based on their budget and local healthcare costs. Whatever amount you choose must be applied consistently to all eligible employees.
What happens if I reimburse more than the QSEHRA limits?
Reimbursements exceeding the annual QSEHRA limits become taxable income to employees and must be reported on their W-2. This also jeopardizes the tax-advantaged status of your QSEHRA. Implementing proper tracking systems helps prevent exceeding the limits.
Do QSEHRA limits apply per employee or per employer?
QSEHRA contribution limits apply per employee, not per employer. Each eligible employee can receive up to the annual maximum based on their coverage type. There is no cap on total employer spending across all employees—only on individual employee reimbursements.
When are new QSEHRA limits announced each year?
The IRS typically announces new QSEHRA contribution limits in October for the following year. These announcements come through Revenue Procedures that include various cost-of-living adjustments for employer benefits. The 2026 limits were announced on October 9, 2025.
References
- IRS Revenue Procedure 2025-32, Section .63 (October 9, 2025). Retrieved from https://www.irs.gov/pub/irs-drop/rp-25-32.pdf
- Benafica. (2025). "QSEHRA Contribution Limits Updated for 2026." Retrieved from https://benafica.com/qsehra-contribution-limits-updated-for-2026/
- Salusion. (2025). "2026 QSEHRA Contribution Limits for Small Employers." Retrieved from https://salusion.com/learning-center/qsehra-contribution-limits-2026/
- HSA for America. (2025). "What Are the QSEHRA Contribution Limits for 2026?" Retrieved from https://hsaforamerica.com/blog/what-are-the-qsehra-contribution-limits/
- HealthEquity. (2025). "IRS raises FSA, commuter contribution limits for 2026." Retrieved from https://blog.healthequity.com/irs-raises-fsa-commuter-contribution-limits-for-2026
- Mercer. (2025). "2026 health FSA, other health and fringe benefit limits now set." Retrieved from https://www.mercer.com/en-us/insights/law-and-policy/2026-health-fsa-other-health-and-fringe-benefit-limits-now-set/
- IRS Revenue Procedure 2023-23, Section .63 (2023).
- IRS Revenue Procedure 2022-24, Section .63 (2022).
- IRS Notice 2017-67, Questions and Answers on Qualified Small Employer Health Reimbursement Arrangements. Retrieved from https://www.irs.gov/pub/irs-drop/n-17-67.pdf
- WorldatWork. (2025). "IRS Provides 2026 Limits for FSAs, Transport Fringe Benefits, Etc." Retrieved from https://worldatwork.org/publications/workspan-daily/irs-provides-2026-limits-for-fsas-transport-fringe-benefits-etc
- Internal Revenue Code Section 213(d), Medical, Dental, etc., Expenses.
- Internal Revenue Code Section 106, Contributions by Employer to Accident and Health Plans.
Last updated: January 2026. QSEHRA limits are subject to annual IRS adjustments. Always consult with a qualified benefits advisor for guidance specific to your situation.
