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.
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
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.
QSEHRA contribution maximum
- Must be funded solely by the employer (i.e., employees cannot contribute to the fund)
- Annual maximum contributions are $5,250 for self only coverage and $10,600 for family coverage in 2020. There are no minimum contribution amounts.
- 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”
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
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!
I wrote this blog because I love helping people decode confusing insurance jargon and understand the fine print. I'm a licensed health insurance professional and specialize in simplifying health insurance for individuals and small businesses. My QSEHRA articles have been featured regularly on Accounting Today, Accounting Web, HRWeb, and other industry publications. I'm also a member of Take Command Health's client success team and a full-time mom. Learn more about me and connect with me on our about us page. Thanks!