Small businesses are considered the “United States’ economic engine.” They drive job growth and innovation. Their success is vital to all of us, so it’s important to understand the unique challenges that small businesses face. Nearly a quarter of them say providing healthcare to their employees is their biggest concern.
The qualified small employer health reimbursement arrangement (QSEHRA) was rolled out in 2017 to make it easier for small-business owners to offer a benefits plan. Offering a QSEHRA lets you deliver healthcare savings for your employees, which could pay off as a retention and recruitment tool as you grow your business.
What is a QSEHRA?
A QSEHRA gives employers the opportunity to fund a tax-advantaged benefits plan that employees can tap into to pay for eligible expenses. You and your employees both save money because your reimbursements of their expenses are tax-free for you and your employees.
What employers are eligible to offer one?
QSEHRA rules state that, in order to offer this plan to your employees, you must:
- Employ fewer than 50 employees.
- Not be subject to Affordable Care Act coverage requirements.
- Not offer a group health plan – which is defined as group health, dental or vision – to any of your employees.
What expenses are eligible?
QSEHRA eligible expenses are determined by IRS Code Section 213(d) and, in the case of QSEHRAs, includes individual health insurance premiums paid by the employee.
How do I offer a QSEHRA?
There are a few simple – but important – steps to follow when offering a QSEHRA. Make sure to determine:
- What your contribution amounts will be. In 2022, the IRS allows you to contribute $5,450 per year to an employee and $11,050 per year to an employee plus family.
- Which employees are eligible. By law, all full-time employees are required to be eligible and participate, but you may exclude other employees (including those who are part-time or seasonal).
- What your written notice will include. You must provide a written notice to your employees 90 days before the start of the plan year informing them of the QSEHRA. That notice must also be provided to new employees on their first day of work.
How does it work for my employees?
The process is simple! In order to be eligible, the employee must be covered and provide you with proof of minimum essential coverage (MEC). Failure to do so may result in tax consequences, including employer reimbursements being included in their taxed income. All employee expenses must be substantiated in order to be reimbursed.
Would you like to learn more about HRAs with WEX? Check out our HRA product page.
The information in this blog post is for educational purposes only. It is not legal or tax advice. For legal or tax advice, you should consult your own counsel.