7 questions to confirm your small business qualifies for a tax-free health reimbursement account.
QSEHRA is exclusively for employers that are NOT Applicable Large Employers (ALEs) under the ACA. Count all full-time employees plus part-time hours converted to FTE equivalents. If you're at or above 50 FTEs, look into ICHRA instead.
You cannot run a QSEHRA at the same time as a traditional employer-sponsored group health plan. If you currently offer group coverage, you'd need to terminate it before establishing a QSEHRA.
The IRS requires uniform availability — you must offer the same benefit terms to all eligible employees. You may set waiting periods for new hires and exclude part-time or seasonal workers, but among eligible employees the benefit must be equal.
QSEHRA reimbursements are tax-free to employees only if they have qualifying health coverage (individual ACA plan, Medicare, CHIP, etc.). Employees without MEC can still participate, but reimbursements become taxable income for them.
A formal Section 105 plan document is legally required before you make any reimbursements. This document outlines eligibility, benefit amounts, and claims procedures. Without it, reimbursements are treated as taxable wages.
The IRS sets annual limits on QSEHRA reimbursements. Amounts above these limits are taxable.
Individual: $6,350/year | Family: $12,800/yearQSEHRA reimbursements are excludable from employees' gross income and deductible for the employer — but only when administered correctly. Verify the setup with your accountant or benefits advisor before your first reimbursement.
If you answered yes to all 7 questions, your business is likely eligible to establish a QSEHRA. The next step is drafting a plan document and issuing the required employee notice — at least 90 days before your QSEHRA coverage begins.
If you answered no to any question, review whether ICHRA (Individual Coverage HRA, available to employers of any size) or a group plan may be a better fit.