QSEHRA

A small-business health benefit

A QSEHRA, short for qualified small employer health reimbursement arrangement, was created for small businesses that do not offer a group health plan. It lets the employer reimburse employees for individual health insurance premiums and qualified medical expenses, up to annual limits set by the IRS.

Who can offer one

• Employers with fewer than 50 full-time equivalent employees.
• Employers that do not offer a group health plan to any employees.

Key rules

• Annual caps set by the IRS each year, with separate limits for self-only and family coverage.
• Must be offered to all eligible full-time employees on the same terms, though amounts can vary by age and family size.
• Employees need minimum essential coverage, such as an individual plan, to receive tax-free reimbursements.
• Written notice must be given to employees in advance.

How it interacts with subsidies

If an employee buys a Marketplace plan and qualifies for a premium tax credit, the QSEHRA amount reduces that credit. If the QSEHRA is considered affordable, the employee may lose the credit altogether. Employees must report their QSEHRA allowance to the Marketplace.

Example

Monica runs a salon with six employees. She cannot justify a group plan, but she wants to help her stylists with health costs. She sets up a QSEHRA with a monthly allowance near the IRS limit.

• One stylist, single and healthy, picks a bronze plan and uses the allowance to cover the premium.
• Another, with two kids, buys a family plan and uses the allowance toward premiums and pediatric copays.
• Monica's cost is capped and predictable.

QSEHRA vs ICHRA

• Employer size: QSEHRA is for fewer than 50 full-time equivalents; ICHRA works for any size.
• Limits: QSEHRA has IRS caps; ICHRA has no maximum.
• Employee classes: ICHRA allows different allowances by class; QSEHRA generally requires the same terms for all eligible employees.
• Coverage type: QSEHRA accepts minimum essential coverage; ICHRA requires individual coverage.

Tax treatment

Qualified reimbursements are generally excluded from employee income and are generally a deductible business expense for the employer. Like ICHRAs, QSEHRAs typically cannot reimburse owners of sole proprietorships, partnerships or most S corporations as employees.

Marketplace vs private plans

Employees can use a QSEHRA for Marketplace plans or other minimum essential coverage. Some private plans may not qualify, so confirm before an employee enrolls.

Our guides on small business owner health insurance and ICHRA employer stipends compare the options. To set up coverage that works for your team, request a quote.

General information, not tax advice — confirm with your CPA based on your specific entity structure.