Qualified Small Employer Health Reimbursement Arrangements

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Qualified Small Business Health Reimbursement Arrangement

In 2013, IRS Notice 2013-54 issued guidance on the Affordable Care Act that seriously limited businesses’ ability to use health reimbursement arrangements (HRAs).

Congress recognized the importance of HRAs to small businesses, though. A bipartisan group of senators and representatives introduced legislation called the Small Business Healthcare Relief Act (SBHRA), which created a new HRA—the QSEHRA—specifically for small businesses.

In December 2016, the SBHRA was repackaged and passed as part of the larger 21st Century Cures Act.

The QSEHRA provisions went into effect January 1, 2017.

How does the QSEHRA work?

The QSEHRA is a company-funded, tax-free health benefit used to reimburse employees for personal health care expenses.

With a QSEHRA, businesses offer employees a monthly allowance. Employees then choose and pay for health care, potentially including insurance policies, and the business reimburses them up to their allowance amount.

With the QSEHRA, all reimbursements are free of payroll tax for the business and its employees. Reimbursements can be free of income tax for employees, too, if the employee is covered by a policy providing minimum essential coverage (MEC).

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