A Qualified Small Employer Health Reimbursement Arrangement (QSEHRA) is a tax-advantaged tool for businesses with fewer than 50 full-time equivalent employees. It allows employers to reimburse employees for eligible medical expenses, including health insurance premiums. QSEHRAs provide an alternative to traditional group health insurance by giving employees the flexibility to choose their own coverage while enabling employers to control costs.
Key Features of a QSEHRA
- Tax Benefits:
- Reimbursements are excluded from the employee's gross income, meaning they are free from federal income taxes and Social Security and Medicare (FICA) taxes.
- Employers can deduct QSEHRA reimbursements as an ordinary and necessary business expense, reducing taxable income.
- Cost Control:
- Employers set an annual reimbursement limit, determining how much they are willing to reimburse employees.
- While all reimbursed expenses must qualify under Section 213(d), the employer decides which specific expenses (e.g., premiums, co-pays, or prescriptions) are eligible for reimbursement.
- Employee Choice:
- Employees select health insurance plans and medical services that best meet their needs, offering flexibility compared to one-size-fits-all group plans.
- Simplified Administration:
- QSEHRAs are easier to manage than traditional group health plans and involve fewer compliance requirements, making them ideal for small businesses.
By using a QSEHRA, employers can provide meaningful, tax-efficient support to employees’ healthcare needs while maintaining control over costs and administrative complexity.
