Who is eligible to offer a QSEHRA?
You can offer a QSEHRA to your employees if:
- You are a small employer with less than 50 employees and
- You do not offer a group health plan
Keep in mind, certain benefits count as a group health plan, including FSA’s and other HRA’s.
I’m not an eligible employer if I offer an FSA?
Unfortunately, no. However, if you suspend access to funds accumulated in previous years, you are considered eligible to provide your employees a QSEHRA.
When can I begin a QSEHRA?
Eligible employers can begin their QSEHRA any time during the year. For non-calendar plan years, you would simply report the amount provided to employees for the months within that calendar year on the corresponding tax forms.
How much money can I provide to my employees?
Depending on how you designed your QSEHRA, the amount you can provide to employees depends on the year. For the 2018 year, the maximum contribution is $5,050 for individuals and $10,250 for families. The following year’s maximum contribution amounts are typically posted in mid-October.
Wait, I can provide different benefit amounts to different employees?
Yes! You can provide a single amount for all employees, or you can provide different amounts based off of an employee’s age or family size. As long as you follow the “Same Terms Requirement”, you are safe to provide your employees different benefit amounts.
Who is considered an “eligible employee”?
Eligible employees are determined by the employer in the terms of the QSEHRA on a case-by-case basis. Employers can exclude specific employees based on age and employment status. These exclusions can include an employee who has not completed 90 days of employment, part-time or seasonal employees, or employees under age 26. Eligible employees count as all employees except those who are excluded as determined in the terms of the QSEHRA.
So I can provide a QSEHRA to part-time employees?
Yes you can! As long as the terms of the QSEHRA include part-time employees as eligible employees, the QSEHRA can be provided. The part-time employees must be offered the full benefit amount that full-time employees are provided. This also applies to seasonal employees and those under age 26.
What about retired employees or other former or non-employee owners?
A QSEHRA can only be offered to employees. Retired employees, former employees, and non-employee owners are not eligible to participate in a QSEHRA.
What are the participation rules as it relates to owners of small businesses?
That all depends! See below for an easy to follow rule of thumb:
Business owners who are eligible:
- LLC taxed as a Corporation
Business owners who are not eligible:
Business owners who may be eligible:
Is your spouse a W2 employee? Then you are eligible as long as you are their dependent:
- Single-Member LLC
- LLC taxed as a Partnership or S-Corporation
What can a QSEHRA reimburse?
When setting up a QSEHRA, you as the employer have the ability to include, or exclude, certain expenses. You can set up your QSEHRA to only reimburse insurance premiums or you can choose to also include other out-of-pocket medical expenses.
How do the reimbursements work?
QSEHRA is a Health Reimbursement Arrangement, it is not a bank account. So all reimbursements are made only after a request has been submitted by the employee and substantiated with supporting documentation. If the employees don’t submit requests for reimbursement, then the employer keeps the unused money. We will provide you with a monthly report that you can either use to reimburse through payroll or pay by check or other disbursement means.
What happens to the available funds that are not used?
It’s up to you! You have the ability to choose whether the excess funds are forfeited at the end of the year or if they roll over to the next year. Just know, any benefit amount that is rolled over to the next year cannot be paid out if the new plan year benefit amount + the rolled over amount exceeds the annual maximum limits.
What are the requirements to participate in a QSEHRA?
There are a couple of requirements that you need to meet in order to be an eligible employee: (1) you must be a W2 employee and (2) you and any dependents must be covered under a primary health plan that meets Minimum Essential Coverage (MEC) for all months you are provided a QSEHRA. Part-time or Seasonal employee? Check with your employer to see if the terms of the QSEHRA include you as an eligible employee.
What is a plan that meets Minimum Essential Coverage (MEC)?
The Affordable Care Act set requirements for health coverage that must be met in order to avoid paying a penalty for not having qualifying insurance. Typically, plans that qualify as meeting MEC are job-based plans, Medicare, Medicaid, and plans purchased on the Marketplace. For more information, visit https://www.healthcare.gov/glossary/minimum-essential-coverage/.
How do I show proof that I am covered under a plan that meets MEC requirements?
Prior to submitting any reimbursement request, you must provide proof that you and any dependents are covered under an insurance plan that meets MEC requirements. Proof can include a document from your insurer, such as your insurance card or an Explanation of Benefits and an attestation that the coverage is MEC. Remember, you need to provide proof each year you are provided a QSEHRA.
Once I prove I am covered under an MEC plan, what’s next?
After you have submitted proof that your insurance plan meets MEC, you can begin submitting reimbursement requests for your premiums and medical expenses. Depending on the terms of your employer’s QSEHRA, you can be reimbursed for premiums and other out-of-pocket medical expenses as outlined in Publication 502.
What if I am covered under my spouse’s employer-sponsored plan, can I submit that for reimbursement?
If the terms of your QSEHRA allow it, yes you can. You can submit premiums for a plan purchased on the Marketplace, Medicare, Medicaid, or a spouse’s plan as long as it meets MEC requirements. Something to remember: if your spouse’s plan is paid for with pre-tax dollars, your QSEHRA reimbursement will be subject to taxes. But again, this depends on how your employer set up the terms of the QSEHRA.
I don’t have traditional health insurance, but instead participate in a Sharing Ministry, like MediShare. Does that count as an MEC plan?
Unfortunately, no it does not. Sharing Ministries are not insurance policies and it is our belief that it does not meet the MEC requirements to be a qualifying health plan.
How do I submit a request for reimbursement if the total amount exceeds my monthly benefit amount?
No worries. Submit your request for reimbursement once. You will receive your reimbursement that month and any remaining amount left will be paid in subsequent months without any other submissions from you.
What if I don’t use the full benefit amount for that month?
Whatever benefit amount you don’t using during a month gets rolled over to the next month...then the next month… then the next month, all the way up to the end of the plan year. Depending on the terms of your QSEHRA, the unused balance is either forfeited at the end of the plan year or it is rolled over to the next year. But remember, if your unused balance is rolled over to the next year, you cannot be reimbursed more than the max benefit amount set by the IRS for that year.
How does a QSEHRA work when determining if an employee is eligible for a premium tax credit?
Great question. Employees are not eligible for a premium tax credit if they are eligible for coverage under an employer-sponsored plan that is affordable and provides minimum value. When the employer offers a QSEHRA, the employee would not be eligible for a tax credit if the amount that the employee pays out-of-pocket for premium after the QSEHRA benefit has been deducted does not exceed 9.56% of the employee’s household income. Keep in mind, only the single coverage is used for this calculation if different benefit amounts are offered.
Confused? Don’t worry, we will help answer any questions you have about the premium tax credit.
What if the employee is eligible for a premium tax credit?
If the employee finds that they are eligible for a premium tax credit, it is their responsibility to report the QSEHRA amount provided (not used). This is because the QSEHRA amount provided reduces the premium tax credit available dollar for dollar. For example, if the the employee is eligible for a $500 premium tax credit, but their QSEHRA benefit is $300 a month, then the employee would only be able to use $200 of the premium tax credit.
Do I include a benefit amount that was rolled over from the previous year when reporting my QSEHRA amount?
Nope. The full QSEHRA amount was reported the previous year, so you don’t need to report any unused amount that was rolled over to the next year.
What do I need to get my company started on a QSEHRA?
Getting a QSEHRA started is simple. Cancel any group health plans you have in place (if applicable), establish the terms and benefit amounts of your QSEHRA in your Plan Documents, communicate your QSEHRA to employees, and provide a process for employees to enroll and submit expenses. Sound complex? Don’t worry! BeniComp will handle all of this for you.
I’m an employee and I want to sign up for my employer’s QSEHRA. What do I do?
All you need to do is enroll in your QSEHRA and submit proof of your qualifying health plan. After that, you are ready to begin submitting requests for reimbursements.
My employer provides a QSEHRA that allows for premium and medical expense reimbursement. What types of medical expenses can I submit?
Medical expenses are eligible for reimbursement under a QSEHRA if they meet Section 213(d) of the Internal Revenue Code. We steer people toward Publication 502 for more detailed information on what is eligible.
Are out-of-pocket expenses eligible if I incurred the service before my QSEHRA but paid for it during my QSEHRA plan year?
No. Reimbursements are determined based off of the date of service, not when the service was paid for.
What is the “Same Terms Requirement”?
Under section 9831 (d)(2)(C), the maximum contribution an employer can provide under a QSEHRA during a calendar year may differ between employees based on an employee’s age or family size. However, these variances must be provided on a uniform and consistent basis. For example, if you want to provide the maximum reimbursement amount for single employees, you must also offer the the maximum reimbursement amount for employees who have families.
Are there any rules on how I explain the QSEHRA to my employees?
Yes. There are communication requirements that the IRS has set that must be met, or the employer could be faced with a $50 fine per employee. Communication about a QSEHRA must be sent to employees either 90 days prior to the plan year or, for newly eligible employees, no later than the first day of eligibility.
What must be included in the communication to employees?
The communication to your employees about a QSEHRA must include:
- The benefit amount provided to each eligible employee,
- A statement that the eligible employee must maintain a primary plan that meets MEC, and
- Inform the employees they are responsible for informing any insurance Marketplace the QSEHRA amount provided by their employer when calculating the Premium Tax Credit (PTC).
Can both an Employer and an Employee contribute to a health savings account (HSA) and still provide a QSEHRA?
Yes! As long as the terms of the QSEHRA only allow for insurance premium reimbursement, both the Employer and the Employee can make pre-tax contributions to an HSA.
How do I report all of this to the IRS?
Each employee will need to have the total amount eligible for reimbursement under the QSEHRA reported on their W2. This is done using code “FF” in box 12. If the employee was not eligible for the QSEHRA for the entire year, then a prorated amount will be reported on their W2. But don’t worry! We will provide you with all of the information you need when it comes time for reporting.
What if my employee is eligible for a premium tax credit (PTC) or advanced premium tax credit (APTC)?
If your employees are eligible for a premium tax credit (or APTC), then they will also need to fill out Form 8962. Remember, the amount offered will be the amount reported, not the amount used. If the employee received an APTC throughout the year that exceeded the amount allowed after considering the QSEHRA benefit, then they will need to repay the excess APTC to settle the difference.