IRS to Give Small Businesses More Guidance on QSEHRA’s Notice Requirement

Mar 30, 2017

IRS to Give Small Businesses More Guidance on QSEHRA’s Notice Requirement

Employers seeking to implement the new Qualified Small Employer Health Reimbursement Arrangement (QSEHRA) originally would have been required to meet the law’s notice requirement by March 13, 2017. However, the IRS postponed the due date until the agency issues guidelines for how employers are to implement the notice requirement.

What is the QSEHRA?

QSEHRA is a type of health coverage plan for businesses that have fewer than 50 full-time equivalent employees. The plans comply with the provisions of the Affordable Care Act (ACA). This arrangement allows employers to reimburse employees for a year of health coverage in the amounts of up to $4,950 for an individual and $10,000 for a family. Employers are required to prorate reimbursements for new hires that join the business in the middle of the year. Some employees may only qualify for reimbursements under QSEHRA for part of the year. Their reimbursements are also required to be prorated.

QSEHRA reimbursements can affect the amount of health care subsidies the individual employees qualify for under the ACA.

The 21st Century Cures Act, which was signed on December 13, 2016, created the current QSEHRA framework and was designed to encourage smaller employers to do more to help out with health care costs since these employers are exempt from most of the group health plan requirements introduced by the ACA.

What is the Notice Requirement?

Under the law an employer, known as a QSEHRA sponsor in the law, must give all employees who are eligible for reimbursement a written notice. The notice must include at least three different parts:

  1. The annual amount of reimbursement the employee qualifies for
  2. Instructions to the employee that the reimbursement amount must be provided on any ACA exchange premium subsidy application
  3. An explanation that the employee may be taxed under the ACA’s individual mandate and may owe income tax on the QSEHRA reimbursement of the employee does not obtain “minimum essential coverage”.

Employers faced considerable confusion about the form the written notice was to take and how to calculate an employee’s QSEHRA reimbursement. Much of the confusion centered on the law's prorating requirements and what minimal amount of a reimbursement was acceptable for employees with the company an entire year.

Employers who failed to meet the notice requirement faced a penalty of up to $50 per employee with a maximum fine of $2,500.

The postponement only applies to the notice requirements of the law. Employers can continue to issue reimbursements to their employees, so long as they are in compliance with the other portions of the law that have not been postponed.

Status of the Additional IRS Guidance

Because the IRS has not yet issued official guidelines for the QSEHRA notice requirements, the agency suspended the deadline for compliance with the notice requirement. In their announcement of the suspension, the IRS stated that a new deadline would be at least 90 days out from the previous March 13, 2017 deadline.

The IRS did not say when the new guidelines could be expected, other than it was currently working on the guidelines and expected to issue guidance “in the near future”.

It remains to be seen what will happen to QSEHRA if Congress enacts new health care coverage laws that repeal and replace large parts of the ACA. Because QSEHRA was not a part of the original ACA, but instead passed late in 2016, it may survive Congressional health care law changes.

However, until there is definitive action in Congress, employers should continue to comply with the existing requirements of the ACA and QSEHRA.


Todd Miller

Written by Todd Miller

Director of Marketing, DHR

Todd leads DHR’s marketing department and is responsible for overall marketing strategy and execution. With nearly 15 years in the sourcing services and solutions space, Todd provides interesting insight on a variety of topics in this fast-paced and ever-changing industry.

Todd lives in Scottsdale with his two daughters and Collie/Shepard. One is a good boy.

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