Small employer HRAs or QSEHRAs (Qualified Small Employer Health Reimbursement Arrangements) allow small businesses without group health plans to set aside money, tax-free, for employees to use toward medical expenses–including the cost of buying health insurance. Here’s what you need to know about QSEHRAs.

Background

Included in the 21st Century Cures Act enacted by Congress on December 13, 2016, was a provision for QSEHRAs, which permit an eligible employer to provide a qualified small employer health reimbursement arrangement (QSEHRA), which is not a group health plan and thus is not subject to the requirements that apply to group health plans. QSEHRAs must meet several criteria such as:

• the arrangement is funded solely by an eligible employer, and no salary reduction contributions may be made under the arrangement;
• the arrangement generally is provided on the same terms to all eligible employees of the employer;
• the arrangement provides, after the employee provides proof of coverage, for the payment or reimbursement of medical expenses incurred by the employee or the employee’s family members; and
• the amount of the payments and reimbursements for any year do not exceed $4,950 for employee-only arrangements or $10,000 for arrangements that provide for payments and reimbursements of expenses of family members. These amounts are adjusted for inflation annually for tax years after 2016. For 2018, the maximum dollar amount for employee-only arrangements is $5,050 ($4,950 in 2017). The maximum dollar amount for arrangements that provide for payments and reimbursements for expenses of family members is $10,250 ($10,050 in 2017).

Which Employers Qualify?

Any small employer from a startup to a nonprofit that doesn’t offer a group health plan is able to set up a QSEHRA as long as they meet certain rules (see below). Small employers are defined as an employer that is not an applicable large employer (ALE). An applicable large employer is defined as one that employs fewer than 50 full-time workers, including full-time equivalent employees, on average.

Tip: If a small employer currently offers a group health plan but wants to set up a QSEHRA, the group health plan must be canceled before the QSEHRA will start.

Are there any other Rules?

Yes. One of the most important rules is that in order for employees to participate in a QSEHRA, they must have health insurance that meets minimum essential coverage. That is, indemnity, short-term health insurance, and faith-based insurance plans (e.g., Liberty HealthShare) do not qualify. Health insurance plans purchased through the Marketplace meet this qualification. Employers may choose whether to reimburse employees for both medical expenses and health insurance premiums or just premiums.

Furthermore, while there are no minimum monthly contribution limits, there is an annual maximum contribution limit. For 2018, the limit is $420 per month for individuals and $854 per month for families.

Note: QSEHRAs are funded entirely by the employer. As such, employees are prohibited from making contributions.

Written Notice to Employees

Eligible employers are required to provide written notice to eligible employees at least 90 days before the beginning of a year for which the QSEHRA is provided. In the case of an employee who is not eligible to participate in the arrangement as of the beginning of the year, the written notice must be furnished on the date on which the employee is first eligible. The written notice must include:

1. a statement of the amount that would be the eligible employee’s permitted benefit under the arrangement for the year;
2. a statement that the eligible employee should provide that permitted benefit amount to any health insurance exchange to which the employee applies for advance payments of the premium tax credit; and
3. a statement that if the eligible employee is not covered under minimum essential coverage for any month, the employee may be liable for an individual shared responsibility payment (eliminated for tax years starting in 2019) for that month and reimbursements under the arrangement may be includible in gross income.

Questions about QSEHRAs?

If you have any questions about QSEHRAs or are wondering whether your small business would benefit from a QSEHRA, don’t hesitate to call.

• By Leon Clinton
• September 5, 2018

September 10

Employees Who Work for Tips – If you received $20 or more in tips during August, report them to your employer. You can use Form 4070.

September 17

Individuals – Make a payment of your 2018 estimated tax if you are not paying your income tax for the year through withholding (or will not pay in enough tax that way). Use Form 1040-ES. This is the third installment date for estimated tax in 2018.

Partnerships – File a 2017 calendar year income tax return (Form 1065). This due date applies only if you were given an additional 6-month extension. Provide each shareholder with a copy of Schedule K-1 (Form 1065) or a substitute Schedule K-1.

S corporations – File a 2017 calendar year income tax return (Form 1120S) and pay any tax due. This due date applies only if you made a timely request for an automatic 6-month extension. Provide each shareholder with a copy of Schedule K-1 (Form 1120S) or a substitute Schedule K-1.

Electing Large Partnerships – File a 2017 calendar year income tax return (Form 1065-B) and pay any tax due. This due date applies only if you timely requested an automatic 6-month extension. Otherwise, see March 15. Provide each partner with a copy of Schedule K-1 (Form 1065-B) or a substitute Schedule K-1.

Corporations – Deposit the third installment of estimated income tax for 2018. A worksheet, Form 1120-W, is available to help you make an estimate of your tax for the year.

Employers – Nonpayroll withholding. If the monthly deposit rule applies, deposit the tax for payments in August.

Employers – Social Security, Medicare, and withheld income tax. If the monthly deposit rule applies, deposit the tax for payments in August.

• By Leon Clinton
• September 1, 2018

Hurricane season runs June 1 to November 30. With hurricane season well underway, taxpayers should watch out for disaster-related scams carried out by criminals and scammers who often try to take advantage of the generosity of taxpayers wanting to help victims of major disasters.

Fraudulent schemes normally start with unsolicited contact by telephone, social media, e-mail or in-person using a variety of tactics such as the following:

• Impersonating charities to get money or private information from well-intentioned taxpayers.
• Setting up bogus websites use names similar to legitimate charities to trick people to send money or provide personal financial information.
• Claiming to be working for or on behalf of the IRS to help victims file casualty loss claims and get tax refunds.
• Operating bogus charities and solicit money or financial information by telephone or email.

To find out whether a charity is legitimate use the search feature, “Tax Exempt Organization Search,” on the IRS website. Donations to these charities may be tax-deductible. Also, be sure to:

• Contribute by check or credit card, never give or send cash, to have a record of the tax-deductible donation.
• Not give out personal financial information such as Social Security numbers or credit card and bank account numbers and passwords to anyone who solicits a contribution.

Taxpayers suspecting fraud by email should visit IRS.gov and search for the keywords “Report Phishing.” Disaster victims can call the IRS toll-free disaster assistance telephone number (866-562-5227) and speak to someone who will answer questions about tax relief or disaster-related tax issues.

More information about tax scams and schemes may be found at IRS.gov using the keywords “scams and schemes.” If you have any questions, don’t hesitate to call the office as well.

• By Leon Clinton
• August 28, 2018