ComplyDIY · BenefitLab

At-a-Glance What this is, who it affects, when it's due, and the risk.−

What Employer-funded, tax-free reimbursement arrangement for individual insurance premiums and eligible Section 213(d) medical expenses, subject to annual statutory caps ($6,450 self-only / $13,100 family for 2026).

Who Employers with fewer than 50 FTEs that do not offer a group health plan to any employees. Must be offered on the same terms to all eligible employees; you may vary by self-only vs. family coverage and pro-rate for partial-year eligibility.

When Adopt the plan before the plan year begins; deliver the QSEHRA written notice to each eligible employee at least 90 days before the plan year (or at eligibility for new hires).

Risk Missing or incomplete notices trigger a $50-per-employee penalty (max $2,500 per year, IRC Section 6652(o)). Violating QSEHRA operating requirements (exceeding the annual cap, failing the uniform-terms rule, or reimbursing without MEC proof) can trigger Section 4980D excise tax at $100 per day per affected individual. Reimbursing without confirmed MEC makes those amounts taxable income to the employee.

Deadlines & Frequency Key timing checkpoints to stay compliant.+

90

Days notice

Deliver the QSEHRA notice at least 90 days before the plan year (or at eligibility for new hires).

$6,450

2026 self-only cap

Family cap is $13,100. Verify the allowance does not exceed the current-year limit.

Code FF

W-2 reporting

Report the permitted benefit amount for each eligible employee annually, whether or not they claimed.

Trigger	Due Date / Window	Notes
Adopt/refresh QSEHRA plan document + SPD (and wrap if used)	Before plan year	Define eligibility, allowance amounts (within 2026 caps), reimbursable items, MEC requirement, substantiation process, and run-out rules.
QSEHRA employee notice	At least 90 days before plan year (or at eligibility for new hires)	Must include the statutory required elements, see Templates & Resources below. Reissue for mid-year eligibility.
Monthly substantiation and reimbursements	Ongoing (monthly is most common)	Collect proof of MEC and premium invoice or expense receipt before reimbursing.
W-2 reporting (Code FF)	Annually (with W-2s)	Report the permitted benefit amount for each eligible employee, whether or not they claimed reimbursements.

Trigger: Adopt/refresh plan document + SPD

Window: Before plan year

Notes: Define eligibility, allowance amounts, reimbursable items, MEC requirement, substantiation, and run-out rules.

Trigger: QSEHRA employee notice

Window: At least 90 days before plan year (or at eligibility)

Notes: Must include the statutory required elements. Reissue for mid-year eligibility.

Trigger: Monthly substantiation and reimbursements

Window: Ongoing (monthly is most common)

Notes: Collect proof of MEC and a premium invoice or expense receipt before reimbursing.

Trigger: W-2 reporting (Code FF)

Window: Annually (with W-2s)

Notes: Report the permitted benefit amount for each eligible employee, claimed or not.

What You Need: Docs & Data The paperwork wrapper is the heavy lift; gather these first.+

QSEHRA Plan Document (or HRA plan tailored to QSEHRA rules): eligibility, allowance amounts (within 2026 caps), reimbursable items, MEC requirement, claim process, run-out, and PTC coordination language.
SPD (or Wrap SPD inclusion) and annual QSEHRA Notice with all required content elements per IRC Section 9831(d) and IRS Notice 2017-67. See the notice checklist in Templates & Resources below.
Allowance schedule (self-only vs. family) verified against the 2026 annual caps: $6,450 self-only / $13,100 family.
MEC proof on file for each participating employee and substantiation records for each reimbursement (premium invoices, 1095s, SSA statements, EOBs, or itemized receipts).
W-2 reporting file showing Code FF amounts for each eligible employee.

How To Do It: Step-by-Step The substantiation is simple; plan setup benefits from help.+

1

Draft and adopt the plan documentUse uniform terms: define the eligible class, allowance by self-only/family (within 2026 caps), annual or monthly limits, claims flow, and MEC requirement.

2

Issue the QSEHRA NoticeTo all eligible employees at least 90 days before the plan year, and to new hires at eligibility. Use the required-content checklist in Templates & Resources below.

3

Collect proof of MECFor each employee before any reimbursement. Set a monthly substantiation checklist for premiums and other expense claims.

4

Reimburse monthlyUp to the monthly allowance ($537.50 self-only / $1,091.67 family for 2026). Payments are tax-free to the employee when MEC is confirmed; track running balances against the annual cap.

5

Complete W-2 reportingAt year end: report Code FF for each eligible employee's permitted benefit amount, even if they did not request reimbursements.

Delivery Rules What's reimbursable, how it interacts with subsidies, and what you can't do.+

Eligible reimbursements: Individual medical insurance premiums (on or off Exchange), Medicare premiums, and other Section 213(d) medical expenses, if your plan document allows expenses beyond premiums.
MEC required for tax-free treatment: Employees must have Minimum Essential Coverage for any reimbursement to be tax-free. Without confirmed MEC, the reimbursement is taxable income.
No salary reduction: QSEHRA is employer-funded only. Do not allow pre-tax employee contributions or payroll deductions into the arrangement.
Same terms required: The allowance must be offered uniformly to all eligible employees. You may differentiate by self-only vs. family coverage and pro-rate for partial-year eligibility, but not by any other characteristic.
PTC coordination: Employees who receive QSEHRA reimbursements must report the permitted benefit amount to the Marketplace. QSEHRA generally reduces the employee's premium tax credit dollar-for-dollar.

Proof & Recordkeeping If it isn't documented, it didn't happen; save these items.+

Plan document, SPD/wrap, annual notice copiesAnd distribution proof for each employee.
Eligibility and allowance ledgerSelf-only/family amounts, proration calculations for partial-year, and monthly reimbursement logs.
Employee MEC attestationsAnd supporting enrollment documents (insurance cards, 1095s, etc.).
Substantiation for each reimbursementPremium invoices, receipts, SSA statements, EOBs.
W-2 Code FF workpapersShowing the permitted benefit amount per employee.

Common Traps & FAQs Quick answers and pitfalls we see most often.+

Can we offer a QSEHRA alongside a group health plan?

No. QSEHRA is only available to employers that do not offer a group health plan to any employees. If you start a group plan mid-year, the QSEHRA must end.

Is substantiation difficult to manage?

No. Set a monthly checklist: MEC proof on file, then a premium invoice or itemized receipt for each claim. A simple folder or spreadsheet is usually sufficient for small employers.

Do we need to run nondiscrimination testing?

QSEHRA follows a uniform-terms rule rather than Section 105(h) testing. As long as you offer the same allowance amounts to all eligible employees (with only the permitted self-only/family distinction), you're compliant. Deviation from "same terms" is treated as an operational failure, not a testing failure.

Does QSEHRA affect employees' Marketplace subsidies?

Yes. Employees must report their QSEHRA permitted benefit amount to the Marketplace. The allowance generally reduces their premium tax credit dollar-for-dollar, which is why the notice requirement exists; employees need to know the amount before they apply.

Does COBRA apply to QSEHRA?

QSEHRA is generally not subject to COBRA continuation requirements. However, confirm your plan document is clear on this point and that communications to employees don't inadvertently suggest otherwise.

What are the 2026 annual caps?

$6,450 for self-only coverage ($537.50/month) and $13,100 for family coverage ($1,091.67/month). These limits are indexed annually by the IRS. Set your allowance at or below these amounts and verify the current-year figure each fall before your plan year begins.

Official Guidance & Links Primary sources for QSEHRA rules, notices, limits, and W-2 reporting.+

Special Cases & State Variations Design and workforce scenarios that change how the rules apply.+

Multi-state employees: MEC documentation may look different depending on plan type (Exchange, direct-purchase, Medicare). Maintain consistent substantiation standards regardless of where the employee's coverage is purchased.
Medicare-eligible employees: QSEHRA can reimburse Medicare premiums if the plan document allows it. Remind employees that HSA contributions are not permitted once they are enrolled in any part of Medicare.
Partial-year eligibility: Pro-rate allowances for employees who become eligible or terminate mid-year. Document the proration method in the plan and apply it consistently.

Templates & Resources The required notice-content checklist plus a substantiation guide.+

Unlike ICHRA, there is no federal model notice for QSEHRA; you write it yourself. Here's the required content checklist, plus a substantiation guide for day-to-day reimbursements.

Where a TPA or benefits attorney helps: Drafting the plan document, SPD, and compliant annual notice is where most small employers make mistakes. The notice in particular must include specific statutory elements; missing any of them triggers a $50-per-employee penalty. A TPA can also manage monthly substantiation if you'd rather not handle the paperwork in-house.

Required QSEHRA notice content, checklist: Per IRC Section 9831(d)(4) and IRS Notice 2017-67, the written notice you send to each eligible employee must include all of the following:

Required Element	Notes
The employee's permitted benefit amount for the plan year	State the annual dollar amount (and monthly equivalent if helpful). Must not exceed $6,450 self-only / $13,100 family for 2026.
A statement that the employee must report the permitted benefit amount to any Marketplace when applying for advance payment of the premium tax credit	Employees who don't report this may receive excess PTC and owe it back at tax time.
A statement that if the employee does not have Minimum Essential Coverage for any month, reimbursements for that month may be included in gross income	This alerts employees to the MEC requirement and the tax consequence of a gap in coverage.

Monthly substantiation, what to collect before reimbursing:

Document	When to Collect	What It Verifies
Proof of Minimum Essential Coverage (insurance card, 1095-A/B/C, carrier letter, or Medicare card)	At enrollment; update if coverage changes	Required before any reimbursement can be made tax-free
Monthly premium invoice or carrier statement	Each month; may be collected annually if the premium is fixed for the year	Confirms the premium amount and that coverage is active for the reimbursement period
Itemized receipts or EOBs (for non-premium Section 213(d) expenses, if your plan allows them)	At time of claim submission	Must show date of service, provider name, and amount; over-the-counter items need a prescription or plan authorization
Reimbursement log (employee name, coverage period, expense type, amount claimed, amount approved, date paid, running annual balance)	Maintained monthly by the employer or TPA	Your audit trail and the basis for accurate W-2 Code FF reporting at year end