What is a QSEHRA?
A QSEHRA is a qualified small employer health reimbursement arrangement: a business with fewer than 50 full-time-equivalent employees and no group health plan can reimburse staff tax-free for individual insurance premiums and medical expenses, up to an annual cap set by the IRS.
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The detail
The QSEHRA was created by the 21st Century Cures Act, signed in December 2016, and became available from 2017.
For tax years beginning in 2026 the QSEHRA maximum is $6,450 for self-only coverage and $13,100 for family coverage, an increase of $100 and $300 respectively over 2025.
Only an employer with fewer than 50 full-time-equivalent employees that offers no group health plan to any employee is eligible to offer a QSEHRA.
A QSEHRA must be offered on the same terms to all eligible employees, though the benefit may vary by the price of an individual policy for the employee’s age and family size.
Employers must give eligible employees written notice at least 90 days before the start of the plan year, or on the date they become eligible.
What this means for you
- If you have fewer than 50 full-time-equivalent employees and have concluded you cannot afford a group plan, this is the instrument you were probably never told about. It has existed since 2017.
- The cap is per employee per year and prorated for anyone joining mid-year, so a QSEHRA started in July is worth half the annual figure to a new hire.
- It reduces an employee’s premium tax credit dollar for dollar. For a low-wage workforce heavily subsidised on the exchange, a QSEHRA can leave people no better off — model it before you announce it.
- You cannot run a QSEHRA and a group health plan at the same time, for anyone. If you want to keep a group plan for some staff, the instrument you want is an ICHRA instead.
Related questions
- Do employees have to have insurance to use it?
- To be reimbursed tax-free, yes — they need minimum essential coverage, and the employer has to obtain proof of it. An employee without coverage can technically still be reimbursed, but the payment becomes taxable income to them, which defeats the purpose. In practice most employers require and collect proof of coverage at enrolment and again annually, and a good administration platform handles that rather than the owner chasing it.
- Does a QSEHRA count as offering health insurance?
- Not for ACA employer mandate purposes — but an employer eligible for a QSEHRA has fewer than 50 full-time-equivalent employees and is not subject to the mandate anyway, so the question rarely bites. For recruitment purposes it very much counts: to an employee, a defined tax-free contribution toward their own policy is a benefit, and for a small business it is often the difference between offering something and offering nothing.
- Can the owner participate?
- It depends entirely on how the business is taxed, and it catches people out. C-corporation owners are employees and can participate. Sole proprietors, partners in a partnership and more-than-2% S-corporation shareholders are not employees for this purpose and generally cannot — though the self-employed health insurance deduction may be available to them instead, which often achieves a similar result. Check it with your accountant before you design the plan around it.
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