What is the impact of QSEHRAs on subsidized coverage?

Generally, an individual may not receive health care premium tax credit for purchasing health insurance through a Health Insurance Marketplace if the individual has affordable coverage provided by his/her employer. However, an employee who enrolls in a qualified health plan on the Health Insurance Marketplace, his/her health care premium tax credit may be reduced or eliminated by the benefit available under the QSEHRA.

What is the tax treatment of QSEHRA reimbursements?

Although reimbursements of qualified medical expenses from a QSEHRA are generally excluded from the income of the employee, employers should maintain some form of certification from employees certifying that the employee has minimum essential health coverage (MEC) for tax purposes.

An additional requirement is the employee must have MEC during the month in which the qualified medical expense is incurred. Reimbursement of health insurance premiums should be excluded from tax as long as the reimbursement is for insurance that was MEC. Reimbursement of other qualified medical expenses would only be excluded from tax if the employee had insurance that is MEC at the time the expense was incurred.

If any reimbursement from a QSEHRA is taxable, the employer would be responsible for the tax reporting and withholding. The taxable amount of the reimbursement would be reported on the employee’s Form W-2.

What are the restrictions on QSEHRA reimbursements?

Reimbursements can be made only to those employees who provide “proof of coverage” that qualify as MEC.

What is generally required to comply with QSEHRA reimbursement rules?

Reimbursements can only be made for qualified medical expenses under IRC Section 213(d) of the eligible employee and his/her family members (as determined under the plan). QSEHRA assets may also be used to reimburse health insurance premiums.

Each qualified medical expense submitted for reimbursement must be substantiated with documented proof as a qualified medical expense by Surency prior to reimbursement from the QSEHRA account.

Reimbursements can be made for expenses incurred as of the effective date of the QSEHRA or the date the eligible employee first became eligible for the QSEHRA (not before). Reimbursements are not permitted for expenses for which a deduction was allowed on any prior year tax returns.

What are the QSEHRA Notice requirements?

An employer funding a QSEHRA for any year must provide a written notice to each eligible employee that includes the following information:

1. A statement regarding the maximum dollar amount of reimbursements that may be made for the year with respect to the eligible employee (the “permitted benefit”).
2. A statement that the employee should provide information regarding his/her permitted benefit to any Health Insurance Marketplace to which the employee applies for advance payment of the health care premium tax credit (subsidized coverage).
3. A statement that, for any month in which the employee does not have MEC, he/she may be subject to an individual shared responsibility payment and reimbursements under the QSEHRA may be includible in gross income.

Effective for years beginning after December 31, 2016, the Notice generally must be provided no later than 90 days before the beginning of the year in which the QSEHRA is funded (or if an employee is not eligible to participate in the QSEHRA as of the beginning of such year, the date on which the employee is first eligible). In addition, effective for years beginning after December 31, 2016, an employee’s total permitted benefit for the year must be reported on his/her Form W-2.

Failure to provide the Notice may result in a penalty of $50 per employee per day with the total penalty not to exceed $2,500 in a calendar year. Penalty relief is available for years beginning after December 31, 2016 as long as the Notice is provided no later than 90 days after December 13, 2016.

What are the criteria an employer must meet before they can fund a QSEHRA?

An employer is eligible to fund a QSEHRA for the current calendar year if the employer had fewer than fifty (50) full-time employees, including full-time equivalent employees, on average during the prior calendar year as determined according to the employer shared responsibility provisions also known as “pay or play”; and the employer does not offer a group health plan to any of its employees.

Where can I see information about my employees’ available HSA Advance amount or any repayment balances?

In your Employer Account, a new “Advance Account” tab displays both the available advance balance and activity, and the advance repayment amount and activity.

What reporting is available with the HSA Advance feature?

HSA Advance information is included in the HSA Advance Activity available on demand through your Employer Account. It contains numerous sources of information regarding your employees’ HSA Advance accounts. Also, HSA Advance balances are included in the HSA Account Detail report.

How will I know when HSA Advance funds are being used or when funds are being repaid?

You will receive an employer notification when there is either an advanced funding need or when advanced funds are being repaid to your bank account. The notification will arrive one business day before the electronic funds transfer.