Small Businesses Competing for Talent are Making Use of a Forgotten Benefit by Adam Cohen, CPA
Posted on September 18, 2018 by Adam Cohen
In the current labor market, small businesses that lack the budgets to afford employee benefits, such as onsite food service, medical care and even ping-pong tables, are having a hard time attracting workers. However, many of these small companies are just now recognizing that the government provided them with an affordable, tax-friendly and hassle-free option for helping workers afford the high costs of health care.
Just as President Obama was leaving the White House in 2016, he signed into law the 21st Century Cures Act. The law included a provision that allows businesses to establish Qualified Small Employer Health Reimbursement Arrangements (QSEHRAs), in which they set aside pre-tax dollars for employees to use to purchase qualifying minimal essential health insurance and/or to reimburse employees for out-of-pocket medical expenses. It is important to note, however, that any tax credit employees receive from the Health Insurance Marketplace to help them pay for coverage premiums will be reduced, dollar-for-dollar, by the health reimbursement plan.
Employers, including not-for-profits, receive a tax deduction for the amounts they contribute to workplace, while employees receive the benefit of using tax-free dollars as reimbursements for insurance premiums and/or the costs of prescription medications, doctor’s office visits, health-related transportation and health insurance premiums. Moreover, with a QSEHRA, employers eliminate their burdens of paying for expensive healthcare premiums and spending countless hours administering health plans for their workforce.
Do all Small Business Qualify for a QSEHRA?
No. In order to establish a QSEHRA, a business must meet the following criteria:
- It must have less than 50 full-time employees or full-time equivalent employees (which excludes part-time and seasonal employees and those who have health coverage from a spouse’s group plan);
- It cannot offer group health insurance presently to its workers. If a policy is in place, it will need to be cancelled before establishing a QSEHRA;
- Its employees must purchase health insurance that meets the minimal essential coverage (MEC) required by the Affordable Care Act (also known as Obamacare).
Are there Limits to the Amount an Employer Can Contribute to a QSEHRA?
The IRS annually adjusts the contribution limits for inflation. In 2018, the maximum amount an employer can contribute to a QSEHRA is $5,050 per year for individual workers or $10,250 for family coverage, up from $4,950 and $10,000 respectively in 2017. According to PeopleKeep’s “The QSEHRA: Annual Report”, small businesses contributed to QSEHRAs an average of $280 per month per employee and $477 per month for families in 2017.
How Can Employers Set up QSEHRAs?
The first step businesses should take is to meet with their tax advisors to confirm that they qualify to establish this plan and they understand and can abide by their responsibilities to substantiate claims while ensuring employee’s HIPAA rights.
About the Author: Adam Cohen, CPA, is an associate director of Tax Services with Berkowitz Pollack Brant, where he works with closely held businesses and non-profit charities, hospitals and family foundations to maintain tax efficiency and comply with federal and state regulations. He can be reached at the CPA firm’s Ft. Lauderdale, Fla., office at (954) 712-7000 or via e-mail at email@example.com.
Information contained in this article is subject to change based on further interpretation of tax laws and subsequent guidance issued by the Internal Revenue Service.