Which QSEHRA deadlines do you need to know?

The qualified small employer health reimbursement arrangement (QSEHRA) is an excellent choice for small businesses looking to offer health insurance benefits on a budget. To make the most of QSEHRA benefits for you and your employees, it's important to understand its deadlines. From initial implementation to annual notice requirements, missed deadlines can lead to repercussions.

In this article, we’ll break down the key deadlines that every employer needs to know.

In this blog post, you'll learn the following:

• How long employees have to buy health coverage when you offer a QSEHRA.
• When employees have to submit their medical expenses for reimbursement.
• Why employers have to notify employees in writing about the QSEHRA by a certain deadline.

What is a qualified small employer HRA (QSEHRA)?

A QSEHRA is a health benefit option for small businesses with fewer than 50 full-time equivalent employees (FTEs). It allows eligible employers to reimburse their employees for health insurance premiums and other qualified medical expenses on a tax-free basis. This means employers can make reimbursements without having to pay payroll taxes. Employees won’t have to pay income tax on them, either.

The QSHERA helps small employers provide health coverage more easily. Now, employers don’t have to deal with the complexities and costs of traditional group health plan coverage.

Here's how it works:

• You design your QSEHRA and set an allowance. An allowance is the specific amount of money you offer your eligible employees for their healthcare expenses. The IRS sets annual reimbursement limits for single employees and those with family coverage. If you have a bigger budget, you may prefer the individual coverage HRA (ICHRA). An ICHRA doesn't have employer contribution limits.
• Your employees make healthcare purchases using their own money. Employees can use their allowance on more than 200 types of eligible medical expenses. Eligible expenses include health plans on the Health Insurance Marketplace. They can also purchase dental plans and vision plans.
• Your employees submit their health insurance premiums and other medical expenses for reimbursement. They can submit proof of their monthly premiums and other purchases using a receipt.
• You review and reimburse eligible expenses. You provide tax-free reimbursements to your employees up to their available reimbursement allowance.

What are the important deadlines for a QSEHRA?

Thanks to the QSEHRA's unique structure, employers and their employees have a greater degree of freedom than they'd get with a traditional option like group health insurance. Like all benefits, though, there are some rules—including deadlines.

Let's discuss the deadlines your business and employees should know about when using the QSEHRA.

Deadlines for purchasing insurance coverage during a special enrollment period

Your employees need minimum essential coverage (MEC) to participate in a QSEHRA and receive tax-free reimbursements. If they don't have a health insurance plan, they can get one on the individual health insurance market.

When you offer your employees a QSEHRA for the first time, it triggers a special enrollment period (SEP). They can enroll in marketplace coverage within 60 days of the benefit start date. However, if your employees don't get coverage during this time, they won't be able to participate in the benefit. They'll also have to wait until the next annual open enrollment period to purchase an individual health insurance policy.

Administering your QSEHRA with PeopleKeep makes this easy with our integrated shopping experience. Your employees can shop for qualifying coverage right from their PeopleKeep account. Our in-house enrollment specialists are also available to help your employees.

Deadlines for reimbursement requests

Eligible employees participating in a QSEHRA can submit health expenses they incurred at any time during the plan year. They can also do so within 90 days after the plan year ends. For example, if your 2024 plan year ran from January 1, 2024, to December 31, 2024, your employees would have until March 31, 2025, to submit expenses they incurred during that period.

Deadlines for runout periods

The 90-day runout period also applies to employees who become ineligible for the benefit.

This may happen when:

• An employee experiences a change in hours worked
• An employee leaves the company
• You terminate an employee.

In this case, they have 90 days from the date they became ineligible for the QSEHRA to submit expenses they previously incurred during that plan year.

Deadlines for employer reimbursements

Employers typically have 90 days to submit reimbursements to employees for their approved medical care expenses. Administrators outline this deadline in the company's QSEHRA plan documents. If an employee doesn't reach their total reimbursement limit, the unused amount stays with the employer at the end of the plan year.

Deadlines for declined reimbursement requests

Occasionally, your employees may submit out-of-pocket expenses that aren't eligible for reimbursement under IRS rules. When this happens, you must notify the employee within 30 days.

If an employee hasn't provided the necessary proof of purchase with their expense, you can ask them to submit more information to help you verify the request before giving your approval. In these situations, you must give the employee 45 days to provide the proper proof.

Deadlines for the QSEHRA notice

After you decide to offer a QSEHRA, you need to tell your employees about their new health benefit. The Internal Revenue Code (IRC) requires you to send your employees a yearly notice about their QSEHRA. This notice covers important details and rules about the benefit.

QSEHRA notice requirements include:

• Notifying the employee of their annual benefit amount
• Telling the employee to share that amount with the Marketplace when applying for a premium tax credit or health insurance subsidies
• Explaining that employees may be subject to a tax penalty if they don't maintain MEC. If an employer reimburses an employee for an eligible expense during a month they don’t have MEC, the reimbursement must be taxed

The government recommends that you send this notice to your employees at least 90 days before the beginning of each calendar year that you plan to offer your QSEHRA. For example, if you're going to offer a QSEHRA starting in 2025, let your employees know by October 3, 2024, or as soon as possible. If employees become eligible for the QSEHRA midyear, such as new employees, you need to provide the notice on or before the day they become eligible.

Conclusion

Employee benefits can be difficult to understand. The qualified small employer health reimbursement arrangement (QSEHRA) is no exception. The QSEHRA helps small businesses reimburse employees for their healthcare expenses. It provides a flexible, cost-effective solution that many employers are eager to adopt. However, understanding the deadlines associated with QSEHRA can mean the difference between compliance and costly penalties.

If you want to manage your QSEHRA effectively, PeopleKeep is here to help! With our HRA administration software, we handle tedious tasks such as preparing and updating legal documents. Our team also reviews employee reimbursement requests and provides award-winning customer support. This frees up more time for you to focus on running your business.

This article is for informational purposes only and shouldn’t be relied on for legal advice. To ensure compliance with QSEHRA deadlines, you should seek advice from legal and tax professionals.