Skip to main content

Qualified Small Employer HRAs

On December 13, 2016, President Obama signed the 21st Century Cures Act, allowing qualified small employers to offer Health Reimbursement Arrangements (HRA) that follow certain terms.

After the Affordable Care Act was passed, the IRS originally determined that an HRA was not a qualified group health plan. The Cures Act overrules this decision. HRAs are again an option for qualifying small employers.

To be eligible, the small employer must have fewer than 50 employees and must not offer a group health plan to any of its employees.

The Qualified Small Employer Health Reimbursement Arrangement (QSEHRA) must be subject to the following terms.
  • No salary reduction contributions may be made (i.e., 100% employer-funded).
  • Employer must receive proof of employee’s minimum essential coverage.
  • Reimbursements must be for qualifying medical expenses.
  • Reimbursements for any year cannot exceed $4,950 (or $10,000 for family coverage), which will be adjusted annually for inflation.
  • Employer must offer the same terms to all eligible employees.
  • Employees receiving a monthly premium assistance credit (under Code Sec. 36B) are not eligible employees.
  • Employer must follow additional requirements as outlined in the Act, if applicable.
Beginning with the 2017 calendar year, the employer will report (in January 2018) the benefit amount of the QSEHRA on employees’ Forms W-2. The IRS will likely issue additional guidance in the coming months.

When an employer provides a monthly QSEHRA, the employee is not eligible for the premium assistance tax credit because this would be “double-dipping” tax-free benefits. Despite this limitation, there are many employers who can use the QSEHRA as a tax-free medical benefit.

The complete (and very wordy) 21st Century Cures Act can be found here. Section 18001 of the Act discusses the QSEHRA.

Comments

  1. Thank you for this information. As you said, the law is very wordy. One thing I am uncertain about: if a church was going to include in Salary on the W-2 the extra portion given to cover health expenses, is this still applicable for 2016? It is not clear to me if that would be taxable or not any more for 2016, given their statement for retroactively reducing the tax burden. Thank you!

    ReplyDelete
  2. This is an another example of a conundrum created by the stop and start implementation of the ACC. This requires each ministry to carefully consider its unique circumstances and seek professional help if necessary.

    ReplyDelete

Post a Comment

Popular posts from this blog

Review: Form 1099 Payments to 501(c)(3) Organizations

Question: A church rented space from another church last year. Should it request a completed Form W-9 and issue Form 1099-MISC? Answer: Payments from one 501(c)(3) organization to another 501(c)(3) organization are not subject to Form 1099-MISC reporting. The IRS Instructions for Form 1099-MISC state that "payments to a tax-exempt organization" are exempt from reporting a Form 1099-MISC.  The following are typical examples of payments of $600 or more by a church which are subject to reporting a Form 1099-MISC: Rent paid to an individual (non-corporation) Payments for services rendered by individuals who are not employees (e.g. janitorial service, facilities, snow removal, guest speakers) Support sent directly to missionaries

Debits and Credits for Designated Gifts

Question: A church is setting up QuickBooks for its accounting, but its personnel have little experience with fund accounting. What are the entries for the receipt and disbursement of designated gifts and the opening balances? Answer: We recommend that most churches that do not need to present financial statements in accordance with Generally Accepted Accounting Principles (GAAP) observe the following steps. Even those churches that do report using GAAP can employ these methods but must make some adjustments when preparing their financial statements. What we will demonstrate relates to what most churches call "designated gifts" (CPAs call these  Temporarily Restricted  gifts). These are gifts that donors contribute with the intention that the church will spend the funds as they direct. Most churches do not receive "endowment gifts" in which donors prohibit the expenditure of the core gift (CPAs call these  Permanently Restricted  gifts). Only earnings on the subsequ

Rental of a Church Parsonage to a Non-Minister

Question: A church owns a parsonage, but the pastor does not use it as he owns his own home. The church rents the parsonage to a tenant other than a minister or employee of the church. Will the church be responsible for paying income tax on these monies as Unrelated Business Income (filing a Form 990-T) even if the money is used to carry on the business of the church? Answer: Whether the money is used for church purposes is irrelevant.  IRS Publication 598  states: "If an exempt organization regularly carries on a trade or business not substantially related to its exempt purpose, except that it provides funds to carry out that purpose, the organization is subject to tax on its income from that unrelated trade or business." Fortunately, in the case of rental income from real property, such income is "excluded in computing unrelated business taxable income" (Publication 598). Caution: see content below regarding debt-financed property.  However, a second concern not a