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IRS Extends Deadline for Small Employers to Furnish QSEHRA Notice to Employees

On Behalf of | Mar 9, 2017 |

The IRS has issued Notice 2017-20 to extend the deadline for employers who establish a qualified small employer health reimbursement arrangement (“QSEHRA”) to send a required notice to employees concerning the arrangement.

Background.  The 21st Century Cures Act (the “Act”), among other things, established QSEHRAs.  The Act provides that, effective January 1, 2017, eligible small employers may begin offering QSEHRAs to eligible employees.

QSEHRA Requirements.  A QSEHRA, must:

  • be funded solely with employer contributions, which means employees cannot make salary reduction contributions under the arrangement.
  • be offered to all eligible employees on the same terms.  However, the employer can exclude employees with less than 90 days of service, certain part-time and seasonal employees, certain collectively bargained employees, and non-resident aliens.
  • limit annual employer contributions to $4,950 per year for employee-only coverage and $10,000 for family coverage.
  • provide payment or reimbursement for health care expenses incurred by the employee (or the employee’s family member), including premiums for individual health insurance.

Employer Eligibility Requirements.  An employer is eligible to establish a QSEHRA if:

  • it is not an Applicable Large Employer under the ACA (i.e., an employer that had 50 or more full-time employees or full-time equivalent employees during the preceding calendar year); and
  • it does not offer group health coverage to any of its employees.

QSEHRA Employee Notice Requirements. Employers that offer QSEHRAs must furnish a written notice to all eligible employees at least 90 days in advance of the beginning of the new plan year.  The notice must explain:

  • the amount that will be the employee’s benefit under the arrangement for the plan year;
  • that the employee should provide specified information to any Health Insurance Marketplace to which the employee applies for an ACA premium tax credit; and
  • if the employee is not covered by minimum essential coverage during the entire plan year: (i) the employee may be subject to the ACA’s individual mandate penalty, and (ii) reimbursements under the QSEHRA may be included in income.

IRS Notice 2017-20.  IRS has extended the deadline for the notice requirement from March 13, 2017 to at least 90 days after the IRS issues additional guidance concerning the content requirements for QSEHRA notices.  IRS also provides employers with transition relief from penalties for failures to furnish QSEHRA notices until after the IRS issues additional guidance.

Notice 2017-20 is available at: