IRS Issues More Details on Health Reimbursement Arrangements by Smaller Employers

The IRS has just provided additional guidance to smaller employers, including nonprofits and churches, that may offer tax-advantaged Health Reimbursement Arrangements (HRAs) to their employees as an alternative to group health insurance.

The stated purpose of the guidance (Notice 2017-67, consistent with the 21st Century Cures Act passed by Congress in late 2016), is to outline the requirements for providing a qualified small employer health reimbursement arrangement (QSEHRA), the tax consequences of the arrangement, and the requirements for providing written notice of the arrangement to eligible employees.


Only smaller employers (generally those with less than 50 full-time equivalent employees) may offer a QSHERA to provide tax-free reimbursements of medical expenses for eligible employees.  

Additionally, QSHERAs are arrangements that must meet these four basic criteria:

  • The arrangement is funded solely by an eligible employer, and no salary reduction contributions may be made under the arrangement
  • The arrangement provides, after the eligible employee provides proof of coverage, for the payment or reimbursement of the medical expenses incurred by the employee or the employee’s family members (in accordance with the terms of the arrangement)
  • The amount of payments and reimbursements for any year does not exceed $4,950 ($10,000 for an arrangement that also provides for payments or reimbursements of medical expenses of the eligible employee’s family members (family coverage) and
  • The arrangement is generally provided on the same terms (the “same terms requirement”) to all eligible employees of the eligible employer.

Click here for the full guidance, including 79 Q&As with more information on QSHERAs.

See also Connor & Winters Client Alert: "Qualified Small Employer Health Reimbursement Arrangements Permitted, Beginning in 2017"

This text is provided with the understanding that ECFA is not rendering legal, accounting, or other professional advice or service. Professional advice on specific issues should be sought from an accountant, lawyer, or other professional.


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