Qualified Small Employer Health Reimbursement Arrangement (QSEHRA)

QSEHRA stands for Qualified Small Employer Health Reimbursement Arrangement. Employers with less than 50 employees (qualified small employers or QSEs) can offer Health Reimbursement Arrangements (HRA) to their employees.

QSEHRAs are ideal for household employers to reduce health care costs for their workers and enjoy tax-saving benefits.

Key Features of a QSEHRA

While you are not allowed to offer a QSEHRA and a group insurance plan, QSEHRAs can:

• reimburse your nanny for health insurance coverage purchased on the individual market or through the health care exchange
• be paired with an employee’s spouse’s plan
• be used for out-of-pocket medical, dental, and vision expenses.

Benefits of Offering a QSEHRA

Offering a QSEHRA to your employees offers several advantages.

• Employer contributions to a nanny’s account are not taxed for you or your employee.
• Reimbursements are also not taxed as long as your nanny has a health plan that meets minimum essential coverage (MEC).
• Reimbursements may be made immediately when your nanny becomes eligible to participate.
• Nannies can purchase the health plan they want.
• Employers can set the budget and include waiting periods.
• Funds can carry over from year to year if allowed by the employer. An employee’s total benefit can’t exceed the annual contribution limit.

How a QSEHRA Works

QSEHRAs are funded by the employer up to $6,350 for a nanny who is single and $12,800 per employee with a family (2025 contribution rates).

When obtaining a QSEHRA through GTM, we’ll guide you through every step of the process and answer any questions.

Employer Requirements

Your employer responsibilities include:

• Having a Plan Document
• Distributing a Summary Plan Description (SPD) within 90 days of your employee becoming a plan participant
• Not sponsoring any other health, dental, or vision plan
• Providing a QSEHRA to all eligible employees (if you have more than one employee) under the same terms and employees can’t waive participation in the QSEHRA
• Providing all eligible employees with a written notice 90 days prior to the start of the plan year
• Obtaining proof that employees have minimum essential coverage with each reimbursement and on an annual basis
• Substantiating all reimbursement claims
• Reporting the employee’s permitted benefits in box 12 of their Form W-2 using code FF

Employee Requirements

Nannies are required to purchase a health plan that provides minimum essential coverage (MEC), as mandated by the Affordable Care Act (ACA).

If your nanny purchases health coverage that doesn’t qualify as MEC, they may be taxed, and reimbursements from the QSEHRA may be included in their gross income.

Qualified health plans include:

• Marketplace plans
• Medicare
• Medicaid
• CHIP
• Individual health plans with MEC (ask the insurance company if the desired plan matches a “qualified health plan”)
• Retiree plans

Unqualified health plans include:

• Coverage for vision care only
• Coverage for dental care only
• Workers’ compensation
• Coverage only for a specific disease or condition
• Plans that only discount medical services

Nannies who obtain health insurance through a public exchange and qualify for subsidized coverage (tax benefit towards the plan) must report the amount in the QSEHRA to the exchange. The amount of their benefit will reduce their federal subsidy amount.

Health Insurance & Benefits Options Comparison

The information below will help you compare the various plans and select one that will best meet the needs of your nanny. These are contribution rates for 2025.

HRA

✔ Employer funded

✔ Employer tax savings

✘ Employee funded

✘ Employee tax savings

✔ Covers out-of-pocket expenses

✔ Covers insurance premiums

✘ Used to purchase health insurance

Contribution limit: No limit

Pairing: Group plan

Coverage restrictions: Must cover at least two employees

QSEHRA

✔ Employer funded

✔ Employer tax savings

✘ Employee funded

✘ Employee tax savings

✔ Covers out-of-pocket expenses

✔ Covers insurance premiums

✔ Used to purchase health insurance

Contribution limit: $6,350 single / $12,800 family

Pairing: Individual plans

Coverage restrictions: None

ICHRA

✔ Employer funded

✔ Employer tax savings

✘ Employee funded

✘ Employee tax savings

✔ Covers out-of-pocket expenses

✔ Covers insurance premiums

✔ Used to purchase health insurance

Contribution limit: No limit

Pairing: N/A

Coverage restrictions: None

FSA

✔ Employer funded

✔ Employer tax savings

✔ Employee funded

✔ Employee tax savings

✔ Covers out-of-pocket expenses

✘ Covers insurance premiums

✘ Used to purchase health insurance

Contribution limit: $3,300

Pairing: N/A

Coverage restrictions: None

HSA

✔ Employer funded

✔ Employer tax savings

✔ Employee funded

✔ Employee tax savings

✔ Covers out-of-pocket expenses

✔ Covers insurance premiums

✘ Used to purchase health insurance

Contribution limit: $4,300 single / $8,550 family

Pairing: High-deductible plan

Coverage restrictions: None