Small employers who don’t offer group health coverage to their employees can help employees pay for medical expenses through a Qualified Small Employer Health Reimbursement Arrangement (QSEHRA). If your employer offers you a QSEHRA, you can use it to help pay your household’s health care costs (like your monthly premium) for qualifying health coverage.
You'll get a notice from your employer with your QSEHRA dollar amount.
The amount of QSEHRA you get will change the tax credit amount you’re eligible for. You may either be eligible for some or no tax credit.
When you apply for coverage, the Marketplace won’t have information about your QSEHRA, so the tax credit amount shown on your eligibility notice won't account for the amount of help you can get through your employer. For this reason, you may not want to use all of the tax credit that's shown in your Marketplace eligibility notice.
Your QSEHRA amount will affect your final eligibility for a premium tax credit, which is determined when you file a federal income tax return for the year. At tax time, the Internal Revenue Service (IRS) will determine your final eligibility for a tax credit based on how much QSEHRA your employer offered you (your eligibility for a tax credit will be affected even if you didn’t use the QSEHRA). Your tax credit amount could also be affected by any changes in your income, or other life changes, during the year. If you use more tax credit than you’re eligible for, you’ll have to pay it back with your taxes. Learn more about reporting life changes.
You should use your QSEHRA to help pay for your health coverage during the year. If the Marketplace found you or your family eligible for savings, you should use less of your tax credit when you’re asked by the Marketplace how much you want to use.
Try to limit the amount of tax credit you use, unless you can’t afford coverage without using some or all of it. If you don't limit your tax credit now, you may have to pay some or all of it back when you file your federal income tax return – that's when your final income for the year, as well as the amount of QSEHRA your employer offered, will be compared to the amount of tax credit you used during the year.
To reduce your chances of having to pay money back, it's best not to use any of your tax credit. If you do use it, be sure to reduce the amount of tax credit you use by at least the amount of your QSEHRA. The Marketplace asks how much tax credit you want to use each month. So if your employer's notice tells you a monthly amount, you can subtract that amount from the tax credit the Marketplace offers you. If your employer's notice gives a QSEHRA amount for the year, remember to divide the QSEHRA amount by the number of months you’ll be covered (most people will use 12 months).
If you use less tax credit than you're eligible for, you can still claim the tax credit amount you didn’t use when you file your federal tax return.
To reduce your chances of having to pay back some or all of your tax credit when you file your federal income tax return, lower the tax credit amount you use for the rest of your plan year. Your employer must report the QSEHRA amount they offered you to the IRS. Your QSEHRA amount will affect the amount of tax credit you’re eligible for at the end of the year. You may have to pay back some or all of the tax credit you used when you file your federal income tax return the next year.
If you apply for Marketplace coverage and the Marketplace determines you’re not eligible for the premium tax credit, you can still use your QSEHRA to help pay for a Marketplace plan. And depending on your final household income for the year, the IRS may determine that you’re eligible for a premium tax credit when you file your federal income tax return.