Small Business Reimbursement of Medical Expenses

The 21st Century Cures Act, which was signed into law on December 13, 2016, exempts certain qualified small employer health reimbursement arrangements (QSEHRA) from the $100 per day excise tax imposed by the IRS under the Affordable Care Act. The act is in effect as of January 1, 2017 and extends relief for 2015 and 2016. The 2015 and 2016 tax relief is only granted for reimbursed medical insurance premiums, no guidance has been released whether the reimbursement of other medical expenses will be exempt from the excise tax.

To be exempt from the excise tax, small employers must create a QSEHRA that meets the following requirements:

  • Employers must have had, on average, less than 50 full-time or full-time equivalent employees in the prior calendar year. Aggregation rules of common owners and services apply.
  • A group health plan cannot be offered to any employees.
  • All employees must be eligible to participate. Employers can exclude employees who:
    • Have less than 90 days of service
    • Certain part-time and seasonal employees
    • Union employees
    • Employees under the age of 25
    • Non-resident aliens
  • The arrangement must be solely funded by the employer, no employee contributions can be made to the QSEHRA.
  • The arrangement must be offered to all eligible employees on the same terms. However, the reimbursement limit can vary based on the cost of health insurance. For example, older employees or family coverage can result in greater reimbursements.
  • QSEHRAs can reimburse only qualified medical expenses that the employee provides documentation for:
    • Out-of-pocket medical costs
    • Employee premiums for individual health insurance policies
    • Medicare premiums
    • TRICARE expenses
    • Individual health insurance premiums for two percent shareholders of S Corporations
  • The limits of annual reimbursements are $4,950 for individuals and $10,000 for families. Any employees in the QSEHRA for less than 12 months must have these amounts prorated. Employers can offer reimbursements for less than the maximum limits.
  • Employers must provide 90 days of written notice before the beginning of the plan year to all eligible employees. This notice must include the dollar amount of reimbursements available. For 2017, employers have until March 13 to issue the notice. If notice is not issued employers may face a penalty of $50 per employee, up to $2,500 a year.
  • The employer will report the reimbursements from the QSEHRA on the employee’s W-2. It will be listed as a non-taxable item unless the employee does not have minimum essential health coverage. Without the proper coverage, the reimbursements will be taxable.

It is to be noted that any employees who purchase healthcare through the Marketplace will receive a smaller premium tax credit due to their participation in the QSEHRA. The QSEHRA is not subject to COBRA rules, so they will lose their coverage in the arrangement upon termination of employment. Individual health insurance for premiums of two percent shareholders of S Corporations are also exempt from the excise tax under the law.

Should you have further questions regarding the QSEHRA please contact Nikki Allen at [email protected]. We can also assist you in providing notice to your employees regarding your QSEHRA.

Sources: RSM US, CCH Incorporated

Crow Shields Bailey Announces Three Promotions and Partner Accolade

Crow Shields Bailey PC announced three team member promotions and partner accolade in January 2017.

Colleen Dicks and Lori Blum were promoted to Supervisor, and Abby Roveda was promoted to Senior Accountant.

Colleen Dicks, CPA joined CSB in 2012 and is a member of the audit team. She is a graduate of Auburn University with a Bachelor’s in Finance. Colleen specializes in review and compilation engagements, financial statement preparation, and audits of employee benefit plans.

Lori Blum, EA worked for McKean and Associates, PA for nine years and joined CSB when the firms merged in September of 2015. Lori is a graduate of the University of South Alabama with a Bachelor’s degree in accounting. She is a member of the tax team and specializes in personal and business tax preparation, monthly and year-end small business write-ups, preparation of reviewed and compiled financial statements, and training and supporting clients on small business accounting software, specifically, QuickBooks and Sage 50.

Abby Roveda, CPA joined CSB in 2015 and is a member of the audit team. She is a graduate of the University of Alabama with Bachelor’s and Master’s degrees in Accounting. Abby specializes in financial statement preparation and audits of wholesale distributors and employee benefit plans.

CSB Partner, Cindy Rathle, has been appointed to serve a three-year term on the Board of Directors for the Alabama Society of CPAs.  Cindy has practiced public accounting for 30 years. She specializes in personal and business income tax, estate and gift tax returns, as well as small business accounting and consulting.