QSEHRA, explained

What a QSEHRA is

A QSEHRA — a Qualified Small Employer Health Reimbursement Arrangement, sometimes just called the small-business HRA — lets a small business reimburse employees, tax-free, for individual health insurance premiums and qualified medical expenses. Created by the 21st Century Cures Act in 2016, it gave the smallest employers a simple, compliant way to help with health costs without buying a group plan: you set an allowance, employees buy their own coverage, submit proof, and you reimburse them tax-free.

Who can offer one

Eligibility is narrow. You must have fewer than 50 full-time-equivalent employees, and you must not offer a group health plan — you can’t run a QSEHRA alongside group coverage. It has to be offered to every full-time employee on the same terms, with the allowance varying only by age and family size. The eligibility and rules guide covers exactly who qualifies, the same-terms requirement, and the part that catches employers off guard: how a QSEHRA affects an employee’s Marketplace subsidy.

How it works

You set a monthly or annual allowance, up to the IRS cap. To be reimbursed tax-free, an employee needs minimum essential coverage — typically an individual plan. They submit proof, and you reimburse them tax-free up to their allowance, free of income and payroll tax for the employee and deductible for you. Any unused allowance stays with the business; it doesn’t pay out as cash.

The contribution caps

The cap is the defining feature. Unlike an ICHRA, which has no limit, a QSEHRA is capped by the IRS each year — for 2026, $6,450 for self-only coverage and $13,100 for family coverage, about $537.50 and $1,091.66 a month, under IRS Revenue Procedure 2025-32. You can give less, never more; reimbursing above the cap turns the excess into taxable wages. Our contribution limits guide covers proration, the over-the-cap rules, and how the figures change each year.

QSEHRA vs. ICHRA

The two are cousins, and the choice usually comes down to size and how much you want to give. A QSEHRA is simpler and built for the smallest employers — under 50 employees, no group plan, a capped allowance, no employee classes. An ICHRA works for an employer of any size, has no cap, allows different allowances for different classes of workers, and can run alongside a group plan. If the cap is enough and you want the simplest option, a QSEHRA fits; if you want to give more or need class flexibility, look at an ICHRA. We lay the two out side by side in ICHRA vs. QSEHRA.