IRS Publication 974 Addresses QSEHRAs

The IRS released Publication 974 for the 2017 tax year, which includes information on how qualified small employer HRAs (QSEHRAs) will affect an individual's qualification for a premium tax credit (PTC) on coverage purchased through the exchange.

As a reminder, small employers with fewer than 50 full-time equivalent employees who aren't subject to the employer mandate may implement a QSEHRA in lieu of a group health plan. A QSEHRA is 100-percent employer funded and is generally the only way that a small employer could reimburse or pay the cost of an individual policy for an employee.

Publication 974 provides helpful information for individuals, including a flowchart that helps determine whether an individual would be eligible for a PTC, guidelines to help determine whether health coverage is considered MEC, worksheets and instructions for individuals in special tax situations, and examples that illustrate when coverage is affordable. Specifically, if the QSEHRA is considered affordable coverage for a month, no PTC is allowed for that same month. Conversely, if the QSEHRA isn't considered affordable coverage for a month, the individual might still be eligible for a PTC, but must reduce the monthly PTC by the monthly permitted QSEHRA benefit amount.

Additionally, Publication 974 explains that if an individual was provided a QSEHRA during 2017, their 2017 Form W-2 should have included the QSEHRA benefit in box 12 using code FF.

The information provided in Publication 974 is based on IRS guidance regarding QSEHRAs that was released back in October 2017 (see the QSEHRA article in the Nov. 14, 2017, edition of Compliance Corner). Therefore, while this publication is intended for individual taxpayers, employers offering a QSEHRA should also familiarize themselves with this information to ensure compliance.

IRS Publication 974 »