It’s time for small employers offering a Qualified Small Employer Health Reimbursement Arrangement (QSEHRA) to prepare for year-end reporting. QSEHRA W2 reporting helps the IRS verify compliance with QSEHRA guidelines, and this reminder outlines everything you need to ensure compliance, avoid errors, and stay informed.

QSEHRA Reporting Requirements

  • Box 12, Code FF: Employers must report the total benefit amount an eligible employee was entitled to receive for the year, regardless of how much the employee actually used.
  • Excluded Amounts: Carryover funds from prior years should not be included in this total. Only new funds allocated for the current calendar year are reported.
  • Pro-rated Benefits: If the QSEHRA starts mid-year or an employee’s eligibility changes, the amount reported must reflect the prorated benefit for the year.

Examples:

  1. A QSEHRA starting July 1, 2024, with a $300/month allowance, would report $1,800 for the year (6 months × $300).
  2. An employee transitioning from self-only coverage ($200/month) to family coverage ($400/month) mid-year would have a combined benefit reported.

Taxable QSEHRA Reimbursements

  • Employees must maintain Minimum Essential Coverage (MEC) to receive QSEHRA reimbursements tax-free. Any reimbursement for an employee or their dependents without MEC becomes taxable income.
  • How to Report Taxable Reimbursements:
    • Include these amounts in Box 1 of the W2 as wages, tips, and other compensation.
    • These amounts do not affect the figure reported in Box 12, Code FF.

Correction Process: If it’s discovered post-filing that an employee lacked MEC, a corrected W2 (W2c) must be issued.

Working with Payroll Providers

While employers are responsible for providing QSEHRA W2 reporting, most rely on payroll providers to ensure W2s are generated accurately. Collaboration is key:

  • Provide your payroll company with detailed information on employee allowances and any taxable reimbursements.
  • Ensure the payroll provider correctly applies Code FF for QSEHRA benefits in Box 12.
  • Verify that taxable reimbursements are accurately tracked and reported as wages.

Common QSEHRA W2 Reporting Mistakes

Avoid these frequent pitfalls when preparing W2s:

  1. Including Carryover Amounts: Only report newly allocated funds for the current calendar year.
  2. Incorrect Prorating: Ensure prorated benefits accurately reflect mid-year plan starts or eligibility changes.
  3. Overlooking Taxable Reimbursements: Double-check that reimbursements for employees without MEC are included as taxable income in Box 1.

Get QSEHRA W2 Reporting Right

With the year end fast approaching, now is the time to ensure your QSEHRA reporting is accurate and compliant. Having a benefits administrator for your QSEHRA, such as Flyte HCM, ensures smooth and accurate year-end information for reporting. Flyte HCM is here to assist employers in managing their QSEHRA benefits and ensuring year-end reporting goes smoothly. Contact us today with questions to better understand reporting nuances or to start a new QSEHRA plan.