Glossary

QSEHRA

An employer-funded account for businesses under 50 full-time equivalent employees that reimburses workers for premiums and medical costs up to an annual cap.

Also called: qualified small employer HRA, qualified small employer health reimbursement arrangement, small business HRA

A qualified small employer health reimbursement arrangement lets an employer with fewer than 50 full-time equivalent employees reimburse workers, tax-free, for individual health insurance premiums and other medical expenses, without offering a group health plan. Congress created it in the 21st Century Cures Act of 2016, codified at IRC section 9831(d). Only the employer funds it; employees cannot contribute by salary reduction.

The 2026 maximum is $6,450 for self-only coverage and $13,100 for family coverage (IRS Rev. Proc. 2025-32). The employer may vary the allowance only by age and family size, and the employer cannot offer a group health plan to any employee. Employees must have minimum essential coverage and substantiate their expenses. The employer must give written notice at least 90 days before the plan year starts, or by the eligibility date for a new hire, and reports the allowance on the W-2 in box 12 with code FF.

Pitfall: the QSEHRA is not invisible to the exchange. An employee who also buys marketplace coverage may see the premium tax credit reduced by the allowance. An employer that grows to 50 or more full-time equivalents loses eligibility and should look at an ICHRA, which has no cap. The guide on QSEHRA explained: the small employer HRA, 2026 limits and rules covers setup, and the QSEHRA and ICHRA allowance calculator sizes an allowance. For the general category see health reimbursement arrangement.

Last reviewed October 10, 2026

In the index now

Related terms

Health reimbursement arrangement (HRA) An employer-funded plan that reimburses employees tax-free for medical expenses and, in some versions, individual health insurance premiums. ICHRA An employer-funded account that reimburses employees tax-free for individual health insurance premiums they buy themselves, with no federal dollar cap. Section 125 plan An employer cafeteria plan under IRC section 125 that lets employees pay for benefits such as health premiums with pre-tax pay instead of taxable cash. Health savings account (HSA) A tax-advantaged personal account for medical costs that is open only to people enrolled in a qualifying high-deductible health plan. Full-time equivalent (FTE) A way to convert part-time hours into the number of full-time workers they equal, used to decide whether the ACA employer mandate or a tax credit applies.

Related guides

Building an employee benefits package that fits your budget How to build a benefits package in layers, what private employers actually offer per 2026 BLS data, and a budgeting worked example with 2026 FSA and HSA limits. ICHRA explained: individual coverage HRAs for employers How an ICHRA works: tax treatment, employee classes, allowance rules, the affordability test (9.96% for 2026), ACA mandate treatment, notices and risks. QSEHRA explained: the small employer HRA, 2026 limits and rules How a QSEHRA works for employers under 50 full-time employees: 2026 limits ($6,450 and $13,100), eligibility, notice, W-2 reporting and tax credit effects. Section 125 cafeteria plans: premium-only plans, FSAs and 2026 limits What a Section 125 cafeteria plan is, which benefits it can and cannot include, how elections and nondiscrimination work, and the 2026 IRS limits. The SHOP Marketplace for small employers: how it works in 2026 What SHOP coverage is, who qualifies, why employers now enroll through brokers or insurers instead of HealthCare.gov, and how it ties to the 45R tax credit.

Related tools

QSEHRA and ICHRA allowance calculator Prices a QSEHRA against the 2026 IRS maximums and an ICHRA by employee class, then sets both beside the cost of a group health plan.