Under the right circumstances, sole proprietors and other small businesses can reimburse employees for legitimate out-of-pocket medical expenses up to the annual limits.
By implementing a Qualified Small Employer Health Reimbursement Arrangement (QSEHRA), employers can report these reimbursed medical expenses as a business deduction. If all the formalities are met, the reimbursements are not subject to income tax or payroll taxes.
The annual limits for year 2019 are $5,150 for self-only coverage and $10,450 for family coverage.
A QSEHRA can reimburse qualified medical expenses for the employee or the employee’s family members. These expenses include:
- Insurance premiums for individual health plans
- Fees for doctors, dentists, hospitals, and lab testing
- Long-term care insurance premiums
- Transportation to and from medical care facilities
- Prescribed medication
Your business is eligible to set up a QSEHRA if:
- Your business has at least one and fewer than 50 full-time employees.
- Your business does not offer group health insurance to any employees.
- You agree to offer the QSEHRA benefits on the same terms to all eligible employees.
- Before reimbursing health insurance premiums, you verify that the employee or the employee’s family member is covered by health insurance.