8821 / What reporting requirements apply to QSEHRAs?
An employer must generally report the amount of an employee's permitted benefits under a qualified small employer HRA (QSEHRA) on the employee's Form W-2 in box 12 (regardless of the payments or reimbursements that the employee actually receives from the QSEHRA).1 If the amount of the employee's permitted benefit varies based on the number of family members the QSEHRA covers and the employee provides no proof of minimum essential coverage (MEC), the employer must report the highest permitted benefit that would be possible under the QSEHRA. If the employee later provides proof of MEC that shows he or she was eligible for only a lesser benefit, the employer must report this lesser benefit on Form W-2.
If the QSEHRA has a non-calendar year plan year, the pro-rated amount for the calendar year (rather than the plan year) is reported. If the QSEHRA allows the employee to carry forward amounts from prior years, those amounts are not reported in the subsequent year. If the employee is provided with a QSEHRA for self-only coverage for part of the year, and family coverage for another part of the year, the amount reported must be pro-rated to reflect the change in coverage.
In situations where an employee received a QSEHRA reimbursement that was taxable because it was found that he or she failed to have MEC for the period in question, the taxable amount is included with the employee's compensation when reporting on Form W-2. Those taxable amounts, however, are excluded from FICA and FUTA taxes, as well as for withholding purposes.2 However, if the reimbursement is taxable because the employee used the funds to purchase over-the-counter drugs without a prescription or premiums that were paid on a pre-tax basis for group health plan coverage sponsored by the employee's spouse's employer, those amounts are included for FICA, FUTA and withholding purposes. In any event, the permitted benefit reported in box 12 will be the same as it would have been without the failure to maintain MEC and regardless of how the employee used the funds.