Short answer: a QSEHRA, or qualified small employer health reimbursement arrangement, lets a business with fewer than 50 full-time equivalent employees reimburse employees tax-free for individual health insurance premiums and other medical costs, up to an IRS limit. For 2026 the limits are $6,450 a year for an employee alone and $13,100 for an employee with family. The employer picks a fixed allowance, there is no renewal to absorb, and the business cannot offer a group health plan alongside it.
Key takeaways
- Small employers only. Fewer than 50 full-time equivalents, and no group health plan for any employee.
- 2026 limits: $6,450 self-only and $13,100 family, prorated for partial years.
- Notice 90 days ahead. Employees must get a written notice at least 90 days before the plan year, or when they become eligible.
- Watch the tax credit. The allowance reduces any marketplace premium tax credit, which can leave lower-paid employees no better off.
2026 QSEHRA limits
| Annual maximum | Monthly equivalent | |
|---|---|---|
| Self-only | $6,450 | $537.50 |
| Family | $13,100 | $1,091.67 |
The employer can set any allowance up to these limits, and can vary it by family size or by age as the rules allow. Employees who join mid-year get a prorated amount. The IRS adjusts the limits each year.
Who can offer a QSEHRA
- The business has fewer than 50 full-time employees, counting full-time equivalents, so it is not an applicable large employer under the ACA.
- It does not offer a group health plan to any employee. Standalone dental and vision plans that qualify as excepted benefits are allowed.
- It offers the QSEHRA on the same terms to all eligible employees. It may exclude employees with less than 90 days of service, those under 25, part-time and seasonal employees, employees covered by a collective bargaining agreement and certain nonresident aliens.
What a QSEHRA pays for
The employer decides what the plan reimburses: individual health insurance premiums only, or premiums plus other qualified medical expenses such as copays, deductibles and prescriptions. Employees must have minimum essential coverage, such as an individual marketplace plan, for reimbursements to be tax-free. Employees submit proof of the premium or expense; the employer, or a QSEHRA administrator, reimburses it up to the monthly allowance.
What QSEHRA looks like in practice
For a small Detroit employer that has never offered coverage, a QSEHRA usually appeals for one reason: it sets a fixed monthly amount per employee and does not expose the business to a renewal. The employer decides what it can afford, reimburses documented premiums and qualifying expenses up to that amount, and the number does not move unless the employer moves it.
The practical constraints matter as much as the appeal. Reimbursements have annual caps. Employees need individual coverage for the reimbursement to be tax-free, and an employee receiving a premium tax credit on the marketplace will see that credit reduced by the QSEHRA amount, which can leave some lower-income employees no better off.
That last point is the one most often missed, and it is the reason a QSEHRA suits some small workforces well and others poorly. The deciding factor is what your employees currently pay for coverage on their own, which is worth establishing before committing to an allowance.
Compliance steps
- Written plan document describing eligibility, the allowance and the reimbursable expenses.
- Employee notice at least 90 days before the plan year starts, or by the date a new employee becomes eligible. It must state the allowance and explain that employees should tell the marketplace about it if they apply for a premium tax credit.
- Substantiation. Collect proof of coverage and of each expense before reimbursing.
- W-2 reporting. Report the permitted benefit in box 12 with code FF.
- Records. Keep plan documents, notices and reimbursement records with your tax records.
Our employee notices page lists the other notices a small employer may owe.
QSEHRA vs a small group plan vs ICHRA
| QSEHRA | Small group plan | ICHRA | |
|---|---|---|---|
| Employer size | Fewer than 50 FTEs | Any size (small group is 1 to 50 in Michigan) | Any size |
| Employer cost | Fixed allowance, up to IRS limits | Premium, which changes at renewal | Fixed allowance, no cap |
| Employee chooses | Their own individual plan | From the employer’s plan options | Their own individual plan |
| Can combine with group plan | No | n/a | Yes, for different classes of employees |
| Effect on tax credit | Reduces it | Affordable offer blocks it | Affordable offer blocks it |
A QSEHRA is not the only low-commitment option. In Michigan’s small-group market a group plan can start on the first of any month with as few as one W-2 employee, and the employer is not required to contribute anything. See offering group health insurance with no employer contribution and our ICHRA and QSEHRA guide.
What Detroit employees should check
Detroit and Wayne County residents buy individual coverage through HealthCare.gov or directly from carriers. Plans, networks and prices differ by carrier and by county, so an employee should confirm that their doctors and preferred hospital system are in the plan’s network before choosing it. Lower-income employees may qualify for the Healthy Michigan Plan, Michigan’s Medicaid expansion, which changes how the allowance helps them.
Frequently asked questions
Can Detroit small businesses use a QSEHRA instead of group health insurance?
Yes, if the business has fewer than 50 full-time equivalent employees and does not offer a group health plan to anyone. The employer reimburses individual premiums and, if it chooses, other medical expenses tax-free up to the IRS limits.
What are the QSEHRA limits for 2026?
For 2026 the maximum is $6,450 a year for self-only coverage and $13,100 for family coverage, or $537.50 and about $1,091.67 a month. Amounts are prorated for employees who join mid-year.
Can we offer a QSEHRA alongside a group health plan?
No. A QSEHRA is only available to employers that do not offer a group health plan to any employee. Employers who want an allowance alongside group coverage usually look at an individual coverage HRA instead.
Does a QSEHRA affect employees’ premium tax credits?
Yes. The monthly allowance reduces any marketplace premium tax credit an employee receives, and for some employees it eliminates the credit. Check what employees currently pay before setting the allowance.
When is the QSEHRA notice due?
At least 90 days before the start of the plan year, or by the date a new employee first becomes eligible.
How do employees get reimbursed?
They buy individual coverage, pay the premium or expense, submit proof to the employer or its QSEHRA administrator, and receive a tax-free reimbursement up to their allowance.
Is this legal advice?
No. This page is general information, not legal advice. Rules change and facts differ, so confirm your situation with your attorney or tax advisor.
Not sure whether a QSEHRA or a group plan fits?
CFH Insurance Consultants is an independent employee benefits firm, founded in 2007. We are licensed insurance brokers, and for proper coverage of an account we work in teams of five: an account executive, an account manager, a plan analyst, customer service and IT. Tell us your headcount and what your employees pay for coverage today, and we will compare a QSEHRA, an ICHRA and a small group plan for your business in dollars, including what each means for employees on the marketplace. Send us your renewal, call 248.370.8853, or book a 30-minute call.
Related reading: QSEHRA for Michigan employers · What is an ICHRA? · Employee benefits for Detroit-area employers
Author: Sunny Connolly, Sr. Partner & Head of Growth and Partnerships, CFH Insurance Consultants. Sources: IRS Notice 2017-67; IRS Rev. Proc. 2025-32 (2026 limits).
Nearby: Hamtramck · Highland Park · Grosse Pointe Park · Grosse Pointe · all Detroit and Grosse Pointe cities · every Michigan city we serve
This article is general information, not legal or tax advice. QSEHRA limits change every year; confirm current figures before setting allowances.
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