As a minstry leader, you may face challenges in providing healthcare benefits to your staff, especially if your church does not offer a traditional health insurance plan. The good news is that there is a solution available to help both small employers, like nonprofits, and their employees with healthcare expenses—Qualified Small Employer Health Reimbursement Arrangements (QSEHRAs). This powerful tool can help you offer tax-advantaged healthcare reimbursement benefits without the need to offer a traditional group health insurance plan.
A QSEHRA is a type of health reimbursement arrangement (HRA) designed specifically for small employers with fewer than 50 full-time employees. It allows these employers to reimburse their employees for individual health insurance premiums and other qualified medical expenses, tax-free. This can be a great option for organizations that want to help their employees with healthcare costs but don’t have the resources or desire to provide a group health plan.
Under a QSEHRA, the ministry sets a monthly reimbursement allowance, and employees can use this money to pay for their own health insurance premiums, co-pays, deductibles, and other healthcare-related expenses. Importantly, these reimbursements are not considered taxable income for the employee, which makes the QSEHRA a tax-efficient way to help staff manage healthcare costs.
For a nonprofit organization, a QSEHRA can be an effective way to offer healthcare benefits without the administrative complexity or high costs associated with providing group health insurance. Here’s how it works:
Set Up the QSEHRA: The organization establishes the reimbursement arrangement and sets a monthly reimbursement limit for eligible employees. The maximum allowable contribution for 2025 is $5,850 per year for individual coverage or $11,800 for family coverage.
Employee Participation: Employees of the organization must be eligible to participate in the QSEHRA, and the ministry can set its own eligibility requirements.
Reimbursements: Employees can choose their own healthcare plan and pay other qualified medical expenses. They can then submit proof of payment (like invoices or receipts) to the employer for reimbursement. The organization reimburses them up to the limit set under the QSEHRA, and the reimbursement is tax-free for both the employee and the church.
Reporting and Compliance: The organization is responsible for ensuring that the QSEHRA complies with the regulations and limits set by the IRS. This includes notifying employees about the QSEHRA, providing them with the necessary information for claiming reimbursements, and filing any required reports.
While QSEHRAs offer churches a flexible and tax-advantaged option for providing healthcare benefits, there are key regulations that need to be followed to ensure compliance:
Employer Size: A QSEHRA is only available to employers with fewer than 50 full-time employees. For nonprofits, this generally isn’t a problem, but it’s important to note if you happen to have a larger staff, this option won’t be available.
Reimbursement Limits: The IRS sets annual contribution limits for a QSEHRA. As mentioned earlier, for 2025, the limits are $5,850 per year for individual coverage and $11,800 for family coverage. Contributions above these amounts could lead to penalties.
No Group Health Plan: Offering a QSEHRA cannot also provide a group health insurance plan. However, employees can use the QSEHRA to pay for individual coverage purchased through the Health Insurance Marketplace or private insurance providers.
Affordable Coverage: Employees who want to participate in the QSEHRA must have qualifying health insurance coverage. This includes individual health insurance plans that meet the requirements of the Affordable Care Act (ACA).
Notice Requirements: Organizations must provide employees with written notice about the QSEHRA. This notice should include the terms of the arrangement, the amount of the reimbursement available, and how the employee can submit claims for reimbursement.
There are several reasons why churches should consider offering a QSEHRA as an alternative to traditional health insurance:
Cost-Effective: For ministries without the financial resources to provide a full group health insurance plan, a QSEHRA allows for a more budget-friendly way to assist staff with healthcare expenses.
Flexibility: Employees can choose their own individual health insurance plans, which gives them more control over their coverage and ensures they are getting the health plan that best meets their needs. Employees also have the ability to use ministry sharing plans inside of a QSEHRA.
Tax Benefits: Reimbursements under a QSEHRA are tax-free for both the employer and the employee. This creates significant savings for both parties compared to other healthcare benefits.
Attract and Retain Employees: Offering a QSEHRA can be an attractive benefit for staff, particularly for smaller organizations that may not be able to offer a traditional group health insurance plan. It shows that the employer cares about the wellbeing of its employees, which can help with retention and recruitment.
Simplicity: Compared to traditional group health insurance plans, QSEHRAs are relatively simple to administer. There is less paperwork, and the organization doesn’t need to worry about the complexities of offering a group insurance plan.
A QSEHRA is an excellent option for nonprofits without a healthcare plan but still wanting to provide their employees with financial support for healthcare expenses. It offers flexibility, tax advantages, and simplicity while helping employees secure the coverage they need. By understanding how a QSEHRA works and ensuring compliance with key regulations, organizations can help their staff manage healthcare costs without the overhead of a traditional group health plan. It’s a win-win for nonprofits looking for a cost-effective, efficient way to offer healthcare benefits.