8816 / How do permissible QSEHRA reimbursements affect an employee’s taxes?

Generally, permissible reimbursements from a qualified small employer health reimbursement arrangement (QSEHRA) are excluded from the employee’s gross income. However, if all QSEHRA funds are not used by year-end, the employer is not permitted to reimburse the employee with a taxable payment of unused benefits at the end of the year (i.e., a “cash out” is not permitted). If the employer cashes out employees, all payments to all eligible employees under the QSEHRA for the year are included in income and wages.