To self-administer a QSEHRA, you draft a written plan document, give every eligible employee a written notice at least 90 days before the plan year begins, collect proof that each employee has minimum essential coverage, reimburse qualified medical expenses up to the annual cap, and handle two year-end filings yourself: Code FF on each W-2 and the PCORI fee on Form 720. For 2026, the reimbursement cap is $6,450 for self-only coverage and $13,100 for family coverage.1Internal Revenue Service. Revenue Procedure 2025-32 Skipping the third-party administrator saves the fee but puts every one of those tasks on you.
Before you go further, confirm the business qualifies. A QSEHRA is only available to employers who averaged fewer than 50 full-time employees (including full-time equivalents) in the prior calendar year and who offer no group health plan of any kind.2Legal Information Institute. 26 US Code 9831 – Definition of Eligible Employer Cross either line and you lose eligibility for the following plan year.
The Two Documents That Start the Plan
Everything else you do rests on two pieces of paper: a plan document and an employee notice. Neither has to be drafted by a lawyer, but each has content requirements you cannot skip.
The Plan Document
The plan document is the legal backbone of the arrangement. It should name the business, set the plan year start and end dates, state the reimbursement amounts you have chosen, define who counts as an eligible employee, list the categories of expenses you will reimburse, and describe how claims are submitted and paid. Template versions circulate through benefits consultants and professional employer organizations. If you use one, replace the defaults with your own numbers and rules rather than leaving them as-is.
Your reimbursement amounts can be anything up to the annual cap, but the benefit has to be spread evenly across 12 months. Employees cannot draw the full year’s allowance up front. New hires who become eligible partway through the plan year get a prorated allowance based on the months remaining. You may offer different amounts based on age and family-size categories, and you may vary self-only versus family coverage amounts, but you cannot pay owners or highly compensated staff more generously than rank-and-file employees.3Office of the Law Revision Counsel. 26 US Code 9831 – General Exceptions
Federal law also lets you exclude certain groups from the plan entirely: employees under 25, employees with fewer than 90 days of service, part-timers under 30 hours a week, seasonal workers under seven months a year, and employees covered by a collective bargaining agreement that addressed health benefits. Write your exclusions into the plan document. If you choose to include part-time employees, they get the same allowance as full-time staff. No two-tier arrangements.
The Written Notice
You must give a written notice to every eligible employee at least 90 days before the start of each plan year.3Office of the Law Revision Counsel. 26 US Code 9831 – General Exceptions For a new hire who becomes eligible mid-year, the notice must go out on the date eligibility begins. Every notice has to contain three things:
- The employee’s permitted benefit amount for the plan year
- A statement that the employee must report the benefit to any health insurance marketplace where they apply for premium tax credits
- A warning that reimbursements become taxable income for any month the employee is not covered by minimum essential coverage
Keep signed copies. The notice requirement is easy to overlook when you are running everything yourself, and missing it carries a specific penalty covered further down. The signed copy is your proof if the IRS asks.
Running the Reimbursement Cycle
Once the plan is live, the recurring work is verifying claims and paying them. Three checks stand between a submitted receipt and a tax-free reimbursement.
Is the Expense Qualified?
A QSEHRA can reimburse anything that counts as a medical expense under IRS Publication 502: individual insurance premiums, doctor visits, prescriptions, dental and vision, lab work, medical equipment, and transportation to receive care. Over-the-counter medications and feminine hygiene products qualify without a prescription. Items merely beneficial to general health, like vitamins or a gym membership, do not.4Internal Revenue Service. Publication 502 – Medical and Dental Expenses
Your plan document controls which of those categories you actually cover. Limiting reimbursement to insurance premiums alone cuts your review workload sharply. Opening the plan to the full range of Section 213(d) expenses means more receipts to read.
Does the Employee Have Minimum Essential Coverage?
This is the single most important check in self-administration. Reimbursements are only excluded from an employee’s gross income for months in which the employee maintains minimum essential coverage.5Office of the Law Revision Counsel. 26 US Code 106 – Contributions by Employer to Accident and Health Plans MEC includes most marketplace plans, a spouse’s employer plan, Medicare, Medicaid, and TRICARE. Without MEC for the month of service, the reimbursement becomes taxable wages.
Most self-administering employers collect proof of coverage once at the start of the plan year and require employees to notify them if coverage lapses. Get this in writing. Skipping the MEC check is the fastest way to lose the tax treatment your employees are counting on.
Is There Room Left in the Allowance?
Track every reimbursement against each employee’s remaining annual allowance. A spreadsheet per employee showing date, expense type, amount reimbursed, and running balance is the minimum. Paying past the cap creates a compliance problem that is far easier to prevent than to unwind. Pay reimbursements either as a separate check or as a non-taxable line item on regular payroll. QSEHRA reimbursements are exempt from FICA on both sides and deductible to the business as an ordinary business expense.6Office of the Law Revision Counsel. 26 US Code 162 – Trade or Business Expenses
Year-End Filings You Handle Yourself
Two reporting obligations recur every year, plus recordkeeping.
Form W-2, Code FF
Report each employee’s total permitted benefit for the year in Box 12 of their W-2 using Code FF.7Internal Revenue Service. 2026 General Instructions for Forms W-2 and W-3 The amount reported is what the employee was eligible to receive for the year, not what they actually claimed. Even an employee who submitted zero claims still gets a Code FF entry. Do not confuse Code FF with Code DD, which is used for the cost of employer-sponsored group coverage.
PCORI Fee on Form 720
A QSEHRA is treated as a self-insured plan for the Patient-Centered Outcomes Research Institute fee. Multiply the average number of covered lives under the plan by the applicable rate. For plan years ending after September 30, 2025, and before October 1, 2026, the rate is $3.84 per covered life. Report and pay on Form 720 by July 31 each year.8Internal Revenue Service. Patient-Centered Outcomes Research Trust Fund Fee – Questions and Answers For a small employer the dollar amount is trivial. That is exactly why self-administering businesses forget it.
Records
Keep the plan document, every signed employee notice, proof-of-coverage documentation, claim submissions with receipts, and reimbursement payment records. The IRS requires employment tax records to be retained at least four years after filing.9Internal Revenue Service. Employment Tax Recordkeeping Six years is a common conservative practice, since the IRS can look further back if there is evidence of a substantial understatement.
What You Are Not Required to Do
A QSEHRA is not a group health plan under federal law.10Internal Revenue Service. IRS Notice 2017-67 – Qualified Small Employer Health Reimbursement Arrangements That classification carves out a significant amount of work. You do not file Form 5500. You do not produce an ERISA-format Summary Plan Description. You do not offer COBRA continuation when an employee leaves; their QSEHRA benefit simply ends, and they keep whatever individual policy they bought on their own. The absence of those three obligations is what makes self-administration realistic for a business without a benefits department.
Whether the Owner Can Participate
One question comes up for nearly every small business owner considering self-administration: can I get reimbursed under my own plan? It depends on how the business is taxed. C-corporation owners who draw a W-2 can participate like any other employee. Sole proprietors, partners in a partnership, and S-corporation shareholders who own more than 2% cannot; the IRS treats them as self-employed for fringe benefit purposes.11Internal Revenue Service. S Corporation Compensation and Medical Insurance Issues An LLC follows the rules of whatever tax classification it elected. There is one workaround: if your spouse is a legitimate W-2 employee of the business, the spouse can participate and elect family coverage that reimburses expenses for the whole household.
Penalties for Getting It Wrong
The penalty most likely to hit a self-administering employer is the one for failing to provide the required written notice: $50 per employee per failure, capped at $2,500 per calendar year.12Office of the Law Revision Counsel. 26 US Code 6652 – Failure to File Certain Information Returns The penalty can be avoided if the failure was due to reasonable cause rather than willful neglect.
The bigger risk is retroactive disqualification of the entire plan. If the IRS finds you offered the QSEHRA on unequal terms, exceeded the contribution cap, or reimbursed employees without verifying minimum essential coverage, every reimbursement paid during the plan year becomes taxable income to the employee, and the business loses its payroll tax exemption on those amounts. The dollar exposure on a disqualification dwarfs the notice penalty, which is why time spent on the plan document and the MEC verification process is the best return on effort in the whole arrangement.