If you get help paying for individual health insurance from your employer
If your employer offers a “qualified small employer health reimbursement arrangement” (QSEHRA) instead of a traditional employer health insurance plan, you can use it to help pay your monthly premiums for a health plan purchased through the Health Connector. However, if you are offered a QSEHRA and are also eligible for subsidies through the Health Connector, you might be at risk of owing money to the IRS at the end of the year when you file taxes—even if you don’t use the QSEHRA benefit. Here are the steps you can take to protect yourself from owing money back to the IRS at tax time.
Frequently Asked Questions
A QSEHRA is different from a Health Savings Account or a typical Health Reimbursement Arrangement. A QSEHRA is a special type of HRA that does not have to be paired with a health insurance plan offered by the employer. With this type of benefit, your employer contributes to your medical expenses, such as your monthly health insurance premium. The employer contribution isn’t counted on your federal income taxes as income to you. This can help employees buy their own individual health insurance with the help of a tax benefit from their employer.
While QSEHRAs can be beneficial for some employees, there can be financial drawbacks if you also receive assistance through the Health Connector in the form of ConnectorCare or a tax credit. Under federal tax law, you cannot get both a QSEHRA benefit from your employer and a full premium tax credit through the Health Connector.
If you qualify for a premium tax credit through the Health Connector, and your employer offers a QSEHRA benefit (even if you do not use it), your premium tax credit amount will be offset by the federal government when you next file your taxes. This means you could owe some money back to the IRS when you file your taxes.
If your employer offers a QSEHRA, you will get a written notice from your employer. The notice contains important information regarding your QSEHRA, including the dollar amount available to you to pay for medical expenses. You will need the information in this notice to determine how the QSEHRA may affect your tax credit. You will also need this information when you file your taxes.
The amount of QSEHRA you get will change the tax credit amount you’re eligible for. You may either be eligible for some or no tax credit, depending on your circumstances:
- If the QSEHRA amount offered by your employer is considered affordable coverage according to the federal formula that applies to QSEHRAs, you won’t qualify for a premium tax credit when you file your taxes at the end of the year. If you had a tax credit applied towards your premium during that year, you could owe money back at tax time.
- If the QSEHRA is not considered affordable according to the federal formula, you may still be eligible for a premium tax credit. However, even if you are still eligible for a premium tax credit, your tax credit amount will be decreased based on your QSEHRA benefit amount. For every QSEHRA dollar your employer offers you, you will lose a dollar of premium tax credit. It’s important to note that your eligibility for the premium tax credit will be affected even if you do not use the QSEHRA amount your employer offers.
It’s important to know that when you apply for coverage through the Health Connector, the Health Connector won’t have information about your QSEHRA. This means that the tax credit amount shown on your eligibility notice or account won’t account for the QSEHRA benefit you get through your employer. For this reason, you may not want to use all the tax credit that is shown as available to you through the Health Connector.
Your QSEHRA amount will affect the premium tax credit amount that the IRS will determine that you qualified for when you file a federal income tax return for the year. If you used more tax credit than you’re eligible for, you’ll have to pay it back with your taxes.
The IRS is your best resource for help with QSEHRAs and tax questions. IRS Publication 974 has a worksheet to help you determine if your QSEHRA is considered affordable or not.
For more information about QSEHRAs please see IRS Publication 974, “Premium Tax Credit,” or call the IRS at 1-800-829-1040, Monday – Friday, 7:00 a.m. – 7:00 p.m.
Do not apply a tax credit to your monthly premium through the Health Connector. If you were eligible for a tax credit but now have a QSEHRA that is considered affordable, you can lower your tax credit amount to $0 to reduce your tax liability.
Reduce the tax credits you take in advance through the Health Connector by your QSEHRA benefit amount. If you were eligible for a tax credit and now have a QSEHRA that is considered unaffordable, reduce the amount of tax credits you take in advance through the Health Connector by the amount of your QSEHRA benefit. If you are buying coverage only for yourself, reduce the tax credits you take by the self-only QSEHRA benefit your employer offers. Similarly, if you are buying family coverage, reduce the tax credits you take by the family QSEHRA benefit your employer offers. The Health Connector application cannot currently automatically adjust premium tax credit eligibility amounts based on a QSEHRA. Reducing the tax credits you take will help you lower the chance of having to pay back some of the tax credit when you file federal income taxes. You can make this change in your online account at MAhealthconnector.org. You can also get help over the phone by calling Customer Service, or in person through one of our Enrollment Assisters.
We can answer questions about how to reduce your tax credit if you have a QSEHRA. You can reach us at 1-877-MA-ENROLL. However, we cannot provide tax advice. The IRS can provide additional information regarding QSEHRAs and tax questions. Please see IRS Publication 974 or call the IRS at 1-800-829-1040, Monday – Friday, 7:00 a.m. – 7:00 p.m.