QSEHRA Guidance for Non-ALEs

In December 2016, the 21st Century Cures Act created qualified small employer health reimbursement arrangements (QSEHRAs) which would be available starting in 2017. Small employers which are not “applicable large employers” (ALEs) under section 4980H of the Affordable Care Act (ACA) may not be interested or able to sponsor a health plan for their employees. The QSEHRA allows these non-ALEs to provide tax-free funds for employees to go buy their own health insurance, subject to special rules.

Recently, the IRS clarified a lot of those special rules in Notice 2017-67, which also includes a sample notice and attestation. The new rules apply on/after November 20, 2017, with notices due by February 19, 2018. Non-ALEs interested in a QSEHRA should review the notice carefully to ensure compliance.

ALE Penalty Letters for 2015 Are Underway

Employers that were ALEs for 2015 had to file forms 1094-C and 1095-C back in early 2016. Many smaller ALEs claimed 50-99 transition relief to be exempt from penalties for all of 2015. Larger ALEs may have claimed other forms of transition relief but nothing that would make them outright exempt the entire year. 2015 penalty letters were expected a year ago, but none have been distributed yet.

The IRS recently updated Q&As 55 through 58 to indicate they are developing the penalty process. ALEs which the IRS determines may be subject to a penalty for 2015 should expect to receive Letter 226J (probably by the end of this year). An overview is provided here.

Each ALE is given a specific IRS employee to contact with questions. The 8-page letter will recap the information the employer had provided on their forms 1094-C/1095-C (which should save time trying to retrieve those 2015 filings) and will include Form 14765 “Employee Premium Tax Credit (PTC) List” to show by month which full-time employee(s) had purchased subsidized public Marketplace coverage.

The ALE must respond in writing to the letter within 30 days to either accept the IRS’s penalty assessment or file a disagreement on Form 14764 “ESRP Response.” ALEs will not issue corrected forms 1094-C or 1095-C…just mark changes directly on the Employee PTC List and attach supporting documentation. Shortly after, the IRS will send letter 227 with their follow-up response, and there will be a very limited 30-day window to appeal further. Once the IRS reaches a final determination, a demand for payment Notice CP 220J will be sent.

IMA will continue to monitor regulator guidance and offer meaningful, practical, timely information.


This material should not be considered as a substitute for legal, tax and/or actuarial advice. Contact the appropriate professional counsel for such matters. These materials are not exhaustive and are subject to possible changes in applicable laws, rules, and regulations and their interpretations.