%20Do.jpg)
Your small business is at a stage where you want to retain your employees, so you cover a portion of their health insurance premiums. (For the record, that’s a great idea.)
There are two ways to reimburse them for insurance, but you need to make sure you stay in compliance. Let’s talk about your options!
At CSI Accounting & Payroll, we’ve provided financial services to small businesses for 60 years. That means we’ve got employee benefits and compliance nailed down. Let’s discuss:
- How do I offer a stipend?
- How do I offer a QSEHRA or ICHRA plan?
- Which option does CSI recommend?
Offering a Stipend
A health insurance stipend isn’t a bonus, and it isn’t exactly a raise. It should be shown as an extra line item on your employees’ pay stubs, labeled something like “health reimbursement” or “misc pay”.
The big compliance concern? This stipend still needs to be taxable, so make sure that it’s set up that way in your payroll system.
This option is simple, but it’s not tax advantaged. But the next option is tax advantaged, so let’s talk about QSEHRA and ICHRA plans!
Offering QSEHRA or ICHRA
Qualified Small Employer Health Reimbursement Arrangement (QSEHRA) is for businesses with fewer than 50 employees, but Individual Coverage Health Reimbursement Arrangement (ICHRA) is available to all businesses. These are shown on a pay stub as “QSEHRA reimbursement” or “ICHRA reimbursement”.
You can set one up through your benefits provider. While there’s a small amount of administrative work required to maintain your QSEHRA or ICHRA plan, both are non-taxable for you and for your employees.
This option is tax advantaged, but it requires some extra work. Is this the better option for you? Keep reading for some expert insights.
CSI’s Recommendation
So, between a stipend and a QSEHRA or ICHRA plan, which does CSI Accounting & Payroll recommend? It depends on your tax burden and financial position. (Plus, ICHRA can be done in conjunction with a company sponsored group healthcare plan, but a QSEHRA can't.)
A vast majority of our clients pay the taxable stipend. Most of them started with this option and don’t want to change what they’re doing, or they don’t want to bother with the administrative burden of QSEHRA and ICHRA plans.
We would recommend QSEHRA or ICHRA plans to businesses that pay a lot of Social Security and Medicare taxes. These businesses could save enough in taxes to justify the administrative work. Not sure if this applies to you? Ask your Payroll Specialist for guidance!
There’s still another option, though. You can avoid a reimbursement altogether (while still keeping your employees happy) by offering a company health insurance plan. We see more and more very small employers going this route, so feel free to ask your benefits provider if this is possible for your business, too.
Get Guidance & Payroll Management!
Now that you know about offering a stipend, offering a QSEHRA or ICHRA plan, and how CSI makes recommendations for each option, are you ready to check out payroll services?
If so, please consider CSI Accounting & Payroll! To see if we can be a good fit for your business, click the button below for a free consultation:
Not ready to talk? That’s okay! First, learn more about what your payroll investment might look like by clicking the image below:
