For 2026, the QSEHRA limits are $6,450 a year for self-only coverage and $13,100 a year for family coverage. These are the most an eligible employer can reimburse an employee through a QSEHRA this year. The IRS set them in Revenue Procedure 2025-32.1

A QSEHRA (Qualified Small Employer Health Reimbursement Arrangement) lets a small employer reimburse employees for individual health insurance and medical costs. The reimbursements are tax free as long as the employee has minimum essential coverage, such as an individual market plan.2 The plan has to be written so payments stay within the annual cap.

2025 vs. 2026 QSEHRA limits

The IRS adjusts the limits for inflation every year and publishes them in an annual Revenue Procedure.13

Coverage 2025 annual limit3 2026 annual limit1 2026 monthly equivalent2 Change
Self-only $6,350 $6,450 $537.50 +$100
Family $12,800 $13,100 $1,091.66 +$300

The IRS sets annual limits only. The monthly equivalent is the annual limit divided by twelve, and it’s what one month adds when you prorate the limit for an employee covered for part of the year. The family figure is rounded down, because the IRS doesn’t allow rounding above the limit.2 You can confirm the current figures in IRS Publication 15-B.

2027 limits: the IRS usually publishes them in October, since the inputs it uses aren’t available until September of the year before.2

How the limits work

QSEHRA limits are annual maximums, with a separate, higher amount for family coverage.

  • Per employee: the cap applies to each eligible employee for the year, rather than to the total program.
  • Self-only and family: you can set a higher amount for employees with family coverage, up to the family cap.
  • Prorated for part years: an employee who’s covered for only part of the year gets the cap times the months covered, divided by twelve. A month counts if the employee could be reimbursed for anything that month.2
  • Carryover counts toward the cap: if your plan lets unused amounts roll over, the carryover plus the new year’s amount can’t exceed that year’s limit.2
  • No minimum: you can set any amount up to the cap.

What to do if you want to contribute above the cap

Some small employers want to give more than the QSEHRA cap allows. An ICHRA (Individual Coverage HRA) is the usual next option, because it has no IRS-set contribution cap. You choose the amount.

ICHRA vs QSEHRA walks through the full comparison. The summary:

  • Stay with QSEHRA if: the cap fits your budget, you want simpler administration, and the same terms for every eligible employee suit you.
  • Move to ICHRA if: you want to contribute above the cap, want different amounts for different employee classes, or want to offer it alongside a group plan.

Plan design choices

Within the QSEHRA limits, an employer decides:

  • Contribution amount: anything up to the IRS cap, based on budget.
  • Self-only vs. family amounts: QSEHRA allows a higher amount for family coverage, to reflect the real cost difference.
  • Eligible expenses: QSEHRAs typically cover individual market premiums and medical expenses that count under the tax code’s definition of medical care (Internal Revenue Code section 213(d)). You can be more restrictive (for example, premiums only) but not more generous than that list.
  • Rollover: whether unused amounts carry over is your choice, within the cap rule above.

Tax treatment and the premium tax credit

When the employee has minimum essential coverage, QSEHRA reimbursements are excluded from the employee’s income and aren’t subject to payroll taxes (Social Security and Medicare), and the employer can deduct them.2 The employee has to show proof of that coverage before being reimbursed.

A QSEHRA also affects the premium tax credit, the subsidy that lowers Marketplace premiums. Employees have to tell the Marketplace the amount of their QSEHRA benefit. If the QSEHRA counts as affordable for an employee, that employee can’t get the credit. If it isn’t affordable, the credit is reduced by the QSEHRA amount.2 Factor this in when you set amounts, especially for lower-paid employees.

The QSEHRA cap is a hard ceiling. A plan written to pay more fails to be a QSEHRA at all, so if you want to contribute more, use an ICHRA rather than pushing past the limit.

Common misconceptions

“The QSEHRA cap covers my employees’ full premium.” Sometimes. In lower-cost markets the cap may cover a full self-only premium and a good share of a family premium. In expensive markets it may fall short for family coverage, so compare the cap against real local premiums.

“I can offer different QSEHRA amounts to different employees.” Mostly no. A QSEHRA has to offer the same terms to every eligible employee, with narrow exceptions such as amounts that vary with the cost of an individual policy by age or family size. If you want to set different amounts by employee class, ICHRA supports that.

“I can combine QSEHRA with a group plan for some employees.” No. An employer that offers a group health plan to any employee can’t offer a QSEHRA. ICHRA can run alongside a group plan for different employee classes.

Setting up a QSEHRA for 2026

  1. Confirm eligibility: your company isn’t an applicable large employer (generally, fewer than 50 full-time employees, counting full-time equivalents, in the prior year) and offers no group health plan.2
  2. Check the 2026 limits: $6,450 self-only and $13,100 family, prorated for anyone not covered all year.
  3. Pick your contribution amount: within the cap, based on budget, goals and your hiring market.
  4. Adopt or update the written plan document: it should state the amounts.
  5. Send the required written notice: eligible employees get it at least 90 days before the plan year starts, and new hires get it by the date they become eligible. The IRS can charge a penalty for a missed notice.2
  6. Coordinate with payroll: the permitted benefit is reported on the employee’s Form W-2 in box 12 with code FF.2
  7. Use an administrator: a third-party administrator handles proof of coverage, substantiation and reimbursements unless you have the time to do it yourself.

What changes at 50 employees

  • Eligibility follows the prior year: the test looks at your average headcount in the prior calendar year, so crossing 50 midyear affects the following year.2
  • ICHRA is one option: it has no IRS-set cap and supports employee classes.
  • A group health plan is another: for some teams, a group plan becomes the better fit at that size.
  • Plan ahead: a switch needs new documents and employee notices, and the notice is due 90 days before the plan year.

What to do next

For 2026, the QSEHRA limits are $6,450 for self-only coverage and $13,100 for family coverage.1 QSEHRA’s main advantage over ICHRA is simplicity. If you want to give more or set different amounts by employee group, ICHRA is the path.

Want help applying the 2026 QSEHRA limits to your business? We show you all the options, including whether QSEHRA or ICHRA is the better fit for your company. The analysis is free with no obligation. Talk to us.

Footnotes

  1. IRS, Revenue Procedure 2025-32, section .63, which sets the 2026 limits at $6,450 and $13,100 for family coverage. ↩ ↩2 ↩3 ↩4

  2. IRS, Notice 2017-67, the IRS guidance on QSEHRAs: eligible employers and minimum essential coverage (background and sections A, F and G), carryover (Q&A 23 and 29), timing of the annual limits (Q&A 27 and 28), proration and rounding (Q&A 30), the written notice, Form W-2 reporting with code FF, and the premium tax credit (Q&A 68 to 70). ↩ ↩2 ↩3 ↩4 ↩5 ↩6 ↩7 ↩8 ↩9 ↩10 ↩11 ↩12

  3. IRS, Revenue Procedure 2024-40, section .63, which set the 2025 limits at $6,350 and $12,800 for family coverage. The QSEHRA was created by the 21st Century Cures Act of 2016. ↩ ↩2