When insurance costs start climbing, it’s time to stop thinking like a consumer and start thinking like a Tax Strategist. If you’re running a business and have ever looked at the price tag on group health insurance and thought:
“There’s got to be a better way,”
you’re not alone. For small business owners, health coverage can be one of the biggest budget busters — right up there with payroll and rent.
But here’s the good news: The IRS agrees that small businesses need more flexibility. That’s why, tucked into Section 9831(d) of the tax code, there’s a powerful little tool called the QSEHRA, which is short for Qualified Small Employer Health Reimbursement Arrangement.
Now before your eyes glaze over, let me be clear: this isn’t a loophole or a gimmick. It’s a fully legal way for small employers to reimburse health insurance and out-of-pocket medical costs — tax-free.
And in 2025, the benefits have only gotten stronger.
What Is QSEHRA, Really?
At its core, a QSEHRA allows a small business (defined as fewer than 50 full-time employees) to reimburse employees for certain health expenses — without the employer having to offer a traditional group health plan.
Think of it like a tax-friendly gift card for healthcare. You, as the business owner, decide how much to reimburse. Your employees go out and buy their own health insurance or pay for qualified medical expenses. Then they submit receipts to you or a third-party administrator. And just like that, you’ve supported their health coverage. All without triggering payroll taxes or income tax on either side.
This is not a new tool, but it’s often misunderstood or overlooked. And with updated limits and increased IRS awareness in 2025, now is a great time to revisit how it could work for your business.
Who Can Actually Use a QSEHRA?
If your business has fewer than 50 full-time employees and you don’t offer a group health plan, you’re in the clear. You must offer the QSEHRA to all full-time employees on the same terms (with a few carve-outs for part-time workers or those under a certain age).
But here’s where the strategy kicks in: Not every small business owner should jump at this. If you already have group coverage and your team loves it, don’t scrap it for QSEHRA just to chase deductions. But if you’re offering nothing, or paying for coverage out-of-pocket with no tax benefits, this is where things get interesting.
Take, for example, a 6-person bakery based in Texas. Instead of buying a costly group plan with limited flexibility, the owner sets up a QSEHRA and reimburses each employee up to $6,350 per year. That’s money the employees can use to pay for their own health coverage, dental plans, or co-pays… and it’s a fully deductible business expense with zero payroll taxes.
What Are the Limits for 2025?
The IRS sets maximum annual reimbursement limits for QSEHRAs — and for 2025, they’ve increased slightly:
- $6,350 for individual employees
- $12,800 for employees with a family
That means you can reimburse up to those amounts per eligible employee, per year. Monthly, that breaks down to $529.16 for individuals and $1,066.66 for families.
These limits are adjusted annually for inflation, so they may change again in 2026. But for now, they’re a generous way to support your team while keeping your tax liability low.
How Do the Tax Benefits Work?
This is where QSEHRA shines. When structured correctly:
- You (the employer) get a full business deduction on all reimbursements.
- Your employees receive those reimbursements tax-free — as long as they have minimum essential coverage (MEC).
There are no payroll taxes. No FICA. No FUTA. No added income for the employee to report. It’s one of the cleanest tax-advantaged health benefits available.
From a bookkeeping perspective, the money flows through like any other reimbursement. But the IRS doesn’t treat it as wages, which is where the savings really stack up.
Let’s say you have five employees and reimburse them each $6,000 per year. That’s $30,000 in write-offs. If you had paid that same $30,000 as bonuses, you’d not only owe employer-side payroll taxes. You’d also lose some of it to federal income tax withholding. In short, QSEHRA saves you money while giving your team more purchasing power.
A Quick Word of Caution
QSEHRAs are fantastic… but only when implemented correctly. Let me explain.
You can’t offer both a QSEHRA and a group plan. You also can’t offer pre-tax salary reductions through a cafeteria plan to fund premiums that are already reimbursed through QSEHRA. And if your employee gets a premium tax credit on the health insurance marketplace, that credit will be reduced dollar-for-dollar by the QSEHRA.
That’s a lot of moving parts. But that’s also why having a qualified tax strategist (ahem, sorry I had a slight cough there) is essential. You don’t want to risk disqualifying yourself — or worse, your employees.
When QSEHRA Makes the Most Sense
There are a few sweet spots where QSEHRA really outperforms traditional group coverage.
Let’s start with very small teams. If you’ve got 3–15 people, many of whom already have individual health coverage (or are covered by a spouse), QSEHRA gives you flexibility without locking you into a fixed group premium. You can scale up or down based on the needs of your people.
It’s also a great fit for seasonal businesses, startups, or professional firms (think: consultants, real estate brokerages, boutique law firms) where employees value autonomy and aren’t tied to the idea of one-size-fits-all coverage.
Now, it’s not the best choice if you’re looking to woo talent with rich health benefits. In competitive hiring markets, full-blown group plans with platinum-level benefits may still be necessary. But for owners who are cash-conscious and tax-savvy, QSEHRA hits a very specific (and potentially very rewarding) sweet spot.
Can You Reimburse Yourself?
If you’re the owner of the business, the answer depends on your structure.
If you run an S-Corp and own more than 2%, you’re considered self-employed under IRS rules. That means you can’t participate in QSEHRA as an employee. However, if you’re set up as a C-Corp, you might be able to participate. There are of course some rules that apply here… this is possible as long as you’re also on payroll and treated like any other W-2 employee.
It’s a subtle but critical distinction, and one that should absolutely be discussed with your tax professional. But even if you can’t reimburse yourself directly, offering QSEHRA to your team can still generate tax savings on your business return.
The Administrative Side (It’s Easier Than You Think)
You don’t need a giant HR department to run a QSEHRA.
There are plenty of third-party administrators who can handle everything from plan documents to reimbursements and compliance for a few hundred dollars a year. You just need to set a reimbursement limit, verify employee coverage, and ensure receipts meet IRS standards.
No need to overcomplicate it. In fact, many owners use QSEHRA as a lightweight, affordable entry point into providing benefits. Especially in industries where group coverage has felt out of reach.
Why This Matters More in 2025
Healthcare costs are rising. Employees are paying more out of pocket. And many small businesses are tired of trying to “fake” a benefits package with raises that get swallowed by taxes and inflation.
In 2025, the QSEHRA isn’t just a workaround. It’s a real solution.
When structured correctly, it:
- Saves the business owner thousands in payroll and income taxes
- Empowers employees to choose the coverage that fits them best
- Avoids the complexity and cost of traditional group plans
- Keeps your benefits nimble, scalable, and IRS-compliant
And in a world where recruiting and retention are harder than ever, flexibility is the new luxury.
Final Thoughts
The QSEHRA is one of those rare tools that combines simplicity, affordability, and real tax advantages. It’s not for every business. But for the right size team, in the right season of growth, it can be a game-changer.
If you’re tired of paying out-of-pocket for health benefits with no write-off. Or you’re looking to offer something meaningful to your team without breaking the bank. Then, it’s time to take a serious look at what QSEHRA can do for you.
Book a free consultation to learn how to implement this strategy for your business — properly, compliantly, and to your advantage.
Welcome to the New Age of Accounting. Let’s begin.
Chris is the Managing Partner at Weston Tax Associates, a best-selling author, and a renowned tax strategist. With over 20 years of expertise in tax and corporate finance, he simplifies complex tax concepts into actionable strategies that drive business growth. Originally from Sweden, he now lives in Florida with his wife and two sons.
