Our nyc cpa firm is committed to helping our clients understand New York tax law and federal tax laws, including the 21st Century Cures Act. The new law provides that for plan years starting after 2016, eligible small employers may adopt qualified small employer health reimbursement arrangements (QSEHRAs) to reimburse employees for the cost of premiums for individual or family health coverage without being subject to group-health plan requirements.
According to our CPA in NYC, an employee may generally exclude from gross income amounts received from his or her employer for medical care of the employee, his or her spouse, dependent, and child under the age of 27, to the extent the medical expenses were not deducted by the employee in a prior tax year. In addition, contributions by an employer to an accident or health plan that provides coverage for personal injuries or sickness incurred by the employee and his or her spouse, dependent, and child under the age of 27 are excluded from the employee’s gross income.
The amounts excluded from gross income by an employee may be provided by his or her employer through an arrangement under which the employer pays or reimburses premiums for health insurance for the employee and family members purchased in the individual insurance market (employer payment plan); or the employer reimburses the employee for medical expenses generally of the employee and family members (health reimbursement arrangement or HRA). The exclusion also applies to amounts paid or reimbursed from funds withheld from an employee’s salary under a cafeteria plan (salary reduction amounts). The value of employer-provided health benefits for a year is generally required to be reported by the employer on an employee’s Form W-2 for the year.
An HRA is funded solely by employer contributions and may not be funded through employee salary deferrals under a cafeteria plan. The plan must provide reimbursements up to a maximum dollar amount for a coverage period. Any unused amounts in the HRA can be carried forward for reimbursements in later years. An HRA may only reimburse substantiated medical expenses that are incurred by the employee, or by the employee’s family member.
Some plans and benefits are treated as “excepted” from the group plan rules. Excepted plans include governmental plans and any group health plan for any plan year if, on the first day of that year, the plan has fewer than two participants who are current employees . Excepted benefits include a wide range of benefits that are limited in scope, offered in connection with other kinds of insurance, or offered separately. Examples include limited scope dental or vision plans, hospital indemnity plans, workers compensation, and coverage for accident, or disability income insurance, or any combination. Please contact our New York City tax accountants for additional guidance.