Getting Started

Offering health benefits is a clear way to show that you care about your employees’ well-being. Health benefits can help attract and retain skilled workers, setting the farm apart in a competitive labor market. Workers tend to value any support for health care, especially as health care costs are rising.

Choosing the right health benefit option for your farm employees can be complex. The landscape of health insurance and reimbursement arrangements is vast. Each option has different costs, requirements, and advantages for the farm and the employees. Without clear understanding and planning, there is a risk of offering health benefits that are either too costly or not meaningful to employees. Missteps could also lead to legal risks.

With careful research and effective communication, offering health benefits can be a win-win for the farm and its employees. The key is selecting the right option that is affordable for the farm and beneficial for the employees. This guide outlines the basics for three common options for small farm businesses: (1) group health insurance plans, (2) Qualified Small Employer Health Reimbursement Arrangements (QSEHRA), and (3) health benefit stipends.

Note: farm businesses with 50+ full-time equivalent employees are legally required to provide health insurance under the Affordable Care Act. This guide assumes farms have less than 50 FTE employees and are not legally required to offer a group plan.

Let’s take a quick look at each option before digging into the details of how they work to determine whether or not it’s a good fit for your farm business.

(1) What are group health insurance plans? A group health insurance plan is a policy that covers employees of a business under a single insurance plan. Insurance premiums are often lower than individual plans because the insurer spreads the risk across a group. The employer typically pays a portion of the premiums, so the employee’s cost is even less. Many small farms are eligible to purchase group health insurance at a reduced rate through the federal Small Business Health Options Program (SHOP) on the Health Insurance Marketplace, and some can even get tax credits.

(2) What is a Qualified Small Employer Health Reimbursement Arrangement (QSEHRA)? A QSEHRA is a health benefits option available to businesses with less than 50 employees. It allows employers to reimburse their employees tax-free for qualified health insurance premiums and medical expenses up to a limit set by the IRS. A QSEHRA is accessible for farms with small budgets, as there’s no minimum amount that an employer can contribute. Unlike a group plan, a QSEHRA allows employees flexibility in choosing their preferred insurance coverage.

(3) What are health benefit stipends? Health benefit stipends are fixed amounts of money you can offer your employees to help them pay for various expenses. Offering a health stipend is the simplest and most flexible option. However, stipends are not considered formal benefits. This means you cannot require your employees to use their stipend for healthcare or ask for proof that they do. They are also taxable income and are subject to payroll and income taxes.

Each of these health benefit options has its advantages and challenges. Evaluating the costs, requirements, and employee preferences is essential when choosing the right option. Read on to learn more about each health benefit choice and how to implement them effectively.

At-A-Glance Comparison Chart of Health Benefits

Which Option is Right for Your Farm?

Option 1: Group Health Insurance Plans

Offering your farm employees a group health insurance plan is often seen as the “gold standard” of health benefits. However, it comes with significant financial and administrative burdens. Many farm owners assume they can’t offer a group plan. Others dive in too quickly and get in over their heads. While many employees value this traditional health benefit, some prefer a more flexible option.

Before jumping to conclusions, let’s start with a common question: How many employees must a farm have to make offering group health insurance worthwhile? The truth is, there is no one-size-fits-all cut-off number. Many factors come into play. Here are a few points to consider when exploring group health insurance further.

Key components of group health insurance plans

Premium costs tend to get lower with more employees. This is because the insurance provider spreads the risk amongst the group. Farms with less than 10 employees will likely face high premiums and may struggle to afford the monthly payments. However, small farms are often eligible for subsidies or tax credits through the SHOP Marketplace or other state-run programs that can offset some of the costs. Check out the following section on SHOP Marketplace for more details.

Most group health insurance plans require a minimum percentage of employee participation. Farms must be sure that the plan they select will attract the required percentage of their employees. For example, if the minimum participation is 70% and you have four employees, at least three must opt in. Reaching this high level of participation can be challenging, especially if employees have diverse healthcare needs, turnover is high, or workers are hesitant to sign up.

Cost sharing can make a health plan more accessible and attractive to employees. Employers typically pay a portion of the premium costs. While farms are not obligated to cover the entire premium, most small businesses contribute a significant portion—like 50-70% or more. Cost sharing can help you reach the required employee participation percentage. However, the costs can add up quickly!

Various coverage options are available, which also affect the premium costs. Here’s a breakdown of the main categories of options health insurance carriers offer:

• Preferred provider organization (PPO) offers participants a network of preferred healthcare providers and specialists they can see without a referral (i.e., in-network care). Participants can get care outside the network, but the out-of-pocket costs are much higher.
• A health maintenance organization (HMO) is an insurance plan where the participants must choose a primary care physician (PCP) for their healthcare needs. The participants must get a referral from the PCP to see a specialist, which also has to be within the network.
• Point of service (POS) is a combination of HMO and PPO. Participants must choose a PCP but can also get care outside their network.

Remember: PPOs generally have the highest premium costs, while HMOs have the lowest. 

A high-deductible health plan can reduce premium costs: Employers can choose a PPO, HMO, or POS plan as a high-deductible health plan (HDHP) to save money on monthly premiums. But this means your employees must reach higher deductible costs before insurance coverage kicks in. These upfront out-of-pocket costs can be frustrating.

The size of the farm can impact the range of group plan options. The smaller the group, the fewer plan options there may be. If you have fewer than five employees, you may find fewer choices for group health insurance providers, and the rates may be higher.

Premium costs and available tax credits, employee participation, cost-sharing, employer size, and types of insurance plans are all pieces of the large puzzle of group health insurance. Determining whether the pieces will fit the financial and administrative capacity of your farm operation and the needs of your employees takes time and diligence.

Consider whether your employees would value a group health insurance plan

Before committing to a group health insurance plan, it’s essential to understand what your employees want from their health benefits. The best approach is to ask your employees about their needs and preferences before choosing a plan. Otherwise, they may not even see it as a true benefit. Do your employees value low monthly premiums over broader coverage, or would they prefer more comprehensive coverage even if it costs more? Do they have preferred doctors or specialists they see and trust? If so, are those doctors in the network of any HMO or PPO you are considering?

 Farms with employees who span multiple generations may struggle to find a single plan that meets everyone’s unique healthcare needs. Understanding your employees’ preferences can guide you in selecting a plan that will be both valuable to employees and financially viable for the farm.

Explore SHOP Marketplace

The Small Business Health Options Program (SHOP) Marketplace is a federal and state-run online marketplace that allows small businesses with less than 50 full-time employees to purchase group health insurance. The SHOP Marketplace has an online platform that streamlines the process of selecting a plan and managing enrollments, payments, and renewals. Plans are available from various insurers, and the options can vary by state. The SHOP platform allows you to compare premiums, benefits, and coverage levels for different plans to find the best option for your farm. Tax credits are available if you meet certain conditions, which helps offset your share of premium costs.

To qualify for SHOP, your farm must have at least one employee but less than 50 full-time employees. You must also meet a minimum participation requirement (typically, 70% of eligible employees must enroll). States may have their own requirements or options for SHOP plans, so check with your state’s marketplace for differences.

Farms that offer health insurance through SHOP may be eligible for a small business health care tax credit if they meet specific criteria:

1. You must have less than 25 full-time equivalent (FTE) employees.
2. You must pay at least 50% of your employees’ premiums.
3. Your employees must earn an average of $56,000 per year or less (this figure is adjusted annually).
4. You offer coverage to all FTE employees who work 30+ hours a week.

If you qualify, this tax credit can help reduce the cost of premiums and make offering insurance more affordable for your farm. The credit is available for two consecutive years.

Key Takeaways

• Farms should carefully weigh the cost of premiums against the benefit to their employees of offering group health insurance, whether through SHOP or a private broker.
• Understanding your employees’ preferences and healthcare needs can guide you in selecting a plan or determining whether a group plan is the best option.
• While SHOP plans offer competitive rates, the cost of premiums can still be a significant investment.
• Some farms may prefer to offer a less expensive option if health insurance premiums are too burdensome (e.g., QSEHRA or health stipend).

Reflect to Move Forward

Now that we’ve covered the basic considerations for group health insurance plans, take a moment to reflect on the following:

• Given your farm budget, long-term goals, and employee needs, how well do you think a group health insurance plan fits your business on a scale of 1 to 3?

○     1: Not a good fit at all, 2: Somewhat of a fit, 3: A great fit!

• How much would your employees value a group health insurance plan on a scale of 1 to 3?

○     1: They’d prefer something else, 2: They might appreciate it, 3: They’d definitely value it!

Understanding what it takes to offer group health insurance

Assess financial costs

It’s no secret that offering group health insurance requires a significant financial investment. You’ll need to determine what portion of the premiums the farm will pay. Typically, small businesses pay anywhere between 50-70%, with the employees paying the rest. The exact amount of the farm’s share will depend on the health insurance plan, the number of employees who opt in, the level of coverage, and the percentage of cost-sharing you agree to.

You’ll also need to consider the long-term costs of offering group health insurance. Once you provide group coverage, employees will expect this arrangement to continue year after year. Remember that annual rate renewals can be steep, leading to increased financial burden and stress year after year.

On the positive side, there are potential tax credits and benefits.

Take account of tax benefits

As mentioned, farms that offer health insurance through SHOP and meet specific criteria may be eligible for a small business health care tax credit. To qualify, you must have fewer than 25 full-time equivalent employees who earn an average of $56,000 per year or less (adjusted annually), pay at least 50% of premiums, and offer coverage to all full-time employees who work 30 hours or more per week.

If you qualify, this tax credit can help reduce the cost of premiums and make offering health insurance more affordable for your farm. The amount of the tax credit is based on the size of the business. The smaller the business, the bigger the credit. The tax credit is highest for businesses with fewer than ten employees who earn an average of $27,000 or less. The credit is available for two consecutive years. The healthcare.gov website offers a Tax Credit Calculator. (Search “SHOP Tax Credit calculator” in an internet browser, and the calculator should pop up.)

 Employer contributions to health insurance premiums are generally tax-deductible as a business expense, which can help reduce your farm’s taxable income. Employees’ contributions to premiums are typically made with pre-tax dollars, which can also reduce their taxable income. This provides tax savings for both the farm and the employee.

Be mindful of legal implications

If you choose to offer group health insurance, you generally must offer it to all eligible employees. Again, farms with less than 50 full-time employees are not required to provide health insurance. However, if you choose to offer coverage, the Affordable Care Act (ACA) imposes specific rules you must follow. For example, you must provide insurance to all eligible employees within 90 days from when they become eligible.

 Let’s break this down.

Who is an “Eligible Employee”? This is typically someone classified as a full-time equivalent (FTE) employee. According to the ACA, an FTE employee works at least 30 hours per week or 130 hours per month.

Example: If you hire a new FTE employee, you must provide them with enrollment information within 90 days of their eligibility (i.e., within 90 days of their start date or the point at which they meet the 30-hour/week threshold).

What about seasonal employees? Farms are not required to offer health insurance to seasonal employees, but it’s important to classify your workers correctly. So who is a “seasonal employee”? In the eyes of the ACA, a “seasonal employee” is someone who:

• Works for 6 months or less during the year, and
• Performs the job at roughly the same time every year (e.g., for the growing season).

Here’s the critical point. If a seasonal employee’s work pattern changes and they become a full-time equivalent (FTE) employee—working 30 or more hours a week or 130 hours a month—then you must offer them health insurance within 90 days of becoming eligible.

 Example: A farm employee working 5 months every year during the peak season for three consecutive years would be considered a seasonal employee. However, if that employee’s hours increase and they work more than 6 months in a given year, they would become a full-time equivalent (FTE) employee and must be offered health insurance within 90 days.

What about a one-year internship or apprenticeship program? If a farm hires an intern or an apprentice for a one-year program or anything longer than 6 months, the farm must offer health insurance within 90 days from when the intern or apprentice meets the FTE threshold (30 hours per week or 130 hours per month).

 Keep in mind that these are the minimal threshold legal requirements. You could have a policy offering health insurance coverage to seasonal or part-time employees, or your waiting period for eligibility is shorter than 90 days. Whatever your policy is, you’ll need to apply it equitably and without discrimination across all hires.

If you choose to offer group health insurance, you must pay the premiums and make sure the coverage stays active. You essentially become the custodian or caretaker of your employees’ health insurance plan, and the standards of care in the federal Employee Retirement Income Security Act (ERISA) apply. In short, you owe your employees what’s called a “fiduciary duty of care” to act in your employee’s best interest and make sure everything within their insurance policy is in order. You are responsible for paying the premiums on time and ensuring the coverage remains active throughout the plan term. This responsibility ensures that employees have continuous health coverage.

 You can cancel a group health insurance plan but must follow your insurer’s specific cancellation procedures. This involves notifying your insurer in advance, generally at least 30 days before the cancellation is effective. However, the timing can vary depending on the plan and insurer, so always check your policy for the exact requirements.

You must also notify your employees well in advance—usually at least 30 days—so they have adequate time to explore alternative coverage options. If your farm has fewer than 20 employees, you are not legally required to provide COBRA (Consolidated Omnibus Budget Reconciliation Act) continuation coverage. However, many states have mini-COBRA laws that offer similar continuation options for small employers. These laws vary by state, so you must check your state’s requirements.

Keep in mind that most plans renew automatically each year. You will often need to follow the cancellation procedures if you do not want to renew.

Evaluate the paperwork load

Once you decide to offer a group health insurance plan, you’ll need to manage several administrative tasks and paperwork requirements. Below is a breakdown of the key steps involved:

Provide plan information to eligible employees. You must provide all eligible employees with clear, detailed information about their plan options, including:

• Coverage details (what’s included and excluded)
• Costs (premium amounts, deductibles, copayments, and out-of-pocket expenses)
• Benefits (such as preventive care, prescriptions, mental health coverage, etc.)

Most insurers provide an information packet that includes all of this information. Remember, you must provide this information within 90 days from when that employee becomes eligible.

Enroll employees. Once employees have the information, you will need to enroll those who opt in to the plan. This involves:

• Collecting necessary personal and dependent information
• Submitting the required forms to your insurance provider
• Setting up employee contributions (if applicable) and ensuring the employer’s contribution is also processed
• Keeping track of which employees are enrolled and ensuring they meet eligibility requirements

Keep ongoing records. After enrollment, it’s essential to maintain accurate records, including:

• Tracking employee enrollments and ensuring no one is left out
• Keeping track of eligibility (e.g., hours worked, status changes, or other factors affecting eligibility)
• Managing coverage changes (such as adding or removing dependents, changes in marital status, or terminating coverage for employees who leave the farm)

Review plan options before renewal. Group health insurance plans typically renew automatically each year. If you want to cancel or make any changes to the plan before the renewal date, you usually need to notify your insurer in advance (often at least 30 days); otherwise, the plan will automatically renew. With this in mind, well before your renewal date, you will need to:

• Review the available plans to see if there are any changes to premiums, coverage, or benefits.
• Re-enroll your employees or update their elections if the plan terms have changed.
• Notify employees about their coverage options and any changes to the plan. This allows employees to review their choices, make adjustments, or opt out.

Streamline paperwork with SHOP Marketplace. If you offer health insurance through SHOP, the online portal makes the paperwork load more manageable. The portal helps with:

• Managing employee enrollment
• Updating employee information (additions, deletions, status changes)
• Communicating with your insurer
• Renewing coverage and making adjustments

Each year, you must verify that your business still meets the eligibility requirements for participating in the SHOP Marketplace.

Properly report health insurance costs on tax forms. Farm businesses with fewer than 250 employees do not need to report the total cost of health insurance coverage on their employees’ Form W-2. This reporting requirement is part of the Affordable Care Act (ACA) and only applies to employers with 250 or more employees.

For farm owners who themselves receive health insurance coverage, their own tax reporting depends on how the farm business is structured. Here’s a quick summary:

Sole proprietorship or partnership (and LLCs taxed as Sole Proprietors or Partnerships)

• W-2 Not Required: If you are a sole proprietor or a partner in the business (or an LLC taxed as a sole proprietor or partnership), you are considered self-employed and not an employee of the farm business. As such, the health insurance premiums you pay for yourself and your family are not reported on a W-2.
• How to Deduct: You can deduct the health insurance premiums on Schedule 1 of your Form 1040 as an above-the-line deduction, which directly reduces your taxable income.

S corporations (including LLCs taxed as S corporations)

• W-2 Required: If you are an owner of an S Corporation and you own more than 2% of the shares (which is common for farm owners), you are considered an employee of the corporation. Therefore, your health insurance premiums must be included in your taxable income on your W-2.
• How to deduct: Even though the premiums are reported on your W-2 as taxable income, you can still deduct the premiums as self-employed health insurance on Schedule 1 of your personal Form 1040, which helps reduce your taxable income.

C corporations (including LLCs taxed as C corporations)

• W-2 required, but not taxable: If your farm is structured as a C corporation, and you are an employee of the corporation (as most C-corp owners are), the health insurance premiums paid for you are included on your W-2 but are not taxable income.
• Business deduction: The C corporation can deduct these premiums as a business expense. Since the health insurance is part of the company’s group health plan, it is not subject to income tax for the owner-employee. However, it is reported on the W-2 for informational purposes.

Consider best practices when offering a group health plan

Here are four best practices to consider when offering group health insurance:

1. Evaluate plan options thoroughly: Take the time to explore the plan options available through SHOP or private insurers to find the best coverage at a reasonable cost for both your farm and your employees. Be sure to get feedback from your employees to ensure the plan you chose includes the essential benefits your employees need.
2. Set a fair contribution amount: Offering at least a portion of the premium can help employees afford health coverage. It’s essential to be consistent across employees (e.g., offering the same percentage of coverage).
3. Communicate clearly: Explain the details of the group health plan to your employees, including the coverage options, premiums, and any employee contributions. Clear communication will help employees make informed decisions about their healthcare.
4. Keep records and stay on top of compliance requirements: Keeping thorough records is essential for compliance, especially regarding eligibility and any changes to employees’ coverage.

Option 2: Qualified Small Employer Health Reimbursement Arrangement (QSEHRA)

For farms that struggle with the monthly premiums, administrative burden, long-term commitment, or limited flexibility of offering traditional group health insurance, a Qualified Small Employer Health Reimbursement Arrangement (QSEHRA) can be a strong alternative.

A QSEHRA is a health benefit arrangement allowing small employers to offer their employees tax-free reimbursements for qualified health insurance premium costs and out-of-pocket medical expenses. A QSEHRA is not a health insurance plan that your workers enroll in. Rather, your employees select and buy their own health insurance plan, and then you pay them back.

Now you might be thinking, “Of course, employers can and do reimburse employees for all kinds of expenses. So, what makes a QSEHRA so special?” It’s true that businesses reimburse all kinds of expenses. The process is usually tax-free—the employee doesn’t pay taxes on the reimbursement. It’s not income! The employer doesn’t pay payroll taxes on it either; it’s just a reimbursement. However, the ACA prohibits employers from simply reimbursing employees for their health insurance and medical expenses. The law’s authors were worried that businesses could avoid the regulations of the ACA by saying, “Okay, fine! I’m not offering a group plan anymore. Instead, I’m going to save myself all the headache and regulatory rigamarole of a group plan. And now, my employees get to pick their own plan, and I’ll just reimburse them. Everyone wins!” Lawmakers didn’t like that. It seems that the American healthcare system, as it is right now, depends on employers continuing to provide group plans. Yet, with so many small businesses unable to manage the demands of a group plan, they needed an alternative. Enter the QSEHRA.

The QSEHRA allows employers to reimburse employees for their personal, private health insurance purchase without the money becoming taxable income to the employee. The employer also benefits because the reimbursement is not a taxable wage, and thus, the employer won’t have to pay their portion of payroll taxes on it. So, in short, the QSEHRA is another paperwork-inducing way to legally achieve what employers often already think they can do—reimburse employees for the health insurance plan of their choosing.

In a nutshell, here’s how it works:

• The employer sets up the QSEHRA, decides on a reimbursement amount, makes sure that all the criteria are met, and offers the QSEHRA to eligible employees.
• Those employees submit their receipts to the employer and receive tax-free reimbursements through the payroll system.
• The QSEHRA is relatively simple compared to providing a group health insurance plan but still involves many details, which we review below.

Key components of a QSEHRA

Most small farms are eligible to participate in a QSEHRA. A QSEHRA is available to employers with at least one and fewer than 50 employees (full-time and full-time equivalent employees combined). Employees must meet specific requirements to be eligible for reimbursements through a QSEHRA. An employee’s eligibility for reimbursements of their health costs depends on the type of health insurance plan they have and the criteria you set as an employer. This can be highly nuanced, but for our purposes, we’ll provide a summary here.

Eligibility Criteria

Employees must have their own individual health insurance plan that meets the Minimum Essential Coverage standard in order to be reimbursed for insurance premium costs. Qualified plans include individual plans purchased through the ACA marketplace, directly from an insurer, or, in some cases, through a spouse’s employer’s plan if the employee is covered individually (not as part of a family plan*). Essentially, nearly every plan a person can buy on the marketplace is going to meet the minimum coverage.

*Note: If an employee has a spouse- or parent-provided health insurance plan for which the premium has already been paid with pre-tax dollars, a QSEHRA reimbursement cannot be provided. That’s because they’ve already received the money tax-free. However, you can still give the employee a reimbursement. It’s merely considered a taxable “bonus” on the paycheck. For more details on how to handle this type of reimbursement, read the following section on health stipends.

Employees who do not have an insurance plan that meets the MEC standards (for example, a short-term or limited-benefit plan or family plan coverage under a spouse’s or parent’s plan) may be reimbursed for qualifying out-of-pocket medical expenses. This includes co-pays, deductibles, and other expenses, as long as they meet the criteria in IRS Publication 502. Keep in mind that if you choose to reimburse these employees for out-of-pocket costs, you will have to set up strict systems to protect medical receipts with personal health information to comply with HIPAA (Health Insurance Portability and Accountability Act). Many small businesses choose not to include these types of reimbursements to avoid this additional administrative burden.

Once you establish a QSEHRA, you must offer reimbursements for premium costs to all your full-time employees who have health insurance that meets the MEC standard. Again, you can choose at your discretion to offer reimbursements for qualifying out-of-pocket medical expenses to employees who do not have qualifying health insurance, so long as you comply with HIPAA. You can also choose (at your discretion) to offer reimbursements to seasonal or part-time workers. However, you must offer the same amount to ALL workers. In other words, if you offer $400 per month to full-time employees, you must offer $400 per month to part-time or seasonal employees if you choose to include them in the program—more on this to come.

Employers have leeway to set the contribution amount so long as it is applied fairly and consistently. The QSEHRA has no minimum contribution limits, but the amount must be below certain limits set by the IRS each year. For 2025, the annual maximum reimbursement amounts are:

• $6,350 per year for self-only employees (i.e., no more than $529 per mo.).
• $12,800 per year for employees with families (i.e., no more than $1,066 per mo.).

The reimbursements are tax deductible for the employer and tax-free for the employee.

Consider whether your employees would value a QSEHRA

Sometimes, a QSEHRA may appeal more to employees than a traditional group health plan, especially if they have unique healthcare needs. It offers employees the flexibility to choose a health plan that works best for them and their families.

However, it’s important to remember that QSEHRA reimbursements are only available to employees with qualifying individual health insurance. If your employees already have their own health insurance plan that meets Minimum Essential Coverage (MEC)—which everyone by law is supposed to have, though without enforcement—a QSEHRA could greatly benefit them. If your employees do not have health insurance, it is essential to assess whether offering a QSEHRA would motivate them to purchase their own health insurance plan.

In addition, employees must follow through with paperwork requirements to receive their QSEHRA reimbursements. This includes providing proof of their insurance coverage—which could simply be an attestation or written statement by the employee that they have a qualifying plan. This statement does not need to include any personal or specific information. However, if you choose to offer reimbursements for out-of-pocket medical expenses, the employees will need to submit receipts, and you will need to establish a system to protect the personal medical information under HIPAA. For some employees, this may be too tedious or private. These are all essential factors to consider before deciding whether to offer a QSEHRA.

Be aware that the farm business owners might not be eligible

Not all business owners can participate in their own QSEHRA. The eligibility depends on the type of business and its IRS classification. Here’s a breakdown:

• Sole proprietors and partners cannot participate in a QSEHRA unless their spouse is a W-2 employee of the business. This is because sole proprietorships or partnerships are considered “pass-throughs.” There’s no legal distinction between the business and the owner, and the owners aren’t considered employees. However, if the owner is married to a W-2 employee, they could receive reimbursements as a dependent through their spouse’s QSEHRA allowance.
• S-Corporation owners and their spouses and dependents who own more than 2% of the business cannot participate in a QSEHRA. The IRS considers these individuals as self-employed for tax purposes. They can already write off their medical expenses individually, so they cannot also participate in a QSEHRA. However, employees of an S-Corp can still participate in a QSEHRA, so long as they do not have more than 2% ownership.
• Owners of C-Corporations can participate in a QSEHRA. The IRS recognizes a C-corporation as a separate entity from the owners. The owners are considered employees and can receive reimbursements through a QSEHRA, just like their employees. This also extends to their family members.
• Eligibility for LLC owners depends on how the IRS taxes their LLC. An LLC is a state-recognized business structure, but LLC owners must choose their federal tax classification: either as a sole proprietorship, partnership, S-corporation, or C-corporation. The eligibility to participate in a QSEHRA will depend on this IRS classification. For example, if the LLC is taxed as an S-corp, the owner would follow the same rules as S-corporation owners, and if it’s taxed as a C-corp, the owner can participate in the QSEHRA.

Key Takeaways

• A QSEHRA can be a controlled, predictable way to offer health benefits without the administrative burden of traditional group health insurance. It allows you to provide a flexible benefit while controlling costs, as you can cap how much you reimburse employees each year.
• There is no minimum amount that an employer must offer. The reimbursement can be as low as $5 or $10 per month (or even lower). Every little bit helps! The amount can also fluctuate yearly, making it a valuable option for farms with variable income or limited budgets.
• A QSEHRA also reduces administrative burden compared to managing a group health plan. You don’t need to manage a group policy or handle claims directly. However, you must get your employees to attest or confirm that they are enrolled in eligible health plans, collect receipts if you provide reimbursements for medical costs, and maintain detailed records for tax and compliance purposes. We’ll cover more on this in the next section about paperwork load.

Reflect to Move Forward

Now that you’ve learned about the basic considerations for QSEHRAs, take a moment to reflect on the following:

• Given your budget, long-term goals, and employee needs, how well do you feel a QSEHRA fits your farm’s needs on a scale of 1 to 3?

○     1: Not a good fit at all, 2: Somewhat of a fit, 3: A great fit!

• How much would your employees value a QSEHRA on a scale of 1 to 3?

○     1: They’d prefer something else, 2: They might appreciate it, 3: They’d definitely value it!

Understand what it takes to offer a QSEHRA

Assess financial costs

The financial costs of a QSEHRA are primarily determined by the reimbursement amount you choose to offer each employee, which can vary depending on the budget and needs of the farm. The total financial costs of a QSEHRA will depend on several factors:

• The number of employees who qualify for and participate in the plan,
• The monthly reimbursement allowance that you choose for each employee, and
• The frequency of reimbursements (i.e., monthly, quarterly, or annually) and whether you adjust reimbursement amounts from year to year.

One key advantage of the QSEHRA is that it’s easier to scale with the farm’s financial situation. If cash flow is tight in one year, you can reduce the reimbursement amount while still offering some level of support to your employees. The flexibility in setting reimbursement limits can be beneficial for farms with seasonal or fluctuating income. However, it’s important to remember that, like any benefit, the costs of offering a QSEHRA can add up over time, especially if you have a growing team or if you increase the reimbursement amounts. Be sure to assess the long-term financial impact on your farm’s budget to ensure you can sustainably offer this benefit to your employees.

Take account of tax benefits

Reimbursements are tax-deductible costs for employers. One of the significant tax benefits of offering a QSEHRA is that employer reimbursements are tax-deductible as a business expense, which can help reduce your farm’s taxable income.

Reimbursements are exempt from income and payroll taxes, including Social Security, Medicare, and unemployment taxes. This means that both you, as the employer, and your employees avoid paying income and payroll taxes on QSEHRA reimbursements.

Be mindful of the legal implications

While QSEHRAs are generally simpler to manage than traditional group health plans, there are still regulations and guidelines you must follow to offer this benefit legally and effectively.

A key requirement when offering a QSEHRA is determining who qualifies for reimbursements. Here’s what you need to know:

• You are legally required to offer QSEHRA reimbursements for insurance premium costs to all full-time employees who are enrolled in a health plan that meets the Minimum Essential Coverage (MEC) standards. If you hire a new full-time employee who is already enrolled in a qualifying health plan, you must offer them the QSEHRA reimbursement for premium costs immediately. Similarly, you must offer the QSEHRA reimbursement for premium costs to an existing full-time employee as soon as they enroll in a qualifying health plan.
• You have the option to offer QSEHRA reimbursements for qualified medical expenses to full-time employees who do not have a qualifying health plan. These would be employees who have temporary coverage or are covered under a spouse’s or parent’s plan. While you cannot reimburse premium costs in this case, you may reimburse qualifying medical expenses (i.e., meet the criteria in IRS Publication 502). However, you must collect receipts and have a system to protect personal health information under HIPAA. Also, if you choose to include these employees, you must offer them the same allowance amount as you would to employees with qualifying health plans.
• You have the option to offer QSEHRA reimbursements to part-time or seasonal employees. Again, if you do, you must offer them the same reimbursement amounts as full-time employees.

You must ensure that QSEHRA benefits are offered fairly and non-discriminatorily.

Here’s how to apply the rules consistently:

You can offer different reimbursement amounts based on family status.

• For example, employees with dependents or spouses may receive a larger allowance than single employees. However, these variations must be based on clear, objective criteria related to family status—not on personal characteristics such as income level, gender, or other factors.

You can also vary allowances based on age. However, the IRS limits how much the reimbursement amounts can vary between the youngest and oldest employees.

• Specifically, the difference cannot exceed a 1:3 ratio (i.e., the oldest employee cannot receive more than three times the amount of the youngest employee). To justify this difference, the QSEHRA must be linked to a “reference plan” (typically an individual market plan), ensuring that the age-based variation is reasonable.

Once you decide who qualifies for the QSEHRA and how much each employee will receive (whether based on family status or age), you must apply the rules consistently across all employees. You cannot offer different reimbursement amounts based on personal characteristics like gender, race, health status, or income level. The only permissible factors for varying allowances are family status and age, as long as they comply with the guidelines above.

Varying allowance amounts based on seasonal or temporary status are not allowed. Just to reiterate, any benefits you offer must be consistent across all eligible employees, whether they are full-time, part-time, or seasonal.

Health Insurance Portability and Accountability Act (HIPAA) privacy rules. Any receipts or health documents that your employees provide for proof of reimbursements must be handled carefully as they are protected by HIPAA privacy rules. You must ensure that your employees’ protected health information (PHI) is safeguarded. You cannot use this information for employment-related actions.

Employers who offer QSEHRA are also required by law to have formal plan documents, which brings us to paperwork.

Evaluate the paperwork load

While a QSEHRA generally involves less administrative complexity than traditional group health insurance, you’ll need to manage several paperwork requirements and ongoing administrative tasks. Below is a breakdown of the key steps involved in offering and administering a QSEHRA.

➔   Create a QSEHRA plan document

The federal government requires employers to have a plan document that outlines the details of eligibility requirements, what employees will receive, and how the QSEHRA will be administered, including safeguards for handling protected health information. Creating this plan document can be a significant undertaking. Here are a few ways to get support, templates, or sample plan documents:

• The IRS has general guidance on what should be included in a QSEHRA plan document (internet search IRS FAQ on QSEHRA).
• Many third-party administrators (TPAs) have templates, documents, and services for QSEHRAs. Some popular TPAs include Gusto, PeopleKeep, and JustWorks.
• There are also general online legal document platforms that offer templates for QSEHRA plans (e.g., Rocket Lawyer, NOLO, LegalZoom).

Indeed, templates can be an effective and efficient way to start. However, be sure to take the time to create and include specific details that will best serve your farm operation.

➔   Provide plan information to eligible employees

You must provide clear, detailed information to your employees about the QSEHRA program. This includes the process for submitting reimbursement requests, the amount of the reimbursement they are entitled to, eligible expenses, and enrollment requirements. A best practice for providing this information to your employees is to give them the QSEHRA plan document along with instructions and a timeline for the next steps.

➔   Set up employee participation

Once you’ve provided employees with information about the QSEHRA, you will need to set up their participation in the plan and create a system for submitting and processing reimbursements. If your employees do not have health insurance with MEC coverage, they can enroll during the annual open enrollment period or during a 60-day special enrollment period (SEP) after you offer the benefit for the first time.

➔   Manage ongoing records and process reimbursements

Employees who have MEC coverage will need to provide proof of their insurance policy to establish eligibility for their first insurance premium reimbursement for the plan year. This can include a simple statement or attestation that they have qualifying coverage. If you choose to offer non-premium reimbursements, your employees will need to submit their receipts for co-pays, prescriptions, medical services, and healthcare items (e.g., anything listed in IRS Publication 502). The IRS requires employers to get the following information prior to reimbursing an employee:

• Name of item or service
• Cost of item or service
• Name of vendor or service provider
• Date of purchase (and date of procedure/service if it’s a service).

Remember: These documents likely include private health information that is protected under HIPAA privacy rules. You must take care to safeguard it.

You’ll need to review the expense when it is submitted and either approve or reject the request based on the IRS rules (i.e., confirm that it is a qualifying expense under IRS Publication 502). If employees change health plans, become eligible for new coverage, or no longer qualify, you’ll need to ensure that their QSEHRA participation is adjusted.

Employers typically reimburse their employees through payroll by adding a non-taxable line item to their paychecks. You can also choose to pay QSEHRA reimbursements with a separate check, cash, or bank transfer.

➔   Reevaluate allowances annually

Each year, you will need to review and potentially adjust the monthly reimbursement allowances for your employees. Be sure to communicate changes to your employees so they understand their reimbursement amounts for the upcoming year.

➔   Report taxes and maintain records

As part of your QSEHRA responsibilities, you will need to keep accurate records for tax reporting purposes. This helps ensure that reimbursements are valid, and it will help back up your tax filings should you be audited. QSEHRA reimbursements are not subject to payroll and income taxes. However, the employer needs to report the total reimbursement amount on the employee’s Form W-2. This amount is not included in their taxable income (as long as they follow the proper guidelines for eligible medical expenses).

➔   Plan changes or cancellations

If you decide to cancel the QSEHRA, you need to notify your employees and ensure any promised reimbursements are handled appropriately. As with any employee benefit, it’s essential to clearly communicate changes to the plan to ensure employees understand their rights and options.

Consider best practices when offering a QSEHRA

Here are four best practices to ensure your QSEHRA program runs smoothly:

1. Create a clear, written QSEHRA policy: Clearly outline eligibility requirements, reimbursement amounts, and eligible expenses.
2. Apply the QSEHRA policy equally to all eligible employees. While you can adjust reimbursement amounts based on job roles or full-time vs. part-time status, avoid basing reimbursements on personal characteristics like age, gender, or health status.
3. Communicate eligibility and reimbursement rules: Inform employees about the specifics of the QSEHRA, including which expenses are eligible for reimbursement and the documentation they need to provide. This helps ensure a smooth process and minimizes confusion.
4. Keep records and monitor employee eligibility: Ongoing and thorough recordkeeping is essential to ensure that all employees meet the necessary criteria for QSEHRA participation, such as enrollment in a qualifying health plan. 

Option 3: Health Stipends

Health stipends might be a good option for farm businesses looking for a flexible, low-maintenance way to provide their employees with health benefits. They allow you to support your employees’ healthcare costs without the expense and complexities of a group health insurance plan or QSEHRA.

Get clear about how health stipends work

A health stipend is a fixed amount of money an employer provides employees to cover healthcare expenses. Unlike a group health insurance plan or a QSEHRA, where the employer directly reimburses premiums or medical expenses, a health stipend is essentially a cash allowance that employees can use however they choose. This could include paying for health insurance premiums (if applicable), co-pays, prescriptions, wellness expenses like gym memberships, or even anything else.

Review the key components of health stipends

The most significant advantage of a health stipend is its simplicity and flexibility.

Here’s how a health stipend works in practice:

• The employer sets the stipend amount: You decide how much money to offer your employees each month or year. For example, you might set a stipend of $150 per month that employees can use for health-related expenses. This amount is entirely flexible and can vary depending on what makes sense for your farm’s budget.
• Then, employees use the stipend: Employees can use the stipend to pay for a range of health expenses, from insurance premiums (if applicable) to out-of-pocket medical costs like doctor’s visits, prescriptions, dental, and vision care. It’s up to the employee how they spend the stipend, and the employer doesn’t have to track how it’s used.
• No insurance plan is required for health stipends: Unlike a QSEHRA or group health insurance, offering a health stipend doesn’t require employees to enroll in a specific insurance plan. You’re simply providing a cash benefit that they can use toward healthcare-related expenses.

While the simplicity and flexibility of health stipends can appeal to employers and employees, there are a few significant downsides to consider.

• Health stipends are treated as taxable income for the employee: One key difference compared to programs like QSEHRAs is that health stipends are typically considered taxable income for the employee. This means the stipend amount will be included in the employee’s wages and subject to income tax and FICA (Social Security and Medicare) taxes. It’s essential to let employees know that the stipend amount will be taxed, just like their wages. That said, employers can deduct the stipend cost as a business expense, which reduces the farm’s overall taxable income.
• Employees don’t have to spend the stipend on health-related expenses, and employers cannot ask employees how they spend it. Unlike other health benefits, there are no restrictions on how employees can spend a health stipend. As the employer, you cannot make an employee use it for health care expenses or ask for proof of insurance or receipts in a way that would cause the stipend to be seen as a reimbursement plan that falls under the Affordable Care Act (ACA) rules. If you do, you might be considered to have an employer-sponsored health plan, which would expose you to ACA compliance and penalties.

While a health stipend is a more flexible and less burdensome option for both employers and employees, this also means that you won’t have control over how the employee spends the money. You might trust that your employees will use the stipends for health or wellness expenses, but you can’t guarantee they will.

Consider whether your employees would value a health stipend

One of the biggest appeals of health stipends is the flexibility they provide employees. Rather than being restricted to a specific health plan, employees can use the stipend for whatever healthcare expenses they choose. This flexibility can be a huge benefit for employees who already have their own health insurance or who have irregular healthcare needs.

However, employees with high healthcare needs or those without health insurance may not find a health stipend as useful as other options like a QSEHRA or group health insurance. If your employees struggle to pay for expensive insurance premiums or significant medical expenses, a stipend may not be sufficient to meet their needs.

While some employees may appreciate the flexibility of a stipend, others may prefer a more structured health plan or a benefit like a QSEHRA, which helps pay for specific expenses like premiums and medical costs. It’s essential to gauge your employees’ preferences before offering a stipend.

In summary, the benefits of this option are:

• Health stipends are flexible: Employers can set the amount based on their budget, and employees have the freedom to use the stipend for whatever healthcare expenses they choose. Consider whether you and your employees value this flexibility.
• Health stipends are taxable: Unlike QSEHRAs, health stipends are considered taxable income for employees, which can be a downside for some.
• Easy to administer: Health stipends are simple to manage. You just provide the stipend amount through payroll and don’t have to worry about managing insurance plans or processing reimbursements.

Reflect to Move Forward

Now that you’ve learned about the basic considerations for providing health stipends, take a moment to reflect on the following:

• Given your budget, long-term goals, and employee needs, how well do you feel health stipends fit your farm’s needs on a scale of 1 to 3?

○     1: Not a good fit at all, 2: Somewhat of a fit, 3: A great fit!

• How much do you think your employees would value a health stipend on a scale of 1 to 3?

○     1: They’d prefer something else, 2: They might appreciate it, 3: They’d definitely value it!

Understand what it takes to offer health stipends

Assess financial costs

The financial costs of offering health stipends are relatively straightforward but still require careful planning. The total cost of your health stipend program will depend on how much you provide and how many employees participate.

The amount you provide is entirely flexible, and you set the limit based on your farm’s budget. You could offer $100 a month per employee, or you could offer lower or higher amounts. The amount can also fluctuate year to year, depending on your farm’s budget.

You also have a lot of leeway to decide which workers get stipends (e.g., full-time, part-time, or seasonal employees) and how much for each. Remember that you will need to have a clear policy for who gets stipends and apply it consistently and without discrimination to all your workers, which we’ll cover more in the Legal Implications section below.

It’s important to consider how offering stipends will affect your farm’s budget now and in the future. If you have a growing team or increase the stipend amounts, the total cost will add up over time. Once you start offering health stipends, your employees might see them as part of their wages. If you later stop providing them, your employees might see it as a pay cut, which could reduce morale.

Take account of tax benefits and costs

Unlike QSEHRAs, health stipends are considered taxable income for employees. This means the stipend amount will be added to your employee’s wages and subject to income taxes and FICA taxes (Social Security and Medicare). It’s best to inform employees of this upfront so they can plan accordingly and won’t be surprised come tax season.

The farm business can deduct the stipend amount as a business expense. This can help reduce your farm’s taxable income. However, because health stipends are considered taxable income for employees, you’ll still have to pay your share of payroll taxes.

Be mindful of legal implications

While health stipends are relatively simple to administer, there are still some legal considerations you should be aware of:

• Non-discrimination rules apply to all employee benefits, including health stipends. While you have flexibility in deciding how much to offer or who to offer it to, the criteria for determining stipend eligibility and amounts must be based on objective, non-discriminatory factors. They should be applied consistently to employees in similar situations. Any differences must be based on job-related criteria and classifications (e.g., number of hours worked, full-time vs. part-time, etc.) and not personal characteristics like gender, marital status, or age.
• Employees are not required to spend health stipends on health-related expenses, and employers cannot ask how they spend the money. A health stipend is not a formal health policy or benefit and is not subject to the Affordable Care Act (ACA) or other healthcare regulations. It’s essentially a “cash benefit” that’s considered taxable income. The IRS doesn’t require employees to report how they spend the money. Therefore, the employee can choose to spend the money on whatever they want—health-related or not.
• Employers cannot make employees use the stipend to purchase health insurance or other healthcare expenses or ask for receipts to confirm how they spent the funds. Directly asking employees for proof of health insurance or health expenses and reimbursing them could inadvertently make your stipend look like a group health plan and trigger ACA penalties if not set up correctly.

Evaluate the paperwork load

Offering a health stipend doesn’t require much administrative work. There are no enrollment forms, plan options, or insurance contracts to manage.

However, you will still need to inform your employees about how the stipend works. You should clearly communicate the stipend amount, how you will distribute it (e.g., monthly through payroll), and the fact that it’s taxable income. The best practice is to do this in writing, such as by email or letter, or by including a “health stipend policy” in your employee handbook.

You must also update payroll to make sure the health stipend is included. As for tax filings, there are no special forms to file or compliance rules to follow other than including the stipend as part of employees’ regular wages on their W-2s.

Consider best practices when offering health stipends

Here are four best practices to consider when offering health stipends to your employees:

1. Create a clear written health stipend policy. Establish clear guidelines for how health stipends are determined, who is eligible, and the amount offered. Ensure your policy is applied consistently and fairly across all employees to avoid potential legal or tax issues.
2. Treat the stipend as taxable income. Inform employees upfront that the stipend is considered taxable income, and be prepared to withhold the necessary payroll taxes. This helps avoid any surprises during tax season.
3. Don’t ask employees to show proof of health insurance or expenses. Since health stipends are considered a “cash benefit,” you are not allowed to require employees to submit receipts or track their spending.
4. Communicate clearly and positively to the employees that the stipend is a health benefit. While you can’t control how they spend the money, clear communication can encourage employees to use the stipend for health-related or wellness expenses.

Taking Action on Health Benefits

Now that you’ve considered the options, have you decided on a health benefit that would work for your farm business and meet the needs of your employees?

• Group health insurance
• QSEHRA
• Health stipends

If so, that’s wonderful news! However, if the financial strain or administration of providing any of these options feels overwhelming, here are some practical tips for managing those pressures:

• Employee preferences matter: Some employees may prefer the flexibility of a stipend, while others may prefer a more structured health benefit, such as a group health plan or QSEHRA. It’s essential to gauge employee preferences before deciding.
• Communicate clearly and often: Transparency with your employees is key. Be open about the farm’s financial challenges and explain how you’re making decisions about benefits. This can help manage expectations and build trust even if you can’t offer as much as you’d like in one year. When employees understand that you value them and wish to provide more, they are more likely to be supportive.
• Start small, then grow: If you start with something like a stipend or QSEHRA and eventually get to the point where you can offer a full group health insurance plan, that gradual approach can help both you and your employees adjust. Starting small and growing over time is way better for morale than cutting the benefit later.

Funder Acknowledgments

This material is based upon work that is supported by the National Institute of Food and Agriculture, U.S. Department of Agriculture, under award number SUB00003520 through the Southern Sustainable Agriculture Research and Education program under subaward number #EDS24-065. USDA is an equal opportunity employer and service provider.