Before the Affordable Care Act, Florida small businesses could reimburse any medical expense for any employee tax-free under a simple Section 105 plan. Post-ACA market reform, that easy path is closed — and the consequences for getting it wrong are severe: $100 per affected employee per day in excise tax under IRC Section 4980D. Today, tax-free medical reimbursement is allowed only through specifically structured Health Reimbursement Arrangements (HRAs) that comply with the integration rule or fall under one of the carve-out categories.
A standalone HRA (one not paired with a group health plan) reimbursing more than $10,000 per year per employee was disallowed by ACA market reform regulations. The penalty is steep: $100 per affected employee per day, capped at $500,000 per year. IRS Notice 2015-17 confirmed the rule and warned employers against treating cash medical reimbursements as tax-free.
| HRA Type | Eligibility | 2026 Limit |
|---|---|---|
| Integrated HRA | Must be paired with employer's group health plan | No federal cap |
| QSEHRA | Employer with <50 FTEs, no group plan | $6,350 single / $12,800 family |
| ICHRA | Any employer; employees must have individual coverage | No federal cap |
| Excepted Benefit HRA (EBHRA) | Employer offers a group health plan; employee may decline | $2,200 (2026) |
| Retiree-only HRA | Plan covers former employees only | No federal cap |
Some Florida small businesses think they can simply give employees an extra $500/month "for health insurance" and call it tax-free. That doesn't work for two reasons:
Compliant HRAs (QSEHRA, ICHRA, EBHRA, integrated) require:
Most Florida small businesses use third-party administrators (PeopleKeep, Take Command, BENEFITSPro) for $4-$10 per employee per month — substantially less than the cost of a single 4980D penalty.
Generally no. Even a one-off reimbursement to an employee for a single medical expense, if not made through a compliant HRA or other structure, is treated as wages. There are narrow exceptions for pre-1980 plans grandfathered before the ACA, but those don't help businesses started after 2010.
Independent contractors are not employees, so 4980D doesn't directly apply. But the payment is still ordinary 1099 income to the contractor. The business cannot use HRA tax-free treatment because contractors are not eligible for HRAs (HRAs require employee status).
Yes — the excise tax is strict liability. The first dollar of impermissible standalone HRA payment triggers the $100/day clock per affected employee. The penalty is reported on Form 8928. If you've been making these payments, talk to a CPA immediately about voluntary correction.
A licensed Florida broker can structure QSEHRA, ICHRA, or EBHRA to deliver tax-free reimbursements legally.
Get a Consultation