Health & benefits
Group health plans, the ACA, COBRA, HSAs and FSAs, HRAs, retirement plans and their filings.
10 lessons7 nested pages136 min2 exercisesFree
What health benefits must a startup offer, and how do they work? This track answers it on the books of Northwind Traders, Inc., the one company every track in the course is taught on.
The 10 lessons
- Does a startup have to offer health insurance?Does a startup have to offer health insurance?
- Group health insurance for a small businessHow does group health insurance work for a small business?
- Section 125: pre-tax health premiumsHow do pre-tax health insurance deductions work?
- HSAs and FSAs for employersHSA vs FSA: what should a startup offer?
- HRAs: QSEHRA and ICHRAQSEHRA vs ICHRA: which HRA should a startup use?
- COBRA, and state continuation coverageDoes COBRA apply to small employers?
- ERISA: plan document, SPD and Form 5500What does ERISA require of a small employer's health plan?
- ACA reporting: Forms 1094-C and 1095-CWho files Form 1095-C and when is it due?
- Retirement plans: 401(k), safe harbor and SIMPLE IRAWhat retirement plan should a startup offer?
- Accounting for employee benefitsHow do you record employee health insurance in the books?
The words this track teaches
Each links to its glossary definition, with the authority behind it.
- Applicable large employerAn employer that averaged at least 50 full-time employees, full-time equivalents included, over the prior calendar year — the employers the ACA's employer mandate and Form 1095-C reporting apply to. Companies under common control are counted together
- Full-time equivalent employeeFor the ALE count, a month's hours of every employee who was not full-time, each capped at 120, divided by 120. A full-time employee averages 30 hours a week, or 130 hours in a month
- Employer shared responsibility paymentWhat an ALE owes the IRS when a full-time employee gets a premium tax credit on the Marketplace: under §4980H(a), for not offering coverage to 95% of full-time employees, $3,340 a year for 2026 per full-time employee minus 30; under §4980H(b), for coverage that was unaffordable or not minimum value, $5,010 a year for 2026 per credited employee, capped at the (a) amount
- Minimum essential coverageThe health coverage that satisfies the ACA — including an eligible employer-sponsored plan. An ALE must offer it to avoid the §4980H(a) payment, and California requires its residents to have it
- ACA affordabilityThe test of whether an employer's cheapest self-only coverage is affordable: the employee's contribution may not exceed a percentage of household income — 9.96% for plan years beginning in 2026 — which employers measure through the W-2, rate-of-pay or federal poverty line safe harbor
- Group health planA health plan an employer maintains for its employees — insured or self-insured. Subject to ERISA for a private employer, and to COBRA once the employer has 20 or more employees
- Fully insured planA group health plan funded by an insurance policy: the employer pays a fixed premium and the carrier bears the claims risk. Regulated by the state's insurance law through the carrier
- Self-insured planA group health plan that pays claims out of the employer's own funds, usually through a third-party administrator and with stop-loss insurance. Generally not subject to state health insurance laws, though the ACA's group market reforms still apply
- Level-funded planA self-funded plan sold to small employers as a fixed monthly payment covering expected claims, administration and stop-loss insurance with a low attachment point. Legally a self-insured plan, whatever the invoice looks like
- Stop-loss insuranceA policy that reimburses a self-insured employer when claims pass a threshold — per person (specific) or in total (aggregate). It insures the employer, not the employees, and is generally not health insurance under state law
- Small Business Health Options ProgramThe ACA marketplace for small-group coverage — generally employers with 1 to 50 full-time equivalents (up to 100 in some states), at least one employee who is not an owner or family member, and 70% of those offered enrolling. The only route to the small business health care tax credit
- Cafeteria planA written plan that lets employees choose between cash and qualified benefits — health premiums, a health FSA, dependent care — so that what they choose is paid pre-tax: out of income-tax wages and out of FICA wages
- Gross payWhat an employee earned for the pay period before anything is withheld — salary, or hours times rate, plus overtime, bonuses and commissions. Payroll expense in the books is the gross, not what reached the bank
- Form W-2The year-end statement of an employee's wages and withholding — boxes 1, 3 and 5 for income tax, Social Security and Medicare wages — furnished to the employee and filed with the SSA by January 31, with no automatic extension
- Health savings accountAn account the employee owns, funded pre-tax by the employee or the employer while they are covered by an HDHP, spent tax-free on medical care and carried from job to job. 2026 limits: $4,400 self-only, $8,750 family, plus $1,000 from age 55
- High-deductible health planA health plan with at least the year's minimum deductible and no more than its out-of-pocket maximum — for 2026, $1,700 and $8,500 self-only, $3,400 and $17,000 family. Coverage under one is what makes a person HSA-eligible; from 2026, Exchange bronze and catastrophic plans count too
- Health flexible spending arrangementA cafeteria-plan account the employee funds by salary reduction for the year's medical costs — up to $3,400 for 2026 — which is use-or-lose, softened by a grace period or a carryover of up to $680
- Health reimbursement arrangementAn employer-funded promise to reimburse employees' medical expenses, tax-free, up to an amount the employer sets. Employees cannot contribute. QSEHRAs, individual coverage HRAs and excepted benefit HRAs are the kinds a small employer meets
- Qualified small employer HRAAn HRA for an employer that is not an ALE and offers no group health plan, reimbursing employees with their own minimum essential coverage, on the same terms for all — up to $6,450 self-only and $13,100 family for 2026, with written notice 90 days before the year
- Individual coverage HRAAn HRA, open to employers of any size, that reimburses individual health insurance premiums and costs with no federal dollar cap, offered on the same terms within each class of employees — and never to a class that is offered the group plan
- COBRA continuation coverageThe federal right of an employee and family who lose group health coverage through a qualifying event to keep it, at up to 102% of its cost, for 18 months (termination or reduced hours) or 36 (most other events). Applies once the employer had 20 or more employees on more than half its business days the year before
- Qualifying eventThe event that makes COBRA continuation available — for an employee, termination for any reason other than gross misconduct, or a reduction in hours; for a spouse or child, also divorce or legal separation, the employee's death, and a child's loss of dependent status. The employer has 30 days to tell the plan of a termination or reduced hours
- State continuation coverageA state's own continuation right for insured plans, usually reaching employers too small for federal COBRA — California's Cal-COBRA covers employers with 2 to 19 employees, for up to 36 months
- ERISAThe Employee Retirement Income Security Act of 1974 — the federal law that governs private employers' benefit plans, health and retirement alike: a written plan document, disclosure to participants, annual reporting and fiduciary duties
- Plan documentThe written instrument every ERISA plan must be established and maintained under, naming the fiduciaries and stating how the plan works. An insurance certificate alone often is not one
- Summary plan descriptionThe plain-language explanation of an ERISA plan a participant is owed within 90 days of becoming covered — and a new plan within 120 days of becoming subject to ERISA
- ERISA fiduciaryAnyone who exercises discretion over a plan or its assets, starting with the named fiduciary the plan document must name. Must act solely in participants' interest, for the exclusive purpose of providing benefits and paying reasonable plan expenses, prudently, diversifying investments, and by the plan's terms
- Form 5500The annual return of an ERISA plan, filed electronically through EFAST2 by the last day of the seventh month after the plan year ends (July 31 for a calendar year), extendable by up to 2½ months on Form 5558. An unfunded or fully insured welfare plan under 100 participants at the start of the year is exempt; a 401(k) is not
- Form 1095-CThe statement an ALE files for each full-time employee, month by month, of the coverage it offered and what the cheapest option cost — sent to the IRS with Form 1094-C, and the evidence the IRS uses for §4980H. For 2025, filed by March 2, 2026 on paper or March 31 electronically
- Form 1095-BThe statement of minimum essential coverage provided, filed with Form 1094-B by insurers — and by small employers that are not ALEs but sponsor a self-insured plan
- 401(k) planA defined contribution retirement plan in which employees defer part of their pay, pre-tax or Roth, into their own accounts — up to $24,500 for 2026, plus catch-up from age 50 — usually with an employer match. A traditional plan is tested each year for nondiscrimination
- Safe harbor 401(k)A 401(k) that is not subject to the complex annual nondiscrimination tests because it makes a fully vested employer contribution — the basic match (100% of deferrals up to 3% of pay plus 50% of the next 2%), with written notice before the year, or 3% of pay to every eligible non-highly-compensated employee
- SIMPLE IRAA retirement plan for employers with 100 or fewer employees and no other plan: employees defer up to $17,000 for 2026 into their own IRAs, and the employer matches up to 3% of pay or gives 2% to everyone eligible. Set up effective by October 1 of a year
- State auto-IRAA state-run retirement program that employers without a retirement plan must make available, deducting employees' contributions from payroll unless they opt out: the employer's participation is mandatory, the employee's voluntary. California's CalSavers covers employers with one or more employees and charges $250, then a further $500, per eligible employee for noncompliance
- Elective deferralThe part of pay an employee chooses to put into a 401(k), 403(b) or SIMPLE plan instead of taking it as cash. Traditional deferrals are out of income-tax wages but stay in FICA wages
- Employee benefits expenseThe employer's own share of health premiums, HSA and retirement contributions and other benefit costs, recognized in the period the cover or the service relates to. The employee's share is not in it: that was part of gross wages
- Benefits payableWhat the employer owes a carrier or a plan: the employees' premiums and deferrals withheld from pay, plus its own share, until paid over. It should clear to zero at each month end, or be explained by a payment in transitConvention
- Prepaid expenseCash paid before the benefit is consumed — an asset until it is. "Prepayment" is the UK and IFRS word for the same asset; a customer paying us early is a customer advance or deposit, a liability
- Payroll liabilitiesWhat an employer owes on wages it has already paid — the income tax and the employees' share of Social Security and Medicare withheld from their pay, plus the employer's own payroll taxes — until it is deposited with the government. The withheld part was never the employer's money: IRS Pub. 15 calls it trust fund taxesConvention