Accident and Health Benefits: Employee Fringe Benefits (2026 IRS Guide)

This guide covers “Accident and Health Benefits” within employee fringe benefits. The following material presents the IRS treatment of this topic, including the qualifications, exceptions, and examples in the source section. Read the rules alongside the facts of your own situation before deciding what to report, deduct, or document.

Adapted from Publication 15-B (2026), Employer’s Tax Guide to Fringe Benefits, published by the Internal Revenue Service. This guide retains the source edition’s years, amounts, deadlines, and examples. It is guidance for that edition, not a statement that the same figures apply to every tax year.

Context for these rules

This section discusses the exclusion rules that apply to fringe benefits. These rules exclude all or part of the value of certain benefits from the recipient’s pay.

In most cases, the excluded benefits aren’t subject to federal income tax withholding, social security tax, Medicare tax, federal unemployment tax under the Federal Unemployment Tax Act (FUTA), or Railroad Retirement Tax Act (RRTA) taxes and aren’t reported on Form W-2.

This section discusses the exclusion rules for the following fringe benefits.

• Accident and health benefits.

• Achievement awards.

• Adoption assistance.

• Athletic facilities.

• De minimis (minimal) benefits.

• Dependent care assistance.

• Educational assistance.

• Employee discounts.

• Employee stock options.

• Employer-provided cell phones.

• Group-term life insurance coverage.

• HSAs.

• Lodging on your business premises.

• Meals.

• No-additional-cost services.

• Retirement planning services.

• Transportation (commuting) benefits.

• Tuition reduction.

• Working condition benefits.

See Table 2-1 for an overview of the employment tax treatment of these benefits.

Accident and Health Benefits

This exclusion applies to contributions you make to an accident or health plan for an employee, including the following.

• Contributions to the cost of accident or health insurance including qualified long-term care insurance.

• Contributions to a separate trust or fund that directly or through insurance provides accident or health benefits.

• Contributions to Archer MSAs or HSAs (discussed in Pub. 969).

This exclusion also applies to payments you directly or indirectly make to an employee under an accident or health plan for employees that are either of the following.

• Payments or reimbursements of medical expenses.

• Payments for specific permanent injuries (such as the loss of the use of an arm or leg). The payments must be figured without regard to the period the employee is absent from work.

Accident or health plan.

This is an arrangement that provides benefits for your employees, their spouses, their dependents, and their children (under age 27 at the end of the tax year) in the event of personal injury or sickness. The plan may be insured or noninsured and doesn’t need to be in writing.

Employee.

For this exclusion, treat the following individuals as employees.

• A current common-law employee.

• A full-time life insurance agent who is a current statutory employee.

• A retired employee.

• A former employee you maintain coverage for based on the employment relationship.

• A surviving spouse of an individual who died while an employee.

• A surviving spouse of a retired employee.

• For the exclusion of contributions to an accident or health plan, a leased employee who has provided services to you on a substantially full-time basis for at least a year if the services are performed under your primary direction or control.

Special rule for certain government plans.

For certain government accident and health plans, payments to a deceased employee’s beneficiary may qualify for the exclusion from gross income if the other requirements for exclusion are met. See section 105(j) for details.

Exception for S corporation shareholders.

Don’t treat a 2% shareholder of an S corporation as an employee of the corporation for this purpose. A 2% shareholder is someone who directly or indirectly owns (for any day during the tax year) more than 2% of the corporation’s stock or stock with more than 2% of the voting power. Treat a 2% shareholder as you would a partner in a partnership for fringe benefit purposes, but don’t treat the benefit as a reduction in distributions to the 2% shareholder. For more information, see Revenue Ruling 91-26, 1991-1 C.B. 184.

Exclusion from wages.

You can generally exclude the value of accident or health benefits you provide to an employee from the employee’s wages.

Exception for certain long-term care benefits.

You can’t exclude contributions to the cost of long-term care insurance from an employee’s wages subject to federal income tax withholding if the coverage is provided through a flexible spending or similar arrangement. This is a benefit program that reimburses specified expenses up to a maximum amount that is reasonably available to the employee and is less than five times the total cost of the insurance. However, you can exclude these contributions from the employee’s wages subject to social security, Medicare, and FUTA taxes.

S corporation shareholders.

Because you can’t treat a 2% shareholder of an S corporation as an employee for this exclusion, you must include the value of accident or health benefits you provide to the employee in the employee’s wages subject to federal income tax withholding. However, you can exclude the value of these benefits (other than payments for specific injuries or illnesses not made under a plan set up to benefit all employees or certain groups of employees) from the employee’s wages subject to social security, Medicare, and FUTA taxes. See Announcement 92-16 for more information. You can find Announcement 92-16 on page 53 of Internal Revenue Bulletin 1992-5.

Exception for highly compensated employees.

If your plan is a self-insured medical reimbursement plan that favors highly compensated employees, you must include all or part of the amounts you pay to these employees in box 1 of Form W-2. However, you can exclude these amounts (other than payments for specific injuries or illnesses not made under a plan set up to benefit all employees or certain groups of employees) from the employee’s wages subject to federal income tax withholding and social security, Medicare, and FUTA taxes.

A self-insured plan is a plan that reimburses your employees for medical expenses not covered by an accident or health insurance policy.

A highly compensated employee for this exception is any of the following individuals.

• One of the five highest paid officers.

• An employee who owns (directly or indirectly) more than 10% in value of the employer’s stock.

• An employee who is among the highest paid 25% of all employees (other than those who can be excluded from the plan).

For more information on this exception, see section 105(h) of the Internal Revenue Code and its regulations.

COBRA premiums.

The exclusion for accident and health benefits applies to amounts you pay to maintain medical coverage for a current or former employee under the Combined Omnibus Budget Reconciliation Act of 1986 (COBRA). The exclusion applies regardless of the length of employment, whether you directly pay the premiums or reimburse the former employee for premiums paid, and whether the employee’s separation is permanent or temporary.

Qualified small employer health reimbursement arrangements (QSEHRAs).

QSEHRAs allow eligible small employers to pay or reimburse medical care expenses, including health insurance premiums, of eligible employees and their family members. A QSEHRA isn’t a group health plan, and, therefore, isn’t subject to group health plan requirements. Generally, payments from a QSEHRA to reimburse an eligible employee’s medical expenses aren’t includible in the employee’s gross income if the employee has coverage that provides minimum essential coverage, as defined in section 5000A(f) of the Internal Revenue Code.

A QSEHRA is an arrangement that meets all the following requirements.

1. The arrangement is funded solely by you, and no salary reduction contributions may be made under the arrangement.

2. The arrangement provides, after the eligible employee provides proof of coverage, for the payment or reimbursement of the medical expenses incurred by the employee or the employee’s family members.

3. The amount of payments and reimbursements doesn’t exceed $6,450 ($13,100 for family coverage) for 2026.

4. The arrangement is generally provided on the same terms to all your eligible employees. However, your QSEHRA may exclude employees who haven’t completed 90 days of service, employees who haven’t reached age 25 before the beginning of the plan year, part‐time or seasonal employees, employees covered by a collective bargaining agreement if health benefits were the subject of good-faith bargaining, and employees who are nonresident aliens with no earned income from sources within the United States.

Eligible employer.

To be an eligible employer, you must not be an applicable large employer, which is defined as an employer that generally employed at least 50 full‐time employees, including full‐time equivalent employees, in the prior calendar year. You must also not offer a group health plan (including a health reimbursement arrangement (HRA) or a health FSA) to any of your employees. For more information about the Affordable Care Act and group health plan requirements, go to IRS.gov/ACA. For more information about QSEHRAs, including information about the requirement to give a written notice to each eligible employee, see Notice 2017‐67, 2017-47 I.R.B. 517, available at IRS.gov/irb/2017-47_IRB#NOT-2017-67.

Reporting requirements.

You must report in box 12 of Form W‐2 using code FF the amount of payments and reimbursements that your employee is entitled to receive from the QSEHRA for the calendar year without regard to the amount of payments or reimbursements actually received. For example, if your QSEHRA provides a permitted benefit of $3,000 and your employee receives reimbursements of $2,000, on Form W‐2, you would report a permitted benefit of $3,000 in box 12 using code FF.

Using the guidance

Keep the documents that establish the dates, amounts, and circumstances described above. References to other chapters, forms, worksheets, or earlier and later sections refer to the linked IRS publication. Check the full publication and its updates before relying on a rule for a different tax year or a situation not addressed here.

Sources and further reading

• Publication 15-B (2026), Employer’s Tax Guide to Fringe Benefits: Fringe Benefit Exclusion Rules — Accident and Health Benefits — Internal Revenue Service; 2026 edition.

The cited U.S. government text is in the public domain. Source accessed October 28, 2026. Fynoptic has organized this material for educational use and is independent of, and not endorsed by, the IRS.