HRA
Frequently Asked Questions
Health
Reimbursement Arrangements (HRAs)
A health
reimbursement arrangement (HRA)
must be funded solely by an
employer. The contribution cannot
be paid through a voluntary salary
reduction agreement on the part of
an employee. Employees are
reimbursed tax free for qualified
medical expenses up to a maximum
dollar amount for a coverage
period. An HRA may be offered with
other health plans, including FSAs.
What are the benefits of an HRA?
You may enjoy several benefits
from having an HRA.
-
Contributions
made by your employer can be
excluded from your gross income.
-
Reimbursements may be tax free
if you pay qualified medical
expenses. See
Qualified medical expenses,
later.
-
Any unused
amounts in the HRA can be
carried forward for
reimbursements in later years.
Qualifying for an
HRA
HRAs are
employer-established benefit
plans. These may be offered in
conjunction with other
employer-provided health benefits.
Employers have complete
flexibility to offer various
combinations of benefits in
designing their plan. You do not
have to be covered under any other
health care plan to participate.
Self-employed
persons are not eligible for an
HRA.
Contributions to an
HRA
HRAs are funded
solely through employer
contributions and may not be
funded through employee salary
deferrals under a cafeteria plan.
These contributions are not
included in the employee's income.
You do not pay federal income
taxes or employment taxes on
amounts your employer contributes
to the HRA.
Amount of
Contribution
There is no limit
on the amount of money your
employer can contribute to the
accounts. Additionally, the
maximum reimbursement amount
credited under the HRA in the
future may be increased or
decreased by amounts not
previously used.
Distributions From
an HRA
Distributions from
an HRA must be paid to reimburse
you for qualified medical expenses
you have incurred. The expense
must have been incurred on or
after the date you are enrolled in
the HRA. If any distribution is,
or can be, made for other than the
reimbursement of qualified medical
expenses, any distribution
(including reimbursement of
qualified medical expenses) made
in the current tax year is
included in gross income.
Reimbursements
under an HRA can be made to the
following persons.
-
Current and
former employees.
-
Spouses and
dependents of those employees.
-
Spouses and
dependents of deceased
employees.
Qualified medical expenses.
Qualified medical expenses are
those specified in the plan that
would generally qualify for the
medical and dental expenses
deduction. These are explained in
Publication 502, Medical and
Dental Expenses. Examples include
amounts paid for doctors' fees,
prescription and non-prescription
medicines, and necessary hospital
services not paid for by
insurance.
Qualified medical expenses from
your HRA include the following.
-
Amounts paid for
health insurance premiums.
-
Amounts paid for
long-term care coverage.
-
Amounts that are
not covered under another health
plan.
Balance in an HRA
Amounts that
remain at the end of the year can
generally be carried over to the
next year. Your employer is not
permitted to refund any part of
the balance to you. These amounts
may never be used for anything but
reimbursements for qualified
medical expenses.
Employer
Participation
For an HRA to
maintain tax-qualified status,
employers must comply with certain
requirements that apply to other
accident and health plans.
Chapters 1 and 2 of Publication
15-B, Employer's Tax Guide to
Fringe Benefits, explain these
requirements.
**Information
provided by the Department of
Treasury, Internal Revenue Service
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