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Taxmap/pubs/p969-003.htm#TXMP5f9cff37 Health Reimbursement Arrangements (HRAs)

Health Reimbursement Arrangement

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.

For information on the interaction between an HRA and an HSA, see Other employee health plans under Qualifying for an HSA, earlier.

Taxmap/pubs/p969-003.htm#TXMP68f376f6 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.

Taxmap/pubs/p969-003.htm#TXMP0d2221bc 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.

Certain limitations may apply if you are a highly compensated participant.

Taxmap/pubs/p969-003.htm#TXMP7b1de0e4 Contributions to 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.

Taxmap/pubs/p969-003.htm#TXMP62424196 Amount of Contribution

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. See Balance in an HRA, later.

Taxmap/pubs/p969-003.htm#TXMP1c022883 Distributions From an HRA

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.

Taxmap/pubs/p969-003.htm#TXMP4d8dfa13 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.

If you are covered under both an HRA and a health FSA, see Notice 2002-45, Part V, which is on page 93 of Internal Revenue Bulletin 2002-28 at www.irs.gov/pub/irs-irbs/irb02–28.pdf

You cannot deduct qualified medical expenses as an itemized deduction on Schedule A (Form 1040) that are equal to the distribution from the HRA.

Taxmap/pubs/p969-003.htm#TXMP0c84a8f6 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.

Taxmap/pubs/p969-003.htm#TXMP67be539f Employer Participation

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.

Previous Page:  Publication 969 - Medical Savings Accounts - Flexible Spending Arrangements (FSAs) Next Page:  Publication 969 - Medical Savings Accounts - How To Get Tax Help Use     to find additional instances of index items.