What is an HRA?


What is an HRA?

  • An HRA is a federally approved funding program that enables employers to reimburse employees for a portion of their health care expenses.

Are there restrictions on who can participate in an HRA?

  • The IRS has ruled that only employees and their spouses and dependents qualify for HRA reimbursements. Therefore, self-employed individuals do not qualify for an HRA.

    In the past, the IRS has ruled that shareholders who own more than 2% stock in a Sub chapter S Corporation should not be treated as employees for purposes of applyingthe fringe benefits rules. Finally, partners generally are considered self-employed and wouldnot qualify as employees.

Are LLCs treated the same as an S corporation for HRA purposes?

  • If the Limited Liability Corporation (LLC) is treated as an S Corporation for federal income tax purposes, it seems that the same rules would apply. However, if the LLC elects to be taxed as a C corp for federal income tax purposes, it may be possible for the owners to participate in an HRA plan.

Does a self-employed individual (including a partner), who offers and HRA to employees have other options to reduce his/her health care expenses?

  • Yes, the self- employed individual may be eligible for a Health Savings Account (HAS) for him/herself and still set up the HRA for employees.

Can the employee contribute to an HRA either directly or through salary Reduction?

  • No, an HRA is solely employer-sponsored.


Are HRA reimbursements tax deductible for the employer?

  • Yes, reimbursements made by the employer are tax deductible after they are paid to the employee.

Are HRA reimbursements taxable income for the employees?

  • No, HRA reimbursements for qualified expenses are received tax-free.