Publication 969 - Health Savings Accounts And Other Tax-Favored Health Plans

Amount of Contribution

Publication 15-B, Employer’s Tax Guide to Fringe Bene-

fits, explain these requirements.

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

Health Reimbursement

future may be increased or decreased by amounts not

previously used. See

Balance in an HRA,

later.

Arrangements (HRAs)

Distributions From an HRA

A health reimbursement arrangement (HRA) must be

funded solely by an employer. The contribution cannot be

Generally, distributions from an HRA must be paid to

paid through a voluntary salary reduction agreement on

reimburse you for qualified medical expenses you have

the part of an employee. Employees are reimbursed tax

incurred. The expense must have been incurred on or after

free for qualified medical expenses up to a maximum dollar

the date you are enrolled in the HRA.

amount for a coverage period. An HRA may be offered with

Debit cards, credit cards, and stored value cards given

other health plans, including FSAs.

to you by your employer can be used to reimburse partici-

pants in an HRA. If the use of these cards meets certain

Note. Unlike HSAs or Archer MSAs which must be

substantiation methods, you may not have to provide addi-

reported on Form 1040 or Form 1040NR, there are no

tional information to the HRA. For information on these

reporting requirements for HRAs on your income tax re-

methods, see Revenue Ruling 2003-43 on page 935 of

turn.

Internal Revenue Bulletin (IRB) 2003-21 at

For information on the interaction between an HRA and

, Notice 2006-69,

an HSA, see

Other employee health plans

under Qualify-

2006-31 I.R.B. 107 available at

ing for an HSA, earlier.

, and Notice

2007-2, 2007-2 I.R.B. 254 available at

What are the benefits of an HRA? You may enjoy sev-

If any distribution is, or can be, made for other than the

eral benefits from having an HRA.

reimbursement of qualified medical expenses, any distri-

•

Contributions made by your employer can be ex-

bution (including reimbursement of qualified medical ex-

cluded from your gross income.

penses) made in the current tax year is included in gross

•

income. For example, if an unused reimbursement is pay-

Reimbursements may be tax free if you pay qualified

able to you in cash at the end of the year, or upon termina-

medical expenses. See

Qualified medical expenses,

tion of your employment, any distribution from the HRA is

later.

included in your income. This also applies if any unused

•

Any unused amounts in the HRA can be carried

amount upon your death is payable in cash to your benefi-

forward for reimbursements in later years.

ciary or estate, or if the HRA provides an option for you to

transfer any unused reimbursement at the end of the year

to a retirement plan. However, see

Qualified HSA distribu-

Qualifying for an HRA

tion, later.

If the plan permits amounts to be paid as medical

HRAs are employer-established benefit plans. These may

benefits to a designated beneficiary (other than the em-

be offered in conjunction with other employer-provided

ployee’s spouse or dependents), any distribution from the

health benefits. Employers have complete flexibility to offer

HRA is included in income.

various combinations of benefits in designing their plan.

Reimbursements under an HRA can be made to the

You do not have to be covered under any other health care

following persons.

plan to participate.

1. Current and former employees.

Self-employed persons are not eligible for an HRA.

2. Spouses and dependents of those employees.

Certain limitations may apply if you are a highly

compensated participant.

3. Any person you could have claimed as a dependent

on your return except that:

CAUTION

a. The person filed a joint return,

Contributions to an HRA

b. The person had gross income of $3,650 or more,

HRAs are funded solely through employer contributions

c. You, or your spouse if filing jointly, could be

and may not be funded through employee salary deferrals

claimed as a dependent on someone else’s 2010

under a cafeteria plan. These contributions are not in-

return.

cluded in the employee’s income. You do not pay federal

income taxes or employment taxes on amounts your em-

4. Effective March 30, 2010, your child under age 27 at

ployer contributes to the HRA.

the end of your tax year.

Page 18

Publication 969 (2010)

Publication 969 - Health Savings Accounts And Other Tax-Favored Health Plans - 2010 Page 18

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