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

For information on the interaction between an HRA and

pub/irs-irbs/irb03-21.pdf, Notice 2006-69, 2006-31 I.R.B.

an HSA, see

Other employee health plans

under Qualify-

107 available at ,

ing for an HSA, earlier.

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

gov/irb/2007-2_IRB/ar09.html.

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.

Self-employed persons are not eligible for an HRA.

1. Current and former employees.

Certain limitations may apply if you are a highly

2. Spouses and dependents of those employees.

compensated participant.

3. Any person you could have claimed as a dependent

CAUTION

on your return except that:

a. The person filed a joint return,

Contributions to an HRA

b. The person had gross income of $3,700 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 2011

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. Your child under age 27 at the end of your tax year.

ployer contributes to the HRA.

5. Spouses and dependents of deceased employees.

Amount of Contribution

For this purpose, a child of parents that are di-

vorced, separated, or living apart for the last 6

TIP

There is no limit on the amount of money your employer

months of the calendar year is treated as the

can contribute to the accounts. Additionally, the maximum

dependent of both parents whether or not the custodial

reimbursement amount credited under the HRA in the

parent releases the claim to the child’s exemption.

future may be increased or decreased by amounts not

Qualified medical expenses. Qualified medical ex-

previously used. See

Balance in an

HRA, later.

penses are those specified in the plan that would generally

Distributions From an HRA

qualify for the medical and dental expenses deduction.

These are explained in Publication 502, Medical and Den-

tal Expenses.

Generally, distributions from an HRA must be paid to

reimburse you for qualified medical expenses you have

Note. Non-prescription medicines (other than insulin)

incurred. The expense must have been incurred on or after

purchased in tax years beginning after December 31,

the date you are enrolled in the HRA.

2010, are not considered qualified medical expenses. See

Debit cards, credit cards, and stored value cards given

Qualified medical expenses

under What’s New, earlier.

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

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

Qualified medical expenses from your HRA include the

substantiation methods, you may not have to provide addi-

following.

tional information to the HRA. For information on these

•

Amounts paid for health insurance premiums.

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

•

Amounts paid for long-term care coverage.

Internal Revenue Bulletin (IRB) 2003-21 at

gov/

Page 18

Publication 969 (2011)

Publication 969 - Health Savings Accounts And Other Tax-Favored Health Plans - 2011 Page 18

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