Feds Issue HRA Tax Guidance

June 26, 2002 (PLANSPONSOR.Com) - Workplace health reimbursement arrangements (HRA) have to be solely employer funded, can't be funded by salary reduction, and can only provide benefits for substantial medical expenses.

That was the bottom line of guidance from the US Treasury Department and Internal Revenue Service clarifying the HRA’s tax treatment, according to a Dow Jones news report.

Under the Treasury and IRS guidance, HRAs can:

  • reimburse employees for the purchase of health insurance,
  • allow former employees continued access to unused reimbursements, and
  • allow the carryover of unused amounts from one year to the next

If the plan provides for payments or other benefits irrespective of medical expenses, all amounts paid by the plan become taxable, including prior medical reimbursements, according to the government guidance.