HRAs (Health Reimbursement Arrangements) are governed by Section 105 of the Internal Revenue Code.
Who may contribute to a health reimbursement arrangement?
Only employers may contribute to HRAs.
What is the tax treatment of a health reimbursement arrangement for an employee?
All reimbursements are excluded from an employee’s gross income and wages subject to FICA (7.65%).
What is the tax treatment of a health reimbursement arrangement for an employer?
Employers deduct reimbursements as a business expense and exclude them from wages subject to FUTA (0.8%) and the employer portion of FICA (7.65%).
See Publication 969 for more information.