When reimbursing employees tax-free via payroll, it is important to understand the difference between a payroll deduction and a payroll reimbursement.
What is a payroll deduction with HRA Software?
A payroll deduction is the removal of dollars from an employee paycheck.
What is a payroll reimbursement with HRA Software?
A payroll reimbursement is the addition of dollars to an employee paycheck.
How does a payroll reimbursement differ from a payroll deduction with HRA Software?
When an employer reimburses an employee through an HRA, employee gross salaries are not affected. An employer simply adds the dollars that have been approved for employees' qualified medical expenses (e.g. insurance premiums, doctor visits, etc.) to the employee's paycheck using a non-taxable line-item. This concept is often referred to as a "tax-free addition" or "negative deduction" on the paycheck.
