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Small Business Employee Benefits and HR Blog

Tax On Medical Reimbursement Using HRAs

HRAs (Health Reimbursement Arrangements) are governed by Section 105 of the Internal Revenue Code.tax and HRAs

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. 

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