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Health Reimbursement Account

Am I Eligible for a Health Reimbursement Account (HRA)?

3 min read

30 sec brief

Healthcare expenses are a reality for everyone. Thankfully, there are several ways to save for those costs that lessen the blow to your pocketbook. If you are considering setting up a Health Reimbursement Account (HRA) and need to know if you qualify, you’re in the right place!

Healthcare expenses are a reality for everyone. Thankfully, there are several ways to save for those costs that lessen the blow to your pocketbook. If you are considering setting up a Health Reimbursement Account (HRA) and need to know if you qualify, you’re in the right place!

What is an HRA?

An HRA or Health Reimbursement Account is an employer-funded health benefit plan that allows employees to pay for out-of-pocket medical expenses and individual health insurance premiums.

Section 105(h) of the Internal Revenue Code (IRC) allows employers to contribute tax-free funds to Health Reimbursement Arrangements (HRAs), also known as Health Reimbursement Accounts. These accounts help employees pay for certain healthcare expenses that are not covered by any other source such as co-payments, co-insurance, deductible, dental, vision, chiropractic care and more (be sure to check your HRA documents for specifics).

While HRAs are not health insurance, they can be used alongside your plan to help offset your individual costs.

Let’s explore the eligibility requirements of utilizing an HRA if your employer offers this benefit.

Who is Eligible to Participate in an HRA?

If you are a current W-2 employee or are a qualified dependent of one, you can participate in an HRA and receive 100% tax-free reimbursements. If your former employer allows x-employees to participate, you may also be eligible. Be sure to check with them.

Who Are Qualified Dependents?

The IRS has specific guidelines as to who qualifies as a dependent. Examples include spouses, children, and qualified relatives. You’ll want to review IRS Publication 502 for detailed definitions.

Can an Owner Participate in an HRA?

Let’s explore how owners can utilize this benefit as it differs by owner status and how taxes are filed.

  • C-Corporation Owners: C-Corp owners may participate in an HRA and receive 100% tax-free reimbursements.
  • Sole Proprietors, Partners of partnerships or S-Corporation shareholders owning more than 2% of the company’s shares: HRA reimbursements must be reported on the owner’s/partner’s wages (W-2 and 1040 forms) and are subject to federal income taxes.

How About 1099 Contractors? Can They Participate in an HRA?

The technical answer is no because 1099 Contractors are self-employed rather than common law employees. However, 1099 contractors can deduct health insurance costs on Form 1040, line 29.

Now that you have more information and a good idea about if you’re eligible to participate in an HRA, take some time to explore the benefits to see if using it makes sense.

Disclaimer: the content presented in this article are for informational purposes only, and is not, and must not be considered investment, legal, accounting or financial planning advice, nor a recommendation as to a specific course of action. Investors should consult all available information, including fund prospectuses, and consult with appropriate investment, accounting, legal, and accounting professionals, as appropriate, before making any investment or utilizing any financial planning strategy.

Disclaimer: the content presented in this article are for informational purposes only, and is not, and must not be considered tax, investment, legal, accounting or financial planning advice, nor a recommendation as to a specific course of action. Investors should consult all available information, including fund prospectuses, and consult with appropriate tax, investment, accounting, legal, and accounting professionals, as appropriate, before making any investment or utilizing any financial planning strategy.

About the author

Vicky Warren

Vicky Warren, once a nurse, now a freelance healthcare writer and social media coach.

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