Healthcare costs can quickly pile up for employees, but luckily, Health Reimbursement Accounts (HRAs) can ease the burden. An HRA is an employer-funded account that reimburses employees for medical expenses tax-free.
If you’re considering an HRA, here are five things you need to know:
1. Types of HRAs
There are four main types of HRAs: individual coverage, excepted benefit, qualified small employer, and integrated. Individual coverage HRAs are used for self-employed individuals, excepted benefit HRAs aren’t subject to Affordable Care Act (ACA) requirements, qualified small employer HRAs are for employers with fewer than 50 employees, and integrated HRAs are paired with group health insurance plans.
2. Eligibility
Employers determine HRA eligibility, but employees must have qualified health insurance coverage. Employers can also set personalized contribution limits, and employees can’t contribute to their HRA account. However, unused HRA funds can roll over to the next year.
3. Expense Coverage
HRAs can cover a wide range of medical expenses, including prescriptions, co-pays, and deductibles. However, they cannot reimburse expenses paid for with another tax-free account, such as flexible spending accounts (FSAs).
4. Tax Benefits
Participating in an HRA can offer tax benefits to both employers and employees. Employers can deduct HRA contributions on their taxes, and employees can exclude HRA reimbursements from their taxable income.
5. Compliance
HRAs must comply with ACA rules and regulations. Employers must ensure that their HRA benefits meet the required minimum value, which is defined as at least 60% of total allowed costs. Employers must also offer the same HRA benefits to all eligible employees.
In conclusion, HRAs can provide valuable tax-free reimbursements for medical expenses. Understanding the different types of HRAs, eligibility, expense coverage, tax benefits, and compliance requirements can help you make an informed decision. With this knowledge, you can choose the best HRA option for you or your company, and reduce healthcare costs while providing valuable benefits to employees.
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