Health Reimbursement Accounts or Health Reimbursement Arrangements (HRAs) are programs sanctioned by the Internal Revenue Service (IRS) that allow an employer to reimburse medical expenses paid by participating employees, thus yielding “tax advantages to offset health care costs.”
HRAs are initiated by the employer and serviced by a third-party administrator or plan service provider. In the HRA plan document, the employer may provide that credit balances in an employee’s HRA account can be rolled over from year to year like a savings account. The employer decides whether or not the funds can be rolled from year to year and how much can be rolled over, either as a flat amount or a percentage.
According to the IRS, an HRA “must be funded solely by an employer,” and contributions cannot be paid through a voluntary salary reduction agreement (i.e., a cafeteria plan). There is no limit on the employer’s contributions, which are excluded from an employee’s income.
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