Health Reimbursement Arrangement (HRA)
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Many governmental Employers continue to provide health care benefits to retiring Employees. These payments can continue for many years, are sometimes taxable to the Employees, and create a significant administrative burden to the Employer.
Outsource the administration of your Retiree health care program and potentially save your Employees significant taxes on their health care benefits.
How The Plan Works
The Employer implements the Health Reimbursement Arrangement® (HRA) pursuant to recent IRS guidelines. The Plan is funded with money that Employees are entitled to for retiree health care, or the Plan can be funded with a portion of the Employees’ Special Pay. The funds in each Employee’s Plan account can only be used to reimburse the Retiree and Dependents for medical expenses.
The money placed in the Health Reimbursement Arrangement® is not subject to FICA contributions by either the Employer or Employee. Additionally, money in the Plan is never subject to Federal Income Tax as long as it is used exclusively to reimburse the Retiree and Dependents for health care expenses. Additionally, in many States HRA funds are not subject to State Income Tax.
The Health Reimbursement Arrangement® must be implemented by the Employer. If the Plan is to be funded with a portion of Special Pay, the Employer determines what percentage of the Retiree’s Special Pay will be contributed to the Plan. The Retiree and eligible Dependents can draw on the account for health care reimbursement. The medical expenses that are eligible for reimbursement are described in detail in the IRS Publication 502 that is available on the IRS web site. The definition of eligible medical expense is substantially the same as the definition for tax deductible medical expenses. Reimbursements are available on a monthly basis with a small administrative fee.