Hra S
An HRA S, or Health Reimbursement Arrangement with a Savings component, is an employer-funded health benefit that reimburses employees for qualified medical exp
An HRA S, or Health Reimbursement Arrangement with a Savings component, is an employer-funded health benefit that reimburses employees for qualified medical expenses, often confused with a Health Savings Account (HSA). Unlike an HSA, an HRA S is owned and funded solely by the employer, and funds generally do not roll over year to year unless the plan specifically allows it. This arrangement gives employers a tax-advantaged way to help workers cover out-of-pocket costs like deductibles, copays, and prescription drugs, while employees pay no taxes on the reimbursements they receive.
How an HRA S Works: Employer Contributions and Employee Access
An HRA S is set up by an employer, who decides how much to contribute to each eligible employee’s account. Typical annual contributions range from $500 to $2,000 for individual coverage and $1,000 to $4,000 for family coverage, though there is no legal maximum. The employer can choose to allow unused funds to roll over to the next year, but many plans use a “use-it-or-lose-it” model. Employees do not contribute their own money to an HRA S; instead, they incur eligible medical expenses and submit claims to the plan administrator for reimbursement. The employer then reimburses the employee up to the account balance, and the reimbursement is not counted as taxable income to the employee. This makes an HRA S a powerful tool for reducing an employee’s effective healthcare costs without adding to their tax burden.
Key Differences Between an HRA S and an HSA
Many people mix up HRAs and HSAs, but they operate quite differently. The table below highlights the main contrasts:
| Feature | HRA S | HSA |
|---|---|---|
| Who funds it? | Employer only | Employee, employer, or both |
| Ownership | Employer | Employee |
| Portability | Not portable; lost when leaving job | Fully portable; employee keeps the account |
| Required high-deductible health plan? | No | Yes |
| Tax treatment | Reimbursements tax-free; employer contributions deductible | Contributions tax-deductible; withdrawals tax-free for qualified expenses |
| Rollover of unused funds | Optional, at employer’s discretion | Always rolls over indefinitely |
An HRA S is often used by employers who want to offer a benefit without requiring employees to meet a high deductible. For example, an employer may pair an HRA S with a low-deductible PPO plan, allowing employees to use the HRA S funds to cover copays and prescriptions.
Common Types of HRA S Plans
Not all HRA S plans are identical. Employers can structure them in several ways to meet their workforce’s needs. The most common types include:
- Standard HRA S: The employer pledges a fixed amount per employee, and funds are used to reimburse any qualified medical expense defined by IRS Section 213(d). This is the most flexible option.
- Integrated HRA S: Tied to a specific health insurance plan. The HRA S only reimburses costs that the insurance plan doesn’t fully cover, such as deductibles or coinsurance, and often requires the employee to enroll in the employer’s group health plan.
- Excepted Benefit HRA (EBHRA): A limited version that can be offered alongside a traditional health plan. It covers only specific expenses like dental, vision, and short-term premiums, with a maximum annual contribution of $1,950 (as of 2025).
- Qualified Small Employer HRA (QSEHRA): For businesses with fewer than 50 full-time employees. Employers set a fixed allowance, and employees use it to purchase individual health insurance on the open market. 2025 QSEHRA limits are $6,150 for single coverage and $12,450 for family coverage.
Each type has its own rules around eligibility, reimbursable expenses, and compliance with the Affordable Care Act. Employers should consult a benefits advisor before choosing a structure.
Tax Implications and Reporting Requirements
HRA S plans offer significant tax advantages when run correctly. Employer contributions are fully deductible as a business expense, and employees do not report reimbursements as income. However, the plan must be documented in writing, and all reimbursements must be substantiated with receipts. The IRS requires that HRA S funds be used only for qualified medical expenses as defined in IRS Publication 502. If an employee uses HRA S funds for a non-qualified expense, the reimbursement is considered taxable income to the employee. Employers must also ensure the plan does not discriminate in favor of highly compensated employees, though the rules are less strict than for 401(k) plans. Form 5500 may be required if the plan has 100 or more participants.
Frequently Asked Questions About HRA S Plans
Can I have an HRA S and an HSA at the same time?
Yes, but only if the HRA S is a “limited-purpose” HRA that covers only dental, vision, and preventive care, or if the HRA S is a “post-deductible” HRA that only kicks in after the employee’s HSA-compatible high-deductible health plan deductible is met. Otherwise, an HRA S can disqualify you from contributing to an HSA.
What happens to my HRA S when I leave my job?
In most cases, the HRA S funds are forfeited when you leave employment, because the account is owned by the employer. Some employers may offer a grace period to submit unpaid claims, but the money generally does not follow you. This is a key difference from an HSA, which you keep forever.
Are HRA S contributions subject to FICA taxes?
No, employer contributions to an HRA S are not subject to Social Security or Medicare taxes (FICA) for the employer, and they are not included in the employee’s wages for FICA purposes. This makes HRA S plans more cost-effective for both parties compared to simply raising salaries.
An HRA S is a flexible, employer-funded benefit that can help control healthcare costs while providing tax advantages to both the business and its workers. Whether you are an employer considering setting up an HRA S or an employee evaluating your benefits, understanding the structure, types, and tax rules is essential. While the “S” in HRA S often refers to the savings-like nature of the reimbursement account, remember that the money is not yours to take with you—it’s a tool to offset current medical expenses. Always review your specific plan document for details on rollover rules, eligible expenses, and any coordination with other health accounts.