IRS Health Care Reimbursement Account

The IRS has created a provision for a Health Care Reimbursement Account. The purpose of this is to refund some of the fees for out-of-pocket health care costs to taxpayers. Read on to learn more about health care reimbursement accounts and how they can save you thousands in taxes.

Defined

• According to the IRS, a health care reimbursement account "must be funded solely by an employer," and contributions cannot come from a salary reduction...There is no limit on the employer's contributions, which are excluded from an employee's income.

Function

• A health care reimbursement account or a Health Reimbursement Accounts (HRA) is not to be confused with an FSA (Flexible Spending account) or Health Savings Account (HSA) although all have IRS benefits to the taxpayers. The HRA is meant to prevent taxation on specific health care costs.

Features

• An employer allocates a set dollar amount to an employee's HRA. As an employee incurs medical costs, the HRA reimburses the employee tax free. The HRA does not count as income, either; it is not taxed in that capacity.

Benefits

• An employer can also allocate an HRA to a covered dependent of the employee, and that dependent will not be subject to taxation on any of the reimbursements.

Time Frame

• Unlike some health care cost mitigation in the United States tax code, an HRA can be rolled over year to year without penalty, allowing one greater funds as they age and presumably pay more health care costs.