<img src="//bat.bing.com/action/0?ti=5067266&amp;Ver=2" height="0" width="0" style="display:none; visibility: hidden;">
GET STARTED

Small Business Employee Benefits and HR Blog

Health Reimbursement Account (HRA) Eligibility FAQs

With health care reform taking full effect in 2014, Health Reimbursement Accounts (HRAs) and defined contribution health benefits are expected to become a mainstream employee benefit. A common question about HRAs is "who is eligible to participate?" 

We've compiled a list of frequently asked questions (FAQs) about HRA Eligibility.

HRA Dependents

1.  Who is Eligible to Participate in the HRA?

Current or former W-2 employees, and their qualified dependents, are eligible to participate in the HRA and receive reimbursements 100% tax-free.  

2.  Who are Qualified HRA Dependents?

A qualified HRA dependent must be a dependent per the IRS definition. Qualified dependents include a spouse, child(ren) or qualified relatives. For detailed definitions see: IRS Publication 502 (page 26).

3. Can an Owner Participate in the HRA?

Yes. However, whether or not owners can receive HRA reimbursements 100% tax free depends on how the company files, and the owner's status.

  • C-Corporation Owners: C-Corp owners may participate in an HRA and receive all HRA reimbursements 100% tax-free.

  • Sole Proprietors, Partners, or S-Corp shareholders that own >2% of the company's shares:  These Non-C-Corp owners can use the HRA platform to reimburse and track medical expenses. However, HRA reimbursements must be reported on the owners'/partners' wages (on their W-2 and 1040 forms) and are subject to federal income taxes. 

For more information see:  Business Owner Eligibility Under a QSEHRA.

4. Can 1099 Contractors Participate in the HRA?

Technically, the answer is no. However, many businesses use our HRA Software to offer health benefits to 1099 contractors. The primary difference is that, unlike W-2 employees, 1099 contractors must report all HRA reimbursements as income on their personal tax return.

Due to its flexibility, HRA software can be the ideal health benefits solution for 1099 contractors. For more information see: Using HRAs to Offer Health Insurance to 1099 Contractors.

5. Can We Set Other Eligibility Requirements for HRA Participation?

Yes. Within your HRA plan design, you can set specific eligibility requirements for HRA participation such as a waiting period, length of stay with the company, part-time/full-time status, or enrollment in the company-sponsored group health plan.  You can also choose if the HRA will reimburse employees only, or allow qualified dependents.

Get your eBook