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Small Business Employee Benefits and HR Blog

Tax On Medical Reimbursement Using HRAs

January 22, 2010
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HRAs (Health Reimbursement Arrangements) are governed by Section 105 of the Internal Revenue Code.tax and HRAs

Who may contribute to a health reimbursement arrangement?

Only employers may contribute to HRAs.

What is the tax treatment of a health reimbursement arrangement for an employee?

All reimbursements are excluded from an employee’s gross income and wages subject to FICA (7.65%).

What is the tax treatment of a health reimbursement arrangement for an employer?

Employers deduct reimbursements as a business expense and exclude them from wages subject to FUTA (0.8%) and the employer portion of FICA (7.65%).

See Publication 969 for more information. 

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