How the HRA Works
Established as a Voluntary Employee Benefit Association (VEBA) trust under Section 501(c)(9) of the Internal Revenue Code, the HRA offers employers the opportunity to help their employees pay for post-employment health care expenses on a tax-free basis.
The plan allows employers to make tax-free contributions to their employees’ accounts. Employees may make tax-free withdrawals from those accounts upon separation from service or retirement. The money can be used to pay for health insurance premiums and/or qualified out-of-pocket expenses (such as prescription drugs, eyeglasses, and office visit co-pays) incurred by employees and their eligible dependents. For specific information about eligible expenses, employers should refer to their plan summary.
Because the HRA program allows tax-free contributions by employers, it not only creates a post-employment benefit for employees, but it may provide a way for employers to lessen their future tax liability.
- If contributions to the HRA are being made from accumulated leave, such as sick and vacation leave, employers can reduce their future tax liability associated with payment of these amounts.
- Employers save all payroll taxes associated with contributions, thus providing additional funds for the employer to utilize to support their overall benefit programs for employees.
- Employees’ account balances are not subject to federal or state income taxes when deposited, while growing, or when withdrawn for qualified expenses.
- Ownership of the HRA account can be either the employer or the employees.
For more information please contact:
Valerie Schmitz (216) 225-9075 vschmitz@financialguide.com
Amie Fox CFP®, ChFC, CLTC (216) 592-7310 amiefox@financialguide.com
Skylight Financial Group
