The New Health Reimbursement Arrangement that is Non-Taxable and More Flexible
On June 26, 2002 Internal Revenue Service Notice 2002-45 was issued describing the tax benefits of a health reimbursement arrangement C’HRA”). Under the IRS definition, an HRA is paid for by an employer; reimburses an employee only for medical care expenses for the employee and his or her family and provides reimbursement up to a specified dollar amount for a coverage period with any unused portion of the dollar amount at the end of the coverage period being carried forward to increase the reimbursement amount in subsequent coverage periods. The reimbursement of medical care expenses is excludable from the gross income of the employee. However, an HRA will not qualify for income tax inclusion if any person has the right to receive cash or any other taxable or non-taxable benefit other than reimbursement of medical care
expense. The HRA benefit may not be tied, in any way, to any other benefit for which an employee may be eligible.