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Health Reimbursement Arrangements (HRAs): Health Accounts and Taxes (2025 IRS Guide)

This guide covers “Health Reimbursement Arrangements (HRAs)” within health accounts and taxes. The following material presents the IRS treatment of this topic, including the qualifications, exceptions, and examples in the source section. Read the rules alongside the facts of your own situation before deciding what to report, deduct, or document.

Adapted from Publication 969 (2025), Health Savings Accounts and Other Tax-Favored Health Plans, published by the Internal Revenue Service. This guide retains the source edition’s years, amounts, deadlines, and examples. It is guidance for that edition, not a statement that the same figures apply to every tax year.

Health Reimbursement Arrangements (HRAs)

An HRA must be funded solely by an employer. The contribution can’t be paid through a voluntary salary reduction agreement on the part of an employee. Employees are reimbursed tax free for qualified medical expenses up to a maximum dollar amount for a coverage period. An HRA may be offered with other health plans, including FSAs.

For information on the interaction between an HRA and an HSA, see Other employee health plans under Qualifying for an HSA, earlier.

What are the benefits of an HRA?

You may enjoy several benefits from having an HRA.

  • Contributions made by your employer can be excluded from your gross income.

  • Reimbursements, which must be for qualified medical expenses, are tax free.

  • Any unused amounts in the HRA can be carried forward for reimbursements in later years.

Qualifying for an HRA

HRAs are employer-established benefit plans. These may be offered in conjunction with other employer-provided health benefits. Employers have flexibility to offer various combinations of benefits in designing their plans.

Self-employed persons aren’t eligible for HRAs.

Caution:

Certain limitations may apply if you are a highly compensated participant.

Contributions to an HRA

HRAs are funded solely through employer contributions and may not be funded through employee salary reductions under a cafeteria plan. These contributions aren’t included in the employee’s income. You don’t pay federal income tax or employment taxes on amounts your employer contributes to the HRA.

Amount of Contribution

There is no limit on the amount of money your employer can contribute to the arrangements. Additionally, the maximum reimbursement amount credited under the HRA in the future (not including amounts carried forward from previous coverage periods) may be increased or decreased. See Balance in an HRA, later.

Distributions From an HRA

Generally, distributions from an HRA must be paid to reimburse you for qualified medical expenses you have incurred. The expense must have been incurred on or after the date you are enrolled in the HRA.

Debit cards, credit cards, and stored value cards given to you by your employer can be used to reimburse participants in an HRA. If the use of these cards meets certain substantiation methods, you may not have to provide additional information to the HRA. For information on these methods, see Revenue Ruling 2003-43, 2003-21 I.R.B. 935, available at IRS.gov/pub/irs-drop/rr-03-43.pdf; Notice 2006-69, 2006-31 I.R.B. 107, available at IRS.gov/irb/2006-31_IRB/ar10.html; and Notice 2007-2, 2007-2 I.R.B. 254, available at IRS.gov/irb/2007-02_IRB/ar09.html.

If any distribution is or can be made for other than the reimbursement of qualified medical expenses, any distribution (including reimbursement of qualified medical expenses) made in the current tax year is included in gross income. For example, if an unused reimbursement is payable to you in cash at the end of the year or upon termination of your employment, any distribution from the HRA is included in your income. This also applies if any unused amount upon your death is payable in cash to your beneficiary or estate or if the HRA provides an option for you to transfer any unused reimbursement at the end of the year to a retirement plan.

If the plan permits amounts to be paid as medical benefits to a designated beneficiary (other than the employee’s spouse or dependents), any distribution from the HRA is included in income.

Reimbursements under an HRA can be made to the following persons.

  1. Current and former employees.

  2. Spouses and dependents of those employees.

  3. Any person you could have claimed as a dependent on your return except that:

    1. The person filed a joint return;

    2. The person had gross income equal to or more than the exempt amount; or

    3. You or your spouse if filing jointly could be claimed as a dependent on someone else’s 2025 return.

  4. Your child under age 27 at the end of your tax year.

  5. Spouses and dependents of deceased employees.

Tip:

For this purpose, a child of parents that are divorced, separated, or living apart for the last 6 months of the calendar year is treated as the dependent of both parents whether or not the custodial parent releases the claim to the child’s exemption.

Qualified medical expenses.

Qualified medical expenses are those specified in the plan that would generally qualify for the medical and dental expenses deduction .

Expenses incurred for over-the-counter medicine (whether or not prescribed) and menstrual care products are considered medical care and are considered a covered expense.

Qualified medical expenses from your HRA include the following.

  • Amounts paid for health insurance premiums.

  • Amounts paid for long-term care coverage.

If you are covered under both an HRA and a health FSA, see Notice 2002-45, Part V, which is available at IRS.gov/pub/irs-drop/n-02-45.pdf.

Caution:

You can’t deduct qualified medical expenses as an itemized deduction on Schedule A (Form 1040) that are equal to the distribution from the HRA.

Balance in an HRA

Some, but not all, HRAs permit amounts that remain at the end of the year to be carried to the next year. Your employer isn’t permitted to refund any part of the balance to you. These amounts may never be used for anything but reimbursements for qualified medical expenses.

Employer Participation

For an HRA to maintain tax-qualified status, employers must comply with certain requirements that apply to other accident and health plans. Pub. 15-B, Employer’s Tax Guide to Fringe Benefits, explains these requirements.

Using the guidance

Keep the documents that establish the dates, amounts, and circumstances described above. References to other chapters, forms, worksheets, or earlier and later sections refer to the linked IRS publication. Check the full publication and its updates before relying on a rule for a different tax year or a situation not addressed here.

Sources and further reading

The cited U.S. government text is in the public domain. Source accessed October 28, 2026. Fynoptic has organized this material for educational use and is independent of, and not endorsed by, the IRS.

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