Health Reimbursement Arrangement (HRA)

How to set up an HRA and add tax-free payroll reimbursements.

A Health Reimbursement Arrangement (also known as an HRA or Health Reimbursement Plan) is an employer-funded health benefit that reimburses employees for out-of-pocket medical expenses.

If you’re interested in offering an HRA to your team, we recommend Take Command Health because they offer policy flexibility and a focus in HRA administration. To learn more about Take Command Health, follow this referral link to set up a new HRA or speak with an expert.

Take Command offers QSEHRA and ICHRA administration. QSEHRA and ICHRA benefits cannot be offered alongside small-group health insurance, including small-group health insurance offered through Gusto. 

Once your HRA begins, you can set up tax-free payroll reimbursements for enrolled employees.

Tax implications

• Employer HRA contributions are tax-free, as long as they’re set up and managed in accordance with IRS requirements and only used to fund eligible medical expenses.
• Because HRAs are 100% employer-funded, no deductions are taken from payroll. As a result, there are no payroll tax implications for employees—these reimbursements do not need to be taxed or reported on their tax forms. (QSEHRA contributions, however, must be reported on employee tax forms. Learn more here.)

Small businesses may provide these types of reimbursement arrangements without violating ACA mandates, but situations vary and you should consult a licensed professional or tax consultant before taking this route.