Quick Answer
A Health Reimbursement Arrangement (HRA) is an employer-funded account that reimburses employees for medical expenses tax-free. Employers contribute 100% of the funds (average $1,800-$2,400 annually), and unused amounts may roll over depending on plan design. Unlike HSAs, only employers can contribute to HRAs.
Best Answer
Marcus Rivera, Compensation & Benefits Analyst
Employees with employer-sponsored health benefits who want to understand their HRA options
What exactly is a Health Reimbursement Arrangement (HRA)?
A Health Reimbursement Arrangement (HRA) is an employer-funded benefit account that reimburses you for qualified medical expenses on a tax-free basis. Think of it as your employer setting aside money specifically to help pay for your healthcare costs — money that reduces your taxable income when used properly.
Unlike other health accounts, HRAs are funded entirely by your employer. You cannot contribute your own money to an HRA, which is a key distinction from HSAs or FSAs.
Example: How an HRA works in practice
Let's say your employer offers an HRA with a $2,000 annual allowance. Here's how it works:
This $150 reimbursement doesn't count as taxable income, effectively saving you money based on your tax bracket. If you're in the 22% federal bracket plus 5% state, that's a 27% savings compared to paying with after-tax dollars.
Types of HRAs and contribution limits
There are several types of HRAs, each with different rules and limits:
What expenses qualify for HRA reimbursement?
HRAs can reimburse most medical expenses that would qualify for the medical expense deduction, including:
According to IRS Publication 502, qualified medical expenses must be "primarily to alleviate or prevent a physical or mental disability or illness."
Key factors that affect your HRA
What you should do
Review your employee benefits handbook to understand your specific HRA terms. Pay attention to:
1. Annual contribution amount your employer provides
2. Whether unused funds roll over to next year
3. Deadline for submitting reimbursement requests
4. Required documentation for expense claims
Keep all medical receipts and consider using our paycheck calculator to see how HRA reimbursements affect your overall compensation package.
Key takeaway: HRAs provide tax-free reimbursement for medical expenses using employer-contributed funds, with the average employer contributing $1,800-$2,400 annually depending on plan type and company size.
*Sources: IRS Publication 502 (Medical and Dental Expenses), IRS Notice 2002-45*
Key Takeaway: HRAs are employer-funded accounts that reimburse medical expenses tax-free, with average annual contributions of $1,800-$2,400 depending on plan type.
Types of HRAs and their key characteristics for 2026
| HRA Type | 2026 Max Contribution | Employer Size | Key Feature |
|---|---|---|---|
| Individual Coverage HRA (ICHRA) | No federal limit | Any size | Can purchase individual insurance |
| Qualified Small Employer HRA (QSEHRA) | $6,150 single / $12,450 family | <50 employees | Alternative to group plan |
| Traditional Group HRA | No federal limit | Any size | Paired with group health plan |
| Excepted Benefit HRA | $2,100 | Any size | Limited scope, supplemental |
More Perspectives
Sarah Chen, Payroll Tax Analyst
High-income employees who want to maximize tax-advantaged health benefits and understand HRA coordination with other accounts
HRA strategy for high earners
As a high earner, your HRA becomes more valuable due to your higher marginal tax rate. In the 32% or 37% federal bracket plus state taxes, every dollar reimbursed through your HRA saves you significantly compared to paying with after-tax income.
For example, if you're in the 37% federal bracket with 9% state taxes (46% combined), a $2,000 HRA reimbursement saves you approximately $920 in taxes compared to paying out-of-pocket with after-tax dollars.
Coordination with other high-earner benefits
Executive physical programs: Many high-earner HRAs cover executive health screenings and concierge medical services that aren't typically covered by standard insurance.
Dependent care coordination: If your employer offers both an HRA and Dependent Care FSA ($5,000 limit), maximize both since they cover different expense categories.
International coverage: Some employer HRAs for executives include coverage for medical expenses incurred during international business travel.
Tax implications for equity compensation
If you receive stock options or RSUs, remember that HRA reimbursements don't affect your W-2 wages, so they won't impact AMT calculations or the timing of equity vesting tax events.
Key takeaway: High earners benefit most from HRAs due to higher tax rates — a $2,000 reimbursement can save $800-$920 in taxes compared to paying with after-tax income.
Key Takeaway: High earners save 40-46% in combined taxes on HRA reimbursements, making strategic use of these accounts particularly valuable for tax optimization.
Marcus Rivera, Compensation & Benefits Analyst
Employees within 5-10 years of retirement who need to understand how HRAs fit into their transition planning
HRA considerations for pre-retirees
As you approach retirement, understanding your HRA's termination rules becomes critical for healthcare transition planning. Most HRAs end when employment ends, unlike HSAs which you keep permanently.
COBRA coordination: If your HRA is integrated with your group health plan, you may be able to continue HRA benefits during COBRA coverage, but this varies by employer plan design.
Timing of major medical expenses: If you're planning elective procedures, consider timing them while you still have HRA access. A $5,000 procedure reimbursed through your HRA saves significant tax dollars compared to paying in retirement with after-tax savings.
Bridge to Medicare at 65
Individual Coverage HRA (ICHRA): Some employers offer retiree ICHRAs that can help bridge healthcare costs between retirement and Medicare eligibility. These can reimburse Medicare supplement premiums and out-of-pocket costs.
Retiree medical plans: If your employer offers retiree medical coverage, understand whether any HRA-like benefits continue into retirement.
Strategic timing considerations
Key takeaway: Pre-retirees should maximize HRA benefits before employment ends, as these accounts typically terminate with employment unlike HSAs which remain accessible permanently.
Key Takeaway: Unlike HSAs, HRAs typically end with employment, making strategic pre-retirement usage critical for maximizing tax-free healthcare benefits.
Sources
- IRS Publication 502 — Medical and Dental Expenses
- IRS Notice 2002-45 — Health Reimbursement Arrangement Guidelines
Related Questions
Reviewed by Marcus Rivera, Compensation & Benefits Analyst on February 28, 2026
This content is for educational purposes only and is not a substitute for professional tax advice. Consult a qualified tax professional for advice specific to your situation.