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hra contributions

All about HRA contributions

Unlike HSAs, an HRA (health reimbursement arrangements) is based off of contributions from the employer only. HRA contributions for the popular Qualified Small Employer HRA or the Individual Coverage HRA can work with a wide range of budgets and can be used to reimburse different types of things. Let's dig in.

 You may be wondering about how HRA contribution limits work, what the limits are, where the contribution actually comes from…let’s look at those!

How HRA contributions work

It's a little misleading to refer to these as HRA contributions. Since health reimbursement arrangements are inherently arrangements, not accounts, there is no pre-funding with employer contributions. The funds are simply reimbursed when a cost is incurred. That means that if an employee doesn't use all of the funds, the employer can keep the rest.

HRAs are not pre-funded accounts, they are reimbursements.

Employers reimburse for premiums and medical expenses on a tax-free basis, and the employee chooses a plan that fits their needs. Employees are then reimbursed when they submit a claim.

There are a few HRAs available, but the newest (and dare we say, best) around are the ICHRA and QSEHRA. Here's how they work, in a nut-shell.

  • Employers determine monthly rate to reimburse
  • Employers decide what to reimburse, i.e., health insurance premiums, medical expenses, or coverage on spouses' plans
  • Money is reimbursed for expenses/premiums after they are incurred and receipts are provided
  • Employees must have health insurance (minimum essential coverage for QSEHRA and qualified health plans for ICHRA) to participate
  • HRA contributions are tax free for both employee and employer

HRA contributions are tax-free for both employee and employer, making it a win-win.

What is the maximum for HRA contributions? 

  • While the ICHRA does not have annual contribution limits, the QSEHRA does.
  • While there aren’t any contribution limits, there is the issue of how little you can actually contribute. The minimum amount is determined by the issue of ICHRA affordability and how the HRA interacts with premium tax credits.
  • The 2021 contribution limits for QSEHRA are $5,300/year for individuals. For a family: $10,700/year. 
  • All QSEHRA reimbursements are subject to annual maximums and become available to employees on a monthly basis. This means employees can’t take the full annual amount in January—instead, the funds become available to employees each month.

Employer vs Employee contributions

Unlike HSAs, HRAs are funded entirely by the employer. Employees are not able to contribute. The account is also owned by the employer, so the funds stay with the employer if an employee leaves the company.

Next steps

We are so excited about HRAs and all the benefits they offer, that we wrote comprehensive, in-depth guides to the ins and outs of the most popular versions.

Don't hesitate to chat with us if you have any questions! That's what we're here for.