@Dshow wrote:
Thank you... I understand that's the way it is, but I must be missing something.
I don't understand HRAs....
With an HSA, I contribute X $ and then deduct medical expenses paid from from that account. So the money going in and the money going out is deductible. With an HRA, I understand, the employer made the contribution so I shouldn't be able to deduct that money, but when I pay claims, just like an HSA, why aren't those expenditures deductible?
Thank you
You can only take a tax deduction for an expense you paid with already-taxed money. Money you already paid tax on. Otherwise, you are trying to take money out of your taxable income that was never included in your taxable income in the first place.
You never paid tax on the money your employer deposited to the HRA. Therefore, any expenses you paid with HRA money are expenses you already never paid tax on. You can't take it off your taxable income because it was never part of your taxable income to begin with.
You've also got the HSA exactly backwards. You never deduct money taken out of the account. You take a tax deduction on contributions. When you withdraw money, it is simply excluded from your income, it is not a deduction.
With a deduction, you are saying "this expense should be subtracted from my taxable income so I don't pay tax on it." With an HSA or HRA, the money is never included in your taxable income in the first place.
