HRA's and HSA's.... Why aren't expenditures from HRA's deductible?

[Dshow]

Hi,

I have an HRA and an HSA from my previous employer.  I pay medical claims with both my HRA (card) and my HSA (card also...)  The claims I pay with my HSA are tax deductible and I get a 1099-SA regarding those payments.  Why won't I get a similar statement regarding payments I made with my HRA?

Thank you!

[PattiF]

You do not need to report anything on your tax return with regard to your HRA (Health Reimbursement Arrangement). The account is funded by your employer so there isn't anything for you to deduct. You won't pay taxes on the disbursements either.

[Opus 17]

An HRA is a health reimbursement arrangement.  It is an account that only the employer can contribute to.  It's not your money and you can't withdraw cash except for medical expenses.  The money was put in the account tax-free by your employer, since you never paid tax on the money, you can't take a deduction for expenses paid with the HRA.  That would be double-dipping. You can't subtract an expense from your income because it was never in your income in the first place.

An HSA is a health savings account.  You own the account, and can withdraw money at any time for any reason, although you will pay taxes and penalties if you don't use the money for medical expenses. Both you and your employer can contribute to the HSA, but only if you are enrolled in a qualifying health plan.  You get a tax deduction for contributions you make.  When you pay expenses from the HSA, you can't take a tax deduction again.  Like with an HRA, you never paid tax on the money in the account, and if you pay an expense with never-taxed money, you can't also subtract that expense from your income.  That would be double dipping.

Turbotax wants you to list all your medical expenses, then list any expenses reimbursed tax-free (from an HRA, HSA, or insurance) so that Turbotax can calculate if there is anything left over that is eligible for a schedule A tax deduction. 

[Dshow]

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

[Opus 17]

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@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

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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.

[Dshow]

"You can only take a tax deduction for an expense you paid with already-taxed money.  Money you already paid tax on. "

With an HSA, I contribute $3600 and then deduct that amount from my taxes.  So the money going into my HSA essentially has not been taxed...  From that HSA account, I pay medical bills and then deduct what I paid.  So the money going in is not taxed and medical withdrawals are not taxed.  I don't get why payments from an HRA account are not deductible...

(I know your right...  I just don't get why it's different...)

[PattiF]

As Opus 17 said above, there is nothing to report on your tax return with regard to your HRA.

 The account is funded by your employer so there isn't anything for you to deduct. You cannot deduct someone else's money.

@Dshow 

[Opus 17]

@Dshow 

You have some kind of misunderstanding.  If you pay medical expenses from an HSA (that contains tax-free money), you can’t also take a tax deduction for those expenses.  Why do you think you are getting another tax deduction for expenses you pay with tax-free HSA money?