Wk 4 small biz&agreed they wld cover my med exp as I entered medicare&veteran.Its not a formal HRA but was the plan 4 no ins plan.Is this tax inc.where reprt the income?

[blm6761]

In summary, employer offered medical exp reimbursement since I didn’t take a ins plan.  I am covered other ways.  I have heard the money is taxable.  If so, how do i report it?  Thanks for the longer area to type.  I was not aware this was her.

[Opus 17]

Your employer needs tax advice.

If it was correctly designated as an HRA, that is an arrangement where the employer pays certain medical expenses tax-free to you.  You can't then deduct them as schedule A itemized deductions, because they were already paid with tax-free money.

If you don't have a formal HRA, then the money paid to you or to medical providers on your behalf is considered part of your taxable income.  Since you pay tax on the money, you can consider the expenses as schedule A itemized deductions.

The problem is how the HRA interacts with the Affordable Care Act.  An HRA by itself, is considered a non-conforming insurance plan.  An HRA can be used to pay deductibles and co-pays if there is a qualifying ACA plan in place, but an HRA can't be used to pay the premiums on a qualifying ACA plan.  The penalty for employers who violate the rules is $100 per day per employee covered by the violation.

If you are a more favored employee (in other words, not everyone gets the HRA option, just you) that can also create complications.

Sorry this is not clear, but it is really up to your employer to determine whether you were properly covered by a qualifying HRA.  

For your purpose, if you were reimbursed for medical expenses with money that is not included in your W-2 box 1 taxable wages, then you can't deduct those expenses as itemized deductions.  If the reimbursement is included on your W-2 taxable wages, then it is not an HRA.  You just report the W-2 as-is, and you can deduct your medical expenses because they were paid with money that was taxed, not tax-free.

[Margo4]

The employer has prepared legal HRA's They start 1/1/21. He is not including this as a compensation, How does he handle withdrawals from the plan. Will this be an expense from a nonqualified plan or does he have to set up a prepaid account for the total. This is a cash reporting company.

The plan covers all employees.

[Opus 17]

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@Margo4 wrote:

The employer has prepared legal HRA's They start 1/1/21. He is not including this as a compensation, How does he handle withdrawals from the plan. Will this be an expense from a nonqualified plan or does he have to set up a prepaid account for the total. This is a cash reporting company.

The plan covers all employees.

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You are replying to an old question and your situation seems to be different.  I don't quite understand your question.

If you are the employer, and you want to establish an HRA for your employees, there are certain rules you must follow and it's too detailed for me to get into now.  Review IRS publication 15-B.  Employees may only be reimbursed for qualifying expenses, up to the maximum set by the employer.  The employer has the burden of proof, if audited, to show that they only paid for qualified medical expenses.  Therefore, the employer should require proof of the expense (bill, receipt, etc.) and keep it on file for 7 years.  If the employer does not want to have to issue a check for every expense, and sets up a prepaid account with a debit card the employee can use, the employer should still require proof of expenses.   (For example, include a policy that any money withdrawn from the HRA must be documented within 30 days or the money will be added to the employees taxable income.)

As far as internal accounting, I'm not a CPA so I don't have an opinion on what this looks like on the employer's books.  One thing to be concerned with is, does the unused balance roll over--so the employee can accumulate unused funds--or does the balance just reset each year, with unused funds returning to the employer.  Either would be permissible.  If the funds accumulate, it might be useful to set up a sub-account for each employee's funds available balance, although it is not actually a deductible business expense until the funds are spent.