June 21, 2018

Does Your Health Reimbursement Account Need to File an Annual Tax Return?

By Ted Ginsburg, Director, Tax & Business Services

Does Your Health Reimbursement Account Need to File an Annual Tax Return? Health and Employee Benefits Plans

If you are an employer who provides a Health Reimbursement Account (HRA) for your employees, you may have an obligation to file an annual IRS Form 5500 for that program. Let’s determine if you have the obligation, and what compliance (or lack of compliance) means for you.

HRA—what is it?

An HRA is an employer-funded arrangement that provides reimbursement for certain medical expenses incurred by employees and their dependents up to a stated annual dollar amount. It is not the same type of program as a Health Savings Account (HSA) which uses employee pretax and (in some cases) employer contributions; HSAs are only available for employees who participate in an employer’s high-deductible health insurance plan. An employer is not required to offer either program.

If you are not sure if your program is an HRA or HSA, the administrator for the program should be able to help you make the determination. Your benefit advisor, accountant or benefits counsel can also answer this question for you.

If I have an HRA, do I have to comply?

An HRA is a welfare benefit plan which is subject to the reporting requirements of the Employee Retirement Income Security Act of 1974 (ERISA), which is the same law that requires annual reporting for other types of employee benefit plans (such as 401(k) plans). Federal regulations created under ERISA provide that welfare benefit plans must file an annual IRS Form 5500 if the plan has at least 100 employees eligible to participate at the beginning of the plan year. HRAs are usually based on a calendar year.

Many employers who are required to file IRS Form 5500 for their welfare benefit plans file only one IRS Form 5500 for all of their programs because they have a ‘wrap plan’ document. If you have a wrap plan, you should review its terms—it may include the HRA. If it does include the HRA, then no separate filing for the HRA will be needed; if it does not include the HRA, then you should prepare a separate filing and amend the wrap plan so that future filings will not be necessary.

What does compliance (or lack thereof) mean?

If you have to comply and your HRA operates on a calendar year, the IRS Form 5500 is due on July 31; it can be extended until October 15.

Failure to file an IRS Form 5500 can lead to penalties of up to $1,558 per day; there is a program where delinquent filers can pay a smaller penalty and file all delinquent returns at one time.

Do you have questions about HRAs and their impact on your tax return? The compensation and benefits group at Marcum would be glad to discuss this issue, as well as other compliance issues, with you. Please contact Ted Ginsburg, Director, Tax & Business Services.