Which statement about HRAs is true?

• A. NOT portable (employee leaves)
• B. Employee contributions are tax-deductible
• C. The plan requires employee contributions
• D. Employer contributions are tax-free

Answer: (D)

Health Reimbursement Arrangements are funded entirely by the employer, and reimbursements for qualified medical expenses are paid tax-free to employees. Because of this setup, employer contributions aren’t included in the employee’s taxable income, and the employer can deduct those contributions as a business expense. That makes the statement about employer contributions being tax-free to the employee the true one. Employees don’t contribute to HRAs, so statements about employee contributions being tax-deductible or required employee contributions aren’t correct. HRAs are typically not portable because the funds are owned by the employer, but the critical point for this question is the tax treatment of employer contributions.