Under a Health Reimbursement Arrangement (HRA) an employer can reimburse an employee for medical expenses paid. There is no limit on the contribution amount. However, the contribution is limited to qualified costs (Code Section 419), the amount reasonably necessary to fund the plan (Code Section 419A) and cannot be deferred compensation (Code Section 404). It is deductible by the employer and is not included in the income of the employee.
Guidelines are provided by Notice 2002-45 "IRS Provides Rules on Health Reimbursement Arrangements" and Code Section 105 -- Accident and Health Plans:
1Highly Compensated Individual (Code Section 105(h)):
(A) one of the 5 highest paid officers,
(B) a shareholder who owns more than 10% of stock of the employer or,
(C) among the highest paid 25% of all employees (excluding 4c. above)
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