What an HRA is and how it differs from an HSA
A Health Reimbursement Arrangement (HRA) is an account your employer funds to pay for your medical expenses. Unlike an HSA, which you own and control, an HRA belongs to your employer — they decide how much money goes in each year, what counts as a covered expense, and what happens to unused funds when you leave the job.
The money in an HRA is pre-tax, meaning it reduces your taxable income the same way an HSA does. But the rules are stricter. Your employer sets the terms: they choose the coverage limits, decide which medical costs may have access to, and determine whether unused money rolls over to the next year or disappears. You cannot contribute your own money to an HRA, and you cannot take the account with you if you change jobs.
If you have both an HRA and a high-deductible health plan (HDHP), your employer's HRA can pay toward your deductible. If you have an HRA with a regular health plan, the HRA typically covers out-of-pocket costs after insurance pays its share.
Key Takeaways
- Your employer funds and controls an HRA; you cannot add your own money or take it with you when you leave.
- HRA money is tax-free when used for may have access to medical expenses, including deductibles, copays, and some over-the-counter items.
- Your employer decides what expenses count, how much you receive each year, and whether unused funds roll over or are forfeited.
- An HRA works alongside your health insurance plan, not as a replacement, and the rules depend entirely on your employer's plan design.
What expenses an HRA covers
An HRA can pay for most medical, dental, and vision expenses that your health insurance does not cover or covers only partially. This includes deductibles, copays, coinsurance, and out-of-pocket maximums. Your employer's plan document lists exactly which expenses may have access to, but common covered items are prescription medications, dental work, eyeglasses, hearing aids, and mental health treatment.
Some employers allow HRA funds to cover over-the-counter medications and supplies — bandages, pain relievers, allergy medicine, and glucose monitors — but only if your employer's plan explicitly permits it. Others restrict the account to expenses that require a doctor's order or prescription. A few employers offer Limited-Purpose HRAs, which cover only dental and vision costs, or Excepted Benefit HRAs, which cover only specific categories like preventive care.
Expenses that do not may have access to include health insurance premiums (with rare exceptions), cosmetic procedures, gym memberships, and over-the-counter items your employer has not approved. If you use HRA money for an ineligible expense, you owe income tax on that amount plus a 20 percent penalty.
How to use your HRA and submit claims
Most employers issue an HRA debit card that works like a credit card at pharmacies, doctors' offices, and medical suppliers. You swipe it at checkout, and the cost comes directly from your HRA balance. No paperwork is needed for routine transactions at in-network providers.
For expenses without a debit card option — such as out-of-network care, dental work, or mental health services — you typically pay out of pocket and then submit a claim to your HRA administrator. You will need to provide an itemized receipt or explanation of benefits (EOB) from your insurance company showing what you paid. The administrator reviews the claim, confirms the expense qualifies, and reimburses you within a few business days to a week.
Your employer chooses the HRA administrator, which may be the same company that runs your health insurance or a separate third-party administrator. You can usually check your balance and submit claims through an online portal or mobile app. Keep receipts for at least three years in case the administrator audits your claims.
What happens to unused HRA money
This is where HRA rules vary most by employer. Some employers allow unused funds to roll over to the next year, letting you build a balance over time. Others use a "use-it-or-lose-it" rule: any money you do not spend by the end of the plan year or a grace period (usually 60 to 90 days into the next year) is forfeited and returned to your employer.
A few employers offer a carryover limit, meaning you can roll over unused funds but only up to a certain amount — often $550 or $600 per year. Anything above that limit is lost. Your employer's benefits guide or plan document will state the carryover rule, and your HR department can confirm the exact terms for your company.
When you leave your job, you lose access to the HRA immediately, even if you have unused funds. You cannot transfer the balance to a new employer's HRA or to an HSA. Some employers allow a short window (usually 30 to 60 days) to submit claims for expenses you incurred while employed, but the rules vary. Check with your HR department before your last day about the claims deadline.
HRA versus HSA: which gives you more control
An HSA is portable and belongs to you; an HRA is tied to your job and belongs to your employer. If you change jobs frequently or want to build a long-term medical savings account, an HSA offers more flexibility. You can contribute your own money, carry the balance indefinitely, and take it with you.
An HRA, by contrast, is a one-way benefit: your employer funds it, you spend it, and the rules reset each year. But if your employer offers a generous HRA with a low deductible and a carryover option, it can be a valuable way to cover medical costs without spending your own money. The trade-off is that you have no control over the account design and no may provide the benefit will exist at your next job.
Some employers offer both an HRA and an HSA. In that case, the HRA typically pays first, and you can use HSA funds for any remaining out-of-pocket costs. Your employer's benefits guide will explain the coordination rules.
How HRA contributions affect your taxes
HRA contributions are made with pre-tax dollars, meaning your employer deducts the money before calculating your federal income tax, Social Security tax, and Medicare tax. This lowers your taxable income and reduces the taxes you owe. If your employer contributes $2,000 to your HRA and you are in the 22 percent federal tax bracket, you save roughly $440 in federal taxes that year.
You do not report HRA contributions or reimbursements on your tax return as long as you use the money only for may have access to medical expenses. The IRS does not require receipts to be filed with your taxes, but you must keep them for your records in case of an audit. If you withdraw money for a non-may have access to expense, that amount is taxable income, and you owe a 20 percent penalty on top of the income tax.
State and local taxes vary. Some states tax HRA contributions; others do not. Your paycheck stub should show whether your state taxes HRA money. If you are unsure, ask your HR or payroll department.
Common HRA mistakes and how to avoid them
The most common mistake is spending HRA money on ineligible expenses and then facing a tax bill and penalty. Before you use your HRA debit card or submit a claim, confirm with your administrator that the expense qualifies. Do not assume that because something is medical, it is covered — cosmetic dentistry, vision correction surgery, and some fertility treatments may not be may be able to access under your plan.
Another mistake is losing track of the use-it-or-lose-it deadline. If your employer uses a strict forfeiture rule, set a calendar reminder in November to review your balance and plan any remaining medical expenses before year-end. Some employers offer a grace period into the next year, but do not count on it — check your plan document or ask HR.
A third mistake is assuming you can take your HRA balance with you when you change jobs. You cannot. If you know you are leaving, submit any pending claims before your last day and use up your balance on may be able to access expenses. After you leave, you have only a limited window (if any) to submit claims for expenses you incurred while employed.
Frequently Asked Questions
Can I use my HRA to pay my health insurance premium?
Usually no. Most HRAs cannot pay your health insurance premiums, including premiums for your employer's plan. However, some employers allow HRA funds to pay COBRA premiums (the continuation coverage you can buy if you leave your job) or premiums for a spouse's or dependent's separate health plan. Check your plan document or ask HR whether premium payments are allowed.
What if I do not use all my HRA money by the end of the year?
It depends on your employer's plan. Some employers let unused funds roll over to the next year; others use a use-it-or-lose-it rule and the money is forfeited. A few allow a carryover up to a limit, such as $550. Your benefits guide or HR department can tell you which rule applies to your HRA.
Can I have both an HRA and an HSA at the same time?
Yes, many employers offer both. The HRA typically pays first for your out-of-pocket costs, and you can use HSA funds for any remaining expenses. However, if you have an HRA that covers your deductible, you may not be able to contribute to an HSA that same year — the rules depend on your employer's plan design. Ask your HR department about coordination.
What happens to my HRA if I leave my job?
You lose access to the HRA immediately and cannot take the balance with you. Some employers allow a short window (usually 30 to 60 days) to submit claims for expenses you incurred while employed. After that, any unused funds are forfeited. Contact your HR department before you leave to confirm the claims deadline.
Do I need receipts to prove HRA expenses?
Yes. Keep itemized receipts or explanations of benefits for every HRA claim you submit. The administrator may ask for proof, and the IRS can audit your claims years later. Store receipts for at least three years. If you use an HRA debit card at a provider, the transaction is usually documented automatically, but keep your receipt anyway.