What are IRS Section 105 and Reimbursement Plans?

IRS Section 105 addresses the exclusion of reimbursements provided by an accident or health plan for the medical expenses of an individual or their dependents from the individual's gross taxable income. An example of a Section 105 plan is a Health Reimbursement Account (HRA).

Section 105 sets the following requirements for an eligible plan:

  • Employers are the sole contributors to the plan.
  • In contrast to a Section 125 plan, a Section 105 plan cannot be funded through reduction of the employee's salary, whether voluntary or involuntary.
  • Reimbursements received under the plan are excluded from gross taxable income if they are used to pay eligible medical expenses for eligible individuals and their dependents, and the expenses are not otherwise reimbursed under another plan.

To be compliant with the ACA, Section 105 plans such as HRAs must be offered as a supplement to employer-provided health insurance coverage. Generally, employees must have existing group coverage through their employer in order to participate in an HRA.

This page intends to provide a general description of the provisions of Section 105 as they pertain to eligible reimbursement plans. It does not provide guidance on specific plans, their taxability, or their compliance with ACA or any other regulations. Please contact a tax or legal professional for guidance on determining whether a given plan is compliant with Section 105.

Zenefits Payroll does not have a specific pay type for this, there are only reimbursement pay types

Note: Zenefits is not accepting new HRA clients.

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