Health Reimbursement Arrangements have been available for many years. IRS section 105 allows employers to reimburse employees for non-reimbursed medical expenses and deduct the amount of the payment. Reimbursements are not counted as income to the employee.

A recent change in the regulation allows the employer to set aside money and deduct it in advance of the reimbursement. The money is not counted toward the income of the employee. Unused amounts can carryover from year to year. Similar to a cafeteria plan or a Health Savings Account, the money can only be used for non-reimbursed medical expenses and for any portion of the premium the employee has to pay for the health insurance coverage for self or family. Owners and shareholders of a Sub S Corp cannot participate.

The regulation allows employers to specify what expenses can be reimbursed, if the money can be carried over to the following year, and whether or not employees can participate after retirement.