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IRS says employer can help workers with health costs
WASHINGTON (AP) – Money provided by employers for their workers’ out-of-pocket health costs will not
be subject to taxes, the Internal Revenue Service said in a ruling that could clear the way for more
companies to offer such benefits.
The decision Wednesday clears up a gray area by ensuring that money in these Health Reimbursement
Arrangements that is left over at the end of the year can be rolled over to the next year tax-free. The IRS also set
up specifics on how a plan qualifies for tax-free status.
Treasury Secretary Paul O’Neill said the ruling could give employers "more choice and greater control over
their health care coverage."
To avoid taxes, the plan must be funded entirely by the employer – but not through a salary reduction – and it
can provide benefits only for substantiated medical expenses. In addition, the ruling allows former employees,
including retirees, to have access to their unused benefits.
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