The Internal Revenue Service has rejected an effort by employers to help health reimbursement arrangement holders who have no spouses or children.

An employer that runs an HRA program can use HRA funds to pay for medical care for a worker’s spouses or dependents if the worker dies.

Some employers have given HRA holders who have no spouses or dependents a chance to pass HRA funds on to other beneficiaries.

The IRS now holds in Revenue Ruling 2006-36 that letting single, childless workers designate beneficiaries for HRA funds violates the requirements of Section 105(b) of the Internal Revenue Code.

Normally, employers fund HRAs with their own cash, and employees can exclude all of the payments from their taxable income.

If a plan lets dead workers’ designated beneficiaries receive reimbursement for medical expenses from an HRA, “none of the payments made from the reimbursement plan during the plan year to any person, including amounts paid to reimburse the medical expenses of an employee or the employee’s spouse or dependents, is excludable from the gross income,” Shoshanna Tanner, an IRS official, writes in the revenue ruling.

The revenue ruling will take effect for HRA plan designated beneficiary provisions for plan years beginning after Dec. 31, 2008, Tanner writes.

A copy of the revenue ruling is on the Web at Document Link