Using Individual Coverage HRAs and the Section 105(h) Nondiscrimination Rules, Nov. 14, 2019

While the IRS' recent expansion of the rules allowing employers to use HRAs to reimburse employees for individual health insurance premiums is valuable, employer should still be aware of the nondiscrimination rules that continue to apply. Under Section 105(h), employers are prohibited from discriminating in favor of highly compensated employees by providing increased benefits to these employees. However, the final rules governing ICHRAs allow employers to provide increased amounts based on an employee's age provided the reimbursements otherwise satisfy the rule's criteria. Although these increased reimbursements will generally not violate the Section 105(h) rule, there is no safe harbor for employers to rely upon. Therefore, when choosing to reimburse older employees (who may face increased premium costs) at a higher rate, employers should remain vigilant about not favoring highly compensated older employees over non-highly compensated older employees to avoid penalties. For more information on the safe harbor rules that employers can now rely on, visit Tax Facts Online.