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This Web site contains a compilation of more than a thousand consumer finance  columns written by Tony Novak from the 1980s through 2006, updated and reformatted for maximum usefulness today.  New material was added after 2010.

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Health Reimbursement Account setup

originally posted: 11/22/2006  reposted: 2/18/2011 This post has not been recently reviewed or revised by the author and may be out of date. If you notice an error or are in doubt, please send a new question by email or ask for an update. Email

Q: I would be the only employee participating in a Health Reimbursement Account at my small company. The company will deposit money into an account that I have access to with a debit card. All my medical expenses will be listed on the monthly statement from the bank but I want to keep this information private from the employer. How do we do this and how often does the IRS requires a claims verification report be filed?

A: For most small companies that file a quarterly wage tax report (IRS Form 941), an independent third party health plan claim validation report should be prepared quarterly to coordinate with the wage tax filing. The report is not filed with IRS but is necessary to allow exclusion of uninsured health benefits from the employees' wages. Without a concurrent independent third party claim validation report, the IRS takes the position that any uninsured medical expense reimbursements are taxable income to the employee subject to wage taxes and (and late payment penalties if not recognized in the current wage tax report). Some health plans prepare a claim validation reports on a monthly or annual frequency, depending on different wage tax reporting schedules. Under the new pricing formula at Freedom Benefits, the cost of health plan administration does not change regardless of the claim report frequency.


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