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My husband is researching the benefits offered at his job for 2016. His employer offers what they call a "Healthcare reimbursement account" (HRA), but instead of traditional HRA's where the employer is the one that contributes, they contribute nothing and only the employee contributes. Basically is it an FSA but they call it an HRA.
Anyways, my husband learned that if we contributed $2500 each year through my husband's employer that it would lower his social security earnings by $2500 each year. Does that mean if he contributes $2500 for the next 30 years that he'll have lowered his social security earnings by $75,000?? So when SS goes to base his estimated monthly benefit when he retires, he will basically be getting far less than what he would have had he not contributed to the HRA?
My husband is also leery of having to go through an approval process to be reimbursed his money. I honestly don't even know what tax bracket we are in but if we pay 25% taxes and contribute $2500 that we are basically saving ourselves paying $625 in taxes. BUT he said that if God forbid he loses his job then the money we put into the HRA is gone and we are screwed since it's a use-it-or-lose-it type thing. He isn't planning on losing his job but he is one of those people that likes to be in control of his money and doesn't want "extras" taken out that he has to go through hoops for to get back.
We are also wondering if we do sign up for the HRA if that will then not allow us to claim a medical deduction at the end of the year? I don't believe in years past that I had enough to qualify for the deduction but I may need to undergo an expensive surgery in 2016 with an out of network doctor, so it could potentially be very very costly. In that case we would definitely be able to deduct it (itd be well over the 10% of our income).. But if we get the pre-tax benefit from an HRA then would we be able to claim the medical expenses as well?
Hope this all made sense, thanks for any input you can provide
10-04-2015, 12:15 PM
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Is it an HRA or an HSA?
IRS rules forbid funding an HRA with an employee's salary, but the rules you're describing don't sound like an HSA either.
This is what it is. When you call HR with a question about it they refer to it as an HRA. I questioned this several times as I remember my friend bragging about her HRA & how her job contributed to it, without her paying into it at all... The woman at HR said "well we call it an HRA but we don't contribute anything" so my understanding is it works like a FSA
Lowering your ss wages isn't a loss of those direct dollars. If your wages per ss are 2500.00 less you do receive a reduced benefit but it's dollars not 2500.00 x 30
For example 70k ss wages = 2058.00 a month benefit
72500 ss wages = 2092 a month
This is using my age and reitrment age so ymmv
Last edited by Lowexpectations; 10-04-2015 at 12:44 PM..
Lowering your ss wages isn't a loss of those direct dollars. If your wages per ss are 2500.00 less you do receive a reduced benefit but it's dollars not 2500.00 x 30
For example 70k ss wages = 2058.00 a month benefit
72500 ss wages = 2092 a month
Ok that makes sense.
So, if the difference in your example is $34/month that comes out to $408/year that you lose.. Idk the tax bracket a $72500 salary fall into but let's assume it is more than 25%.. So I will guess 30%.. So each year on the FSA the person didn't pay taxes of $750 on their $2500 contribution but their SS award is lowered by $408/year so really they only save $342...? Right?
Now, from what I've been told you can use a Benny card to pay for the qualifying medical services. And supposedly you can use the yearly amount up front. So January 1st I decide to have root canals totalling $3000, I can use the $2500 tax free on my Benny card and then my hubby just pays that back every month thru a deduction in his paycheck. BUT if God forbid he gets laid off in June (in this hypothetical example), do we now have to continue to pay Benny back PLUS the taxes?
Is it challenging getting reimbursements approved? Also, how can you used a debit card (that pays it automatically) but still need approval ?? Is it one of those things where after you make a purchase with the Benny card you have to show proof? If that's the case then why give me the Benny card? Isn't the Benny card only accepted at doctors offices/pharmacies/etc??
Sorry if these are seemingly dumb questions but I've spoken to 2 different people at HR and you would've thought I was speaking another language because they had "no idea" how it works
Point of sale machines typically now know what fsa eligible are and segregate it out, at least it does at my grocery stores, pharmacies and walmart
Ok good so that would make it easier and convenient for sure. I just looked at the brochure from HR. The Benny card says it is a FSA but his HR keeps calling it an HRA and the form says HCRA on it
IMO they use the HCRA name to avoid all the negative connotations of an FSA.
Is this the only healthcare plan offered by CalState ? or is it in addition to a major medical/HMO employer group plan ? If in addition, then it is only meant to cover incidental and/or out of pocket expenses not covered by the group plan.
In answer to one question you had, any expenses covered by this "HCRA" plan can NOT then be also taken as itemized deductions on Sch A of IRS tax return. (Same as group plan coverage can't be deducted). Which are subject to a 10% of income offset anyway.
My husband is researching the benefits offered at his job for 2016.
Anyways, my husband learned that if we contributed $2500 each year through my husband's employer that it would lower his social security earnings by $2500 each year. Does that mean if he contributes $2500 for the next 30 years that he'll have lowered his social security earnings by $75,000?? So when SS goes to base his estimated monthly benefit when he retires, he will basically be getting far less than what he would have had he not contributed to the HRA?
Using the SSA's Quick Calculator at Quick Calculator
as a "what-if", it appears that a $2500 yearly reduction in credited wages over the 35 year period used by SSA, the reduction in monthly benefits might be about 3%. IOW, based on an $80000 final year wage, the benefit would be $1802/month. If based on $77500, it would be $1761/month. A loss of $41/month. So less, but not really "far less".
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?? Is it one of those things where after you make a purchase with the Benny card you have to show proof? If that's the case then why give me the Benny card? Isn't the Benny card only accepted at doctors offices/pharmacies/etc?? 
