Contributions into your HCRA account are made with before-tax dollars. This means that your deposits are deducted from your paycheck before federal income taxes (and in most cases, state and local income taxes) are withheld. You will probably pay less in taxes because you have a lower taxable income. When you are reimbursed from your account for eligible expenses, these reimbursements are also tax-free.
Example: Let’s assume Rob earns $30,000 per year and he is in a 20% tax bracket - for purposes of federal and state income tax. If Rob puts $1,500 in HCRA and has $1,500 in medical expenses, here’s how the savings add up:
Before-Tax
After-Tax
Annual salary
$30,000
$30,000
Pre-tax HCRA Contribution
-$1,500
-$0
Taxable income
$28,500
$30,000
20% tax rate
-$5,700
-$6,000
Subtotal
$22,800
$24,000
After-tax health care expenses
-$0
-$1,500
Spendable income
$22,800
$22,500
Savings
$300
$0
In this example, Rob saves $300 a year by paying eligible expenses with before-tax dollars.
Please note:This is a simplified example. Your actual savings will vary based on your marital and tax filing status, the number of exemptions and dependents you claim, and your HCRA contribution level.
Can I Claim Dependent Expenses?
You can use your Health Care Reimbursement Account to pay for expenses that you and your eligible dependents incur. Your eligible dependents include:
Dependents under your health plan (for example, your legal spouse, unmarried children up to age 19, or age 23 if full-time students).
Anyone you can claim as a dependent on your federal tax return.
Did You Know?
If you incur eligible expenses for a dependent as noted above, you can use your HCRA funds to reimburse you even if you haven’t enrolled the dependents on your County health plan.
Making Changes to Your HCRA Election
The opportunity to make new elections or modify your current elections occurs during the annual open enrollment period prior to each plan year. Once you have made your elections and a plan year has commenced, the IRS only allows you to change your election (increase, decrease, or stop your pre-tax contribution) during the plan year if you have a qualified change in family status. If you wish to make a change, you must submit your new election within 30 days of the qualified status change. Additionally, your new election must be consistent with your qualified status change.
The following is a list of qualified status changes that will allow a change in your election during a plan year.
Marriage
Divorce, legal separation, or annulment
Death
Birth, adoption, or placement for adoption
Begin an unpaid leave of absence
Return from an unpaid leave of absence lasting as least 30 days
A spouse’s or dependent’s new employment or termination
A significant change in your family’s health care related to your spouse or dependent’s change in employment
Strike or lockout
You or your former spouse receives court order to provide health coverage for your child
Your election of COBRA under the County of Orange Health Plan (you may only increase your election to pay premiums) The effective date of your new election will be first day of the month following the date of the status event. Your new payroll deduction amount should begin on the first paycheck following 2 full pay periods from the date your enrollment forms are received.
