Strategy #21: Health Reimbursement Arrangement (HRA) Setup Workpaper

⚠️ Purpose: This workpaper documents the analysis, design, and implementation of a Section 105 Health Reimbursement Arrangement (HRA). Complete this workpaper once during initial HRA setup and maintain with permanent client records. This demonstrates proper due diligence and provides audit defense.

Section 1: Client & Business Information

Section 2: Current Tax Situation & HRA Eligibility

Tax Profile

Current Health Insurance Coverage

HRA Eligibility Check

Entity Structure: Business operates as a sole proprietorship, single-member LLC, or partnership where owner/spouse is a partner (HRA will NOT work for S-Corps or C-Corps for owner/family coverage)

Employment Relationship: Covered individuals (spouse, children) are bona fide employees with legitimate employment arrangements

Insurance Requirement: Employees have creditable health insurance coverage (individual policy, spouse's employer plan, or qualify for ACA coverage)

Non-Discrimination: If business has other employees, HRA plan will not impermissibly discriminate in favor of highly compensated individuals

Section 3: HRA Plan Design & Structure

Plan Participants

Annual Reimbursement Limits

Eligible Expenses

Select all expenses that will be eligible for reimbursement under this HRA plan:

Plan Year & Effective Date

Section 4: Reimbursement Procedures & Documentation

Reimbursement Request Process

Employee must complete written reimbursement request form

Employee must submit itemized receipts or EOBs (Explanation of Benefits)

Documentation must include: date of service, provider name, description of service, amount paid

Employer will verify expense is eligible under plan terms

Reimbursements will be processed within 30 days of submission

Documentation & Recordkeeping Requirements

✓ Required Records (must be maintained for audit defense):

Written HRA plan document

Plan adoption resolution (board or owner resolution)

Employee notice of plan benefits

All reimbursement request forms

All supporting receipts and documentation

Record of all reimbursement payments

Proof of employee health insurance coverage

Section 5: Tax Savings Analysis

Projected Annual Tax Savings

Cost-Benefit Analysis

Section 6: Implementation Checklist

HRA Setup Tasks

Section 7: Compliance & Risk Assessment

Regulatory Compliance Checklist

Section 105 Requirements: Plan meets all IRC Section 105 requirements for tax-free reimbursements

Written Plan: HRA is established under a written plan document

Employment Test: All covered individuals are bona fide employees (not owner for S/C-Corp)

Insurance Requirement: Covered employees have individual health insurance coverage

Eligible Expenses: Reimbursements limited to Section 213(d) medical expenses

Substantiation: Procedures in place to substantiate all reimbursement requests

Non-Discrimination: Plan does not discriminate in favor of highly compensated individuals (if applicable)

Risk Assessment

Client Compliance Capability

Section 8: Advisor Due Diligence & Recommendation

Suitability Analysis

Overall Advisor Recommendation

Certifications & Sign-Offs

Tax Advisor Certification

I certify that I have: (1) reviewed the client's situation and determined an HRA is appropriate, (2) verified eligibility requirements are met, (3) properly designed the HRA plan and documentation procedures, (4) documented all analysis and due diligence in this workpaper, (5) educated the client on compliance requirements and ongoing obligations, and (6) established a monitoring plan. This workpaper represents my professional analysis and recommendation.

Advisor Name:

Firm:

Date:

Advisor Signature:

Client Acknowledgment

I acknowledge that: (1) I have reviewed this HRA setup workpaper and understand the Health Reimbursement Arrangement strategy, (2) I commit to maintaining proper documentation for all reimbursement requests, (3) I will ensure all covered employees maintain required health insurance coverage, (4) I will follow all compliance requirements outlined by my advisor, and (5) I understand that improper implementation or documentation could result in taxable reimbursements and IRS penalties.

Client Name:

Title: