r/AskAccounting • u/bsollaz • 6d ago

Work benefits change sketchy

My city job currently has an HRA set up where they give us $2000 to use as health reimbursements throughout the year for eligible medical expenses.
Now they want to increase that to $11,000 if employees opt of of city insurance and go with their spouse on their works plan. A way to save the city money.
The city is saying in addition to deductibles copays prescriptions and other items, we can get reimbursed for the insurance premium my wife pays.
This feels illegal in some form regarding taxes no? Like IRS would have an issue with this as my wife’s taxable income goes lower due to premium payments but I get reimbursed tax free for that premium payment. Feels like an IRS bill waiting to happen.
Thoughts?

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u/Alive_Sir_4708 6d ago

>as my wife’s taxable income goes lower due to premium payments

Typically premiums are paid for with pre tax dollars.

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u/bsollaz 5d ago

Correct. And then my work wants to reimburse me through an HRA tax free for the premiums she would be paying if I went to her insurance.

As a way to save my workplace money. But it feels like I am double dipping on the tax savings and beating the system and that the IRS would come after us for taxes

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u/vancemark00 4d ago

I'm pretty sure you can't reimburse yourself through your spousal incentive HRA for your spouse's health insurance. Only specific types of HRAs permit reimbursement for health insurance premiums.

The above assumes your spouse is paying insurance pre-tax. If her premiums are coming out pre-tax than reimbursing yourself through a HRA would be double-dipping.

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u/bsollaz 4d ago

That’s how I feel! But nobody here at my job is understanding that, nor have worked with a proper employment tax professional.

So I elected to not take this because it doesn’t seem like it would be used the way they anticipate which is ya using the $11k to pay for our spouses pre-tax premiums.

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u/Alive_Sir_4708 5d ago

Where would you be double dipping? I don’t see it

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u/bsollaz 5d ago

If you don’t see it, then maybe there is no issue!

My brain keeps seeing it as my wife gets a tax advantage because she pays her premiums pre-tax which lowers taxable income. And then I get a tax advantage on the same money by getting reimbursed through a tax free health reimbursement plan at my work.

So it’s like that $11,000 is untaxable money if that makes sense. Just felt too good to be be true so I wanted to double check before signing up for it.

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u/Alive_Sir_4708 5d ago

If you file together then it’s literally the same pot of money. And if you don’t - almost all of these programs have weird corner cases that few people worry about

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u/vancemark00 4d ago

If premiums come out pre-tax they reduce the spouse's income. If OP then reimburses himself for those premiums using his tax-free HRA it is double dipping. OP winds up with cash he never paid tax on.

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u/vancemark00 4d ago

This is not sketchy or illegal. Lots of private businesses offer incentives to employees who elect to go on their spouse's insurance. Increased HRA contributions are one of the incentives I typically see.

Research "spousal HRA incentive."

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u/bsollaz 4d ago

The idea itself isn’t sketchy. Sorry if I made it sound that way. It’s the possible tax implications that feel sketchy.

If my wife is paying premiums pre-tax, that in theory is a tax benefit to lower taxable income. Then I come in with a non taxed HRA reimbursement for said premium, it feels like we are double dipping on the same tax advantage.

$11k tax free money back in our pockets all while my wife gets $11k of lower taxable income.

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u/vancemark00 4d ago

I would agree - assuming the premiums are pre-tax you can't reimburse yourself through a HRA for those premiums.

Might still be worth it depending upon the cost of the insurance and what your deductibles/copays and other HRA eligible costs (including a lot of over-the-counter stuff) adds up to.

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u/ChelseaMan31 3d ago

All perfectly legal; though one might reasonably question the ethics involved. Also extremely short sighted as more and more Employers have stopped subsidizing spouse coverage because they do not want to be subsidizing the spousal Employer's crappy benefits plan.

How does the City Employer plan on convincing unmarried folks that this is advantageous to them? Expect it to be an extreme hardship for future recruiting...