Imagine this.
You’re paying $10,000 a year for health insurance and medical expenses. Out of pocket. After taxes. Like a good, responsible adult.
Meanwhile, your business (which you own) could be reimbursing you for every dollar of it. Tax-free. Legally. Using a provision in the tax code that’s been sitting there since 1954.
It’s called a Health Reimbursement Arrangement (HRA), and it’s one of the most slept-on strategies in the entire tax playbook.
Most CPAs won’t mention it. Most business owners have never heard of it. And the ones who have? They assume it’s too complicated, too risky, or only for big corporations.
Wrong on all three counts.
If you own a business and you’re paying medical expenses out of your personal checking account, you’re leaving thousands of dollars on the table every year. Let me show you how to pick it up.
What an HRA Actually Is
A Health Reimbursement Arrangement is a formal benefit plan that allows your business to reimburse you and your employees for medical expenses. Tax-free.
This isn’t new. It’s not a loophole. It’s IRC Section 105, and it’s been part of the tax code for 70 years.
Here’s how it works:
Your business sets up an HRA plan. You (as the employee or owner-employee) incur eligible medical expenses. These include health insurance premiums, doctor visits, dental work, prescription drugs, vision care, even some over-the-counter meds.
You submit receipts to the plan. The business reimburses you.
For the business: That reimbursement is a deductible expense just like salary or rent.
For you: That reimbursement is 100% tax-free. No income tax. No payroll tax. Nothing.
You just turned a personal, after-tax expense into a business write-off that you receive tax-free. And you did it using the actual rules, written in plain language, that the IRS put there on purpose.
The Math That Makes It Matter
Let’s say you’re a business owner in the 35% federal tax bracket (plus state and self-employment taxes, you’re probably closer to 45% all-in).
Every year, you pay:
- $8,000 in health insurance premiums
- $2,000 in out-of-pocket medical expenses (co-pays, prescriptions, dental, vision)
Total: $10,000 per year.
Without an HRA, you’re paying that with post-tax dollars. To cover $10,000 in expenses, you need to earn roughly $18,000 in pre-tax income (after taxes eat 45%).
With an HRA, your business reimburses you the full $10,000 tax-free. The business deducts it. You pay zero tax on it.
Net savings: ~$4,500 per year.
Do that for 10 years? You just saved $45,000. For filling out some paperwork and following a process that’s been legal since Eisenhower was president.
What You Can Actually Reimburse
This is where people get confused. What counts as a “medical expense” under an HRA?
Short answer: a lot more than you think.
IRS Publication 502 lists hundreds of qualified medical expenses. Here are some of the big ones:
✅ Health insurance premiums (individual, family, COBRA, Medicare)
✅ Deductibles and co-pays
✅ Prescription medications
✅ Dental care (cleanings, fillings, braces, implants)
✅ Vision care (exams, glasses, contacts, LASIK)
✅ Chiropractic and physical therapy
✅ Mental health counseling
✅ Diagnostic tests and lab work
✅ Medical equipment (crutches, wheelchairs, hearing aids)
✅ Some over-the-counter medications (with a prescription)
✅ Certain alternative treatments (acupuncture, for example)
You can’t reimburse cosmetic procedures (unless medically necessary). You can’t cover gym memberships or vitamins. But the list of what is covered is surprisingly broad.
And here’s the kicker: you were probably paying for most of this stuff anyway. You just weren’t getting it reimbursed tax-free.
Why Your CPA Probably Hasn’t Mentioned This
Here’s the uncomfortable truth: most CPAs are in the business of compliance, not strategy.
They’ll make sure your return is filed correctly. They’ll tell you to save receipts. But they’re not sitting around thinking about creative ways to help you legally reduce your tax burden.
HRAs require setup. They require plan documents. They require ongoing admin. And most CPAs don’t get paid to think that far ahead. They get paid to clean up the mess at tax time.
So unless you’re working with someone who’s proactively looking for ways to optimize your structure, this strategy stays hidden.
That’s why most business owners are still paying medical expenses out of pocket, after taxes, like suckers.
How This Stacks with Other Strategies
The beauty of an HRA is that it layers beautifully with other tax plays.
You can have:
- An HRA (reimbursing medical expenses tax-free)
- Retirement contributions (SOLO, Roth, 401(k), etc..)
- Real estate depreciation (if you own property)
- The Augusta Rule (renting your home to your business)
- … and many many more
These aren’t either/or. They’re and/and/and. The people building serious wealth aren’t using one strategy. They’re stacking five or six, all working together to keep more of what they make.
The HRA is one of those bricks. And for most business owners, it’s one of the easiest wins on the board.
The Bottom Line
You’re already paying for health insurance. You’re already covering medical expenses. You’re just doing it the expensive way.
A properly structured HRA lets you turn those same expenses into tax-free reimbursements, saving you thousands of dollars every year.
This isn’t aggressive. It’s not a gray area. It’s Section 105 of the Internal Revenue Code, written in 1954, updated regularly, and used by businesses of all sizes to provide tax-advantaged health benefits.
The only question is: why are you still paying for this stuff out of your personal account?
If you’re a business owner and you’re not using an HRA, you’re either overpaying on taxes or you don’t know this strategy exists.
Now you do.
So what are you going to do about it?