How to Use an HRA to Turn Medical Bills Into Business Deductions

Health Reimbursement Arrangements (HRAs) allow small business owners to legally deduct medical expenses, including premiums, copays, and prescriptions, by employing a spouse or using a standalone employer-funded plan. When appropriately structured, HRAs provide pre-tax reimbursements for medical expenses that would otherwise be non-deductible under IRS rules (e.g., those subject to the 7.5% AGI limitation on Schedule A). This guide explains how standalone HRAs and integrated HRAs function, outlines the qualification steps, and highlights the key compliance requirements.