Money placed in the HRA is done so on a tax-free basis (no federal, state or FICA taxes are paid). Any of the HRA's investment earnings allocated to your account are also tax-free. All reimbursements from your account for out-of-pocket eligible medical expenses for you, your spouse and your dependents are also tax-free. This tax-free advantage could save you and your family a considerable amount of money.
For example, if you are eligible for a $10,000 cash payout from your employer at termination of employment, you may only receive about $6,000 after deductions for federal, state and FICA taxes are deducted. However, if your employer places the same cash payout into an HRA, no taxes are paid and the full $10,000 is placed in your account to reimburse you and your dependents for out-of-pocket eligible medical expenses.