8806 / What ordering rules for reimbursement apply if a taxpayer maintains both an HRA and a health FSA?

An employee may not be reimbursed for the same medical care expense by both an HRA and an IRC Section 125 health FSA (see Q 8834). Technically, ordering rules from the IRS specify that the HRA benefits must be exhausted before FSA reimbursements may be made. Despite this, HRAs can be drafted to specify that coverage under the HRA is available only after expenses exceeding the dollar amount of an IRC Section 125 FSA have been paid. Thus, an employee could exhaust FSA coverage, because FSA funds may only be carried over if the FSA specifically permits a carryover (and even then only up to $500 per year ($660 in 2025 projected, $640 in 2024, $610 in 2023, $570 in 2022 and $550 in 2020 and 2021)¹ can be carried forward), before tapping into HRA coverage, which can be carried over.²

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1.  Notice 2020-23.

2.  Notice 2002-45, 2002-2 CB 93.

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