Short answer: It depends on the business structure. C-corporation owners can participate tax-free (they are employees), but sole proprietors, partners, and more-than-2% S-corporation shareholders generally cannot, though they can still offer HRAs to their W-2 employees.
It depends on the business structure.
In general, C-corporation owners can participate in an HRA, since they’re considered employees of the corporation. Their medical expenses, and their family’s, can be reimbursed tax-free through the HRA.
However, sole proprietors, partners, and more-than-2% shareholders in an S-corporation are not considered employees under IRS rules. That means they cannot participate in an HRA on a tax-free basis, though they may be able to deduct certain health expenses elsewhere on their personal tax return.
Note: Even if the owner isn’t eligible, they can still offer HRAs to their W-2 employees.
Sources
- Internal Revenue Code §105; Rev. Rul. 91-26 (treatment of more-than-2% S-corp shareholders).
Content history
Originally published: March 27, 2025
Last reviewed: June 16, 2026