Excepted Benefit HRA 2026: The $2,200 Limit Explained

• The 2026 excepted benefit HRA limit is $2,200 per employee, up from $2,150 for 2025, per IRS Revenue Procedure 2025-19.
• An employer must offer a traditional group health plan to the same class of employees, though enrollment in that plan is not required to use the HRA.
• An EBHRA cannot reimburse individual major medical premiums or most group health premiums, only COBRA, excepted-benefit coverage, and certain short-term policies.
• Because it is an excepted benefit, an EBHRA does not disqualify an employee from HSA eligibility the way a general-purpose health FSA does.
• The employer contribution runs entirely outside payroll with no employee salary reduction, so it produces no Section 125-style FICA recapture in either direction.

A 60-person marketing agency in Raleigh, North Carolina already runs a traditional group health plan, but its owner keeps hearing from employees that the deductible feels too high and the standalone dental plan barely covers anything. Adding richer major medical coverage would mean renegotiating the whole group policy. An excepted benefit HRA solves a narrower problem instead: the agency can set aside up to $2,200 per employee for the 2026 plan year, reimbursed tax-free, to cover dental, vision, copays, and deductible gaps, without touching the underlying medical plan at all. Here is exactly how the 2026 dollar limit works, what an EBHRA can and cannot reimburse, and how it differs from the ICHRA model already covered elsewhere on this site.

What is an excepted benefit HRA?

An excepted benefit HRA is a health reimbursement arrangement funded entirely by the employer that reimburses employees, tax-free, for specific health care costs like dental, vision, copays, coinsurance, and certain premiums, without being treated as major medical coverage under the Affordable Care Act. The arrangement gets its name from its classification as an excepted benefit, a category of limited coverage federal law exempts from the ACA market reform rules that apply to standard group health plans, as long as it stays within a set dollar limit and follows the design rules laid out in 26 CFR §54.9831-1(c)(3)(viii). An EBHRA is not a replacement for major medical coverage. It is a supplemental, employer-funded pool of money that sits alongside the employer's existing group health plan and fills specific coverage gaps the main plan leaves open.

What is the 2026 excepted benefit HRA contribution limit?

The maximum amount an employer can make available through an excepted benefit HRA is $2,200 per employee for plan years beginning in 2026, an increase from $2,150 for 2025, set by the Internal Revenue Service in Revenue Procedure 2025-19. Unlike the HSA contribution limit, which sets one figure for self-only coverage and a separate, higher figure for family coverage, the EBHRA limit is a single flat number that applies per employee regardless of how many dependents are covered under the arrangement. An employer can offer less than $2,200, but cannot exceed it for any employee in a single plan year without the excess jeopardizing the arrangement's excepted-benefit status.

Does the employer need to offer a group health plan?

Yes. An employer must offer a traditional group health plan to the same class of employees who are eligible for the excepted benefit HRA, though those employees are not required to actually enroll in that group plan in order to participate in the HRA. An employee can decline the employer's medical plan entirely, perhaps because a spouse's plan covers them instead, and still use the EBHRA to pay for dental, vision, or other qualifying costs. What matters is that the underlying group plan offer exists for that class of employees, not that every eligible employee is actually enrolled in it.

How is this different from an ICHRA?

An excepted benefit HRA and an individual coverage HRA run on opposite structural rules about traditional group coverage. An EBHRA requires the employer to offer a traditional group health plan to the same class of employees. An ICHRA, covered in Benecor's ICHRA guide→, generally cannot be offered to a class of employees that is also offered a traditional group health plan, since the ICHRA is designed to replace group coverage with individual marketplace coverage for that class, not to supplement group coverage the way an EBHRA does. An employer cannot use an EBHRA as a workaround to avoid the ICHRA same-class restriction, since the two arrangements serve different classes of employees by design.

What can an excepted benefit HRA reimburse?

An excepted benefit HRA can reimburse dental and vision expenses, copayments, coinsurance, deductible costs under the employer's group health plan, and a narrow set of premiums, including COBRA continuation coverage, coverage consisting solely of excepted benefits such as standalone dental or vision insurance, and short-term limited duration insurance where state law permits it. The plan document has to name exactly which categories of expense it will reimburse, since an EBHRA is only as flexible as what the written plan actually authorizes, not whatever an employee happens to submit a receipt for.

What can't an excepted benefit HRA reimburse?

An excepted benefit HRA cannot reimburse individual major medical insurance premiums, premiums for most traditional group health plans, or Medicare Part B or Part D premiums. Allowing any of those reimbursements would functionally turn the arrangement into a substitute for major medical coverage, which is exactly what the excepted-benefit dollar cap and design rules are built to prevent. This is the same category of premium the arrangement is barred from touching regardless of how far under the $2,200 limit the employer stays for the year.

Worked example: a $2,200 EBHRA

A 42-person accounting firm sets its excepted benefit HRA at the full $2,200 for the 2026 plan year for every employee enrolled in its traditional group health plan class. An employee who spends $600 on dental work, $350 on a new pair of glasses, and $900 on medical copays and coinsurance over the year submits $1,850 in qualifying claims, all reimbursed tax-free from the $2,200 pool, leaving $350 unused for that plan year. Because the entire $2,200 is employer money funded outside of payroll, none of it appears as taxable wages on the employee's Form W-2, and none of it is subject to a Section 125-style pre-tax election or FICA calculation on either side.

We kept hearing that our dental plan was too thin, but rewriting the whole medical contract mid-year wasn't realistic. Setting up a $2,200 excepted benefit HRA solved the actual complaint in about six weeks without touching the group plan we'd already negotiated.

Does an EBHRA reduce FICA tax the way Section 125 does?

No. An excepted benefit HRA is funded entirely by the employer with no employee salary reduction involved at any point, so there is no employee wage base for a pre-tax election to shrink and no FICA recapture the way a Section 125 plan generates. The employer's contribution is excluded from the employee's taxable income under the general HRA exclusion in IRC §106, the same provision that keeps most employer-paid health benefits out of wages, but that exclusion does not create the payroll tax savings mechanism that makes a Section 125 election valuable to an employer's own FICA line. An EBHRA and a Section 125 plan can run side by side without conflict, they simply solve different problems and move different numbers on the employer's payroll math.

Does an EBHRA affect HSA eligibility?

No, and this is one of the more useful design features of the arrangement. Because an excepted benefit HRA is specifically classified as an excepted benefit rather than as general health coverage, it does not count as disqualifying coverage for Health Savings Account purposes, unlike a general-purpose health FSA or a standard HRA, both of which can knock an employee out of HSA eligibility entirely if paired with an HSA-qualified high-deductible plan without a limited-purpose design. An employee can be enrolled in an HSA-eligible HDHP and an excepted benefit HRA at the same time and keep making HSA contributions without interruption, a pairing that is not available with a broader HRA design.

Is an excepted benefit HRA subject to COBRA?

Yes. An excepted benefit HRA is treated as its own group health plan for COBRA continuation coverage purposes, separate from the traditional group health plan it is paired with. An employee who leaves the company with an unused EBHRA balance generally has the right to continue that specific HRA coverage under COBRA, administered on its own election and premium timeline, distinct from any COBRA continuation offered for the underlying medical plan itself. Employers who only set up COBRA administration for their medical plan and overlook the HRA piece are missing a required continuation obligation, not an optional courtesy.

Who is eligible for an excepted benefit HRA?

Eligibility generally has to be offered on the same terms to the class of employees who are eligible for the employer's underlying traditional group health plan, rather than being handed out to selected individuals. An employer can vary the contribution amount by an objective, employer-wide category, such as full-time versus part-time status or a defined job classification, without that variation being treated as impermissibly favoring specific people. What the arrangement is not designed to do is let an employer offer $2,200 to a handful of favored employees while offering nothing, or a token amount, to everyone else in the same class.

Does an EBHRA have to pass nondiscrimination testing?

Yes. Because an excepted benefit HRA is a self-insured medical reimbursement plan, it is subject to the two-part nondiscrimination test under IRC §105(h), the same testing framework that applies to any self-funded medical or dental plan. The eligibility test looks at whether the plan's participation rules favor highly compensated individuals, generally passing automatically if 70% or more of non-excludable employees participate, and the benefits test looks at whether HCIs and non-HCIs actually receive the same contribution amount and reimbursement terms. A highly compensated individual for this test is defined as the highest-paid 25% of non-excludable employees or the five highest-paid officers of the company, a narrower group than the $160,000 compensation-based highly compensated employee definition covered in Benecor's HCE guide→, since §105(h) uses its own rank-based test rather than a fixed dollar threshold. A plan that fails either test does not lose its tax-favored status for every employee, only the highly compensated individuals themselves lose the exclusion and must include their EBHRA reimbursements in taxable income for that plan year.

Common excepted benefit HRA mistakes

The most common mistake is setting up an EBHRA without first confirming a qualifying traditional group health plan is actually in place for the same class of employees, since the group plan offer is a precondition, not a detail to sort out later. The second is trying to reimburse an individual major medical premium or a standard group health premium through the arrangement, which falls outside what an excepted benefit HRA is allowed to cover regardless of how much room is left under the dollar cap. The third is forgetting that the HRA itself, not just the medical plan, carries its own separate COBRA continuation obligation when an employee leaves the company with an unused balance.

How to set up an excepted benefit HRA correctly

1. Confirm a traditional group health plan is already in place. The employer must offer group coverage to the same class of employees before the EBHRA can qualify as an excepted benefit.
2. Set the 2026 contribution at or under $2,200 per employee. The figure is one flat amount per employee, with no separate family tier.
3. Write the plan document naming exactly what it reimburses. Name dental, vision, copays, coinsurance, deductibles, and any qualifying premiums, and explicitly exclude individual major medical and group health premiums.
4. Offer it on the same terms across the eligible class. Vary by objective category, such as full-time versus part-time, not by favoring specific individuals.
5. Set up COBRA administration for the HRA itself. The excepted benefit HRA is its own group health plan for COBRA purposes, separate from the medical plan.
6. Confirm payroll treats the contribution correctly. The amount is entirely employer-funded, never run through an employee pre-tax election, and left out of Form W-2 Box 1, Box 3, and Box 5.