Runout Period

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Introduction

If you’ve ever wrapped up a health plan year and wondered, “What happens to claims that haven’t been submitted yet?” you’re already brushing up against the concept of a Runout Period. For small business owners and HR managers offering HRAs like an ICHRA or QSEHRA, understanding the Runout Period isn’t just administrative housekeeping — it’s a compliance must.

Employees, on the other hand, often assume that once the plan year ends, their chance to get reimbursed disappears overnight. Not necessarily. The Runout Period is designed to prevent that exact confusion.

Let’s break this down in plain English and walk through what it means for employers, HR teams, and employees alike.

What Is a Runout Period?

A Runout Period is a set amount of time after a plan year ends during which employees can submit claims for expenses incurred during that previous plan year.

Notice the key phrase: incurred during the plan year.

In other words:

• The medical expense must have happened before the plan year ended.
• The claim can be submitted after the plan year ends — but only within the Runout Period.

For example:

• Your HRA plan year ends on December 31.
• You offer a 90-day Runout Period.
• An employee had a doctor’s visit on December 15.
• They have until March 31 to submit that expense for reimbursement.

The IRS allows this structure for HRAs, FSAs, and similar benefit arrangements. Guidance around HRAs can be found in IRS Notice 2013-54 and IRS Publication 969, which outline how reimbursement arrangements must operate to remain compliant.

Why the Runout Period Matters for Employers

Compliance and Plan Documentation

First things first: your Runout Period must be clearly stated in your official plan documents.

Under ERISA rules (Employee Retirement Income Security Act), employers offering HRAs must provide a Summary Plan Description (SPD). If your plan includes a Runout Period, it needs to be spelled out:

• How long is it?
• What expenses qualify?
• What happens to unclaimed funds?

If you don’t define it properly, you open the door to disputes or, worse, compliance issues.

Financial Planning and Budget Control

From a business owner’s perspective, the Runout Period affects cash flow forecasting.

With traditional group insurance, you pay fixed monthly premiums. With an HRA, you reimburse actual claims. That means:

• Claims may come in after the plan year ends.
• You may still have reimbursement obligations in Q1 of the following year.

If you’re budgeting tightly — as most small businesses are — you’ll want to account for that delayed reimbursement window.

The good news? With properly structured HRAs like ICHRA, you only reimburse verified, eligible expenses. No claims, no payout.

Avoiding Employee Relations Headaches

Nothing derails morale like an employee saying, “I didn’t know I had to submit that by then.”

Clear communication about the Runout Period prevents:

• Frustration
• Appeals and exceptions
• Claims of unfair treatment

Consistency matters. If you bend the rules for one person, you risk discrimination issues under federal benefits law.

Why the Runout Period Matters for Employees

Protecting Their Reimbursements

Employees often confuse three separate timelines:

1. When the expense happened
2. When coverage ended
3. When the claim must be submitted

The Runout Period strictly applies to submission timing — not when the care occurred.

Here’s what employees should understand:

• If they wait too long, reimbursement can be denied.
• The employer is not required to extend the deadline.
• Unsubmitted claims generally mean forfeited funds.

That’s why timely submission isn’t just paperwork — it’s protecting tax-free dollars.

Tax Implications

HRA reimbursements are tax-free under IRS rules as long as:

• The expense is eligible under Section 213(d) of the Internal Revenue Code.
• The employee had qualifying coverage (for ICHRA).
• The claim is properly substantiated.

If an expense is submitted after the Runout Period closes, reimbursement typically can’t be made. And if employers try to “work around” that rule, they may jeopardize the plan’s tax-advantaged status.

Nobody wants that.

Runout Period vs. Grace Period: Not the Same Thing

This is where things get confusing.

A Runout Period is about claim submission timing.

A Grace Period, on the other hand, allows employees to incur new expenses for a limited time after the plan year ends and still apply them to the prior year’s funds.

HRAs typically use a Runout Period — not a Grace Period — although plan design can vary.

Let’s simplify:

• Runout Period = extra time to submit old claims.
• Grace Period = extra time to incur new expenses.

Mixing these up can cause major compliance mistakes, so plan documents must be precise.

How Long Should a Runout Period Be?

There’s no federally mandated length for a Runout Period in HRAs. However, best practices in the industry typically range from:

• 60 days
• 90 days
• 180 days (less common but possible)

When choosing a duration, consider:

• How administratively complex your workforce is
• Whether employees are hourly or salaried
• Whether you have high turnover
• Your payroll processing timelines

For small businesses, 90 days often strikes a healthy balance — generous but not open-ended.

What Happens to Unused Funds After the Runout Period?

This depends entirely on your plan design.

For most HRAs:

• Unused funds may roll over to the next year (if the plan allows it).
• Or they may be forfeited.

With ICHRAs specifically, employers have flexibility in designing rollover provisions. But once the Runout Period closes, claims for the prior year generally cannot be paid.

Employers must apply rules uniformly to avoid discrimination under IRS and Department of Labor standards.

Special Situations to Watch

Terminated Employees

What if someone leaves mid-year?

Most HRA plans still allow former employees to submit claims incurred before termination — but only during the Runout Period defined in the plan.

COBRA may also apply to certain HRAs, depending on structure. The Department of Labor provides guidance on COBRA obligations at dol.gov.

Plan Year Changes

If you shift your plan year (for example, from calendar year to fiscal year), your Runout Period must be adjusted carefully to avoid overlapping or shortening claim windows unfairly.

This is where many DIY benefit setups stumble.

Administrative Best Practices for Small Businesses

Let me be candid — most compliance issues I see don’t come from bad intentions. They come from unclear administration.

Here’s what I recommend:

• Clearly define the Runout Period in your plan documents.
• Send reminders 30 and 15 days before the deadline.
• Automate claim tracking when possible.
• Maintain audit-ready documentation for at least 7 years.
• Apply rules consistently across all employee classes.

If you’re offering an ICHRA, remember that employees must also maintain qualifying individual coverage to receive tax-free reimbursements.

Common Mistakes to Avoid

Over the years, I’ve seen a few patterns:

• Extending deadlines informally without amending plan documents.
• Reimbursing late claims “just this once.”
• Failing to communicate deadlines to terminated employees.
• Confusing Runout Period rules with rollover provisions.

Each of these may seem minor — until an IRS or DOL audit brings them into focus.

Why Runout Period Clarity Is Critical for Modern HRAs

As more small businesses move away from traditional group health insurance and toward flexible models like ICHRA, administrative precision matters more than ever.

Unlike insurance carriers that handle claims internally, HRAs place responsibility on the employer (or their platform provider) to:

• Verify eligibility
• Track plan year timing
• Enforce submission deadlines
• Maintain compliance records

The Runout Period is a small design feature with big compliance consequences.

SimplyHRA Makes Runout Period Compliance Simple

At SimplyHRA, we help small businesses design and administer compliant HRAs — including properly structured Runout Period rules — without drowning in paperwork. Our platform automates expense tracking, sends deadline reminders, maintains audit-ready documentation, and ensures reimbursements follow IRS and Department of Labor guidelines. If you’re a business owner, HR manager, or employee who wants clarity around your Runout Period and overall HRA compliance, let’s talk. Email us at info@simplyhra.com or schedule a consultation at https://www.simplyhra.com/contact. Your health benefits shouldn’t feel complicated — and with the right partner, they don’t have to.

Accounting and Tax Reporting Considerations of a Runout Period

When we zoom out a bit, the Runout Period also has accounting and tax reporting implications that small business owners and finance teams shouldn’t overlook.

Accrued Liabilities at Year-End

If you operate on an accrual accounting basis, reimbursements tied to the prior plan year — even if submitted during the Runout Period — may need to be reflected as liabilities on your books.

Why?

Because the expense was incurred during the prior plan year, even though the cash outflow happens later.

For example:

• Plan year ends December 31.
• Employee incurs $2,000 in eligible medical expenses in December.
• Claim is submitted in February during a 90-day Runout Period.

From an accounting standpoint, that obligation arguably relates to the prior year’s benefit period. I always recommend coordinating with your CPA to determine:

• Whether to accrue estimated unpaid claims.
• How to handle material claim activity during the Runout Period.
• How to document assumptions for audit purposes.

For tax reporting, remember that HRA reimbursements are generally deductible business expenses under Section 162 of the Internal Revenue Code, provided the plan is properly structured and compliant.

W-2 Reporting and Tax-Free Treatment

Properly administered HRAs, including ICHRAs and QSEHRAs, provide tax-free reimbursements to employees when:

• The plan meets IRS requirements.
• Expenses qualify under IRC Section 213(d).
• Employees have required coverage (for ICHRA).

The timing of submission during the Runout Period does not change the tax-free nature — as long as the expense was incurred during the correct plan year and the claim is paid according to plan terms.

However, sloppy handling — like reimbursing claims outside the defined Runout Period — can jeopardize the tax-advantaged status of the entire arrangement. That’s not a risk worth taking.

How Runout Period Rules Interact with ICHRA Affordability

If you’re offering an ICHRA, affordability matters under the Affordable Care Act (ACA). The IRS affordability rules determine whether an employee can access premium tax credits through the Marketplace (see IRS guidance under final ICHRA regulations issued in 2019).

Here’s where the Runout Period quietly plays a role:

• Affordability is measured monthly.
• Reimbursements during a Runout Period must relate to expenses incurred in prior eligible months.
• Employers should not “shift” reimbursements across plan years to manipulate affordability calculations.

In short, the Runout Period is an administrative window — not a planning loophole. Reimbursements must align with the correct coverage period.

Technology’s Role in Managing a Runout Period

Let’s be honest — spreadsheets and email threads don’t scale well.

Managing a Runout Period manually often leads to:

• Missed deadlines
• Inconsistent approvals
• Lost documentation
• Payroll confusion

A compliant HRA administration process should:

• Timestamp when expenses were incurred.
• Timestamp when claims were submitted.
• Automatically enforce submission cutoffs.
• Lock prior-year claims after the Runout Period closes.

Without system controls, employers may accidentally approve late claims or apply inconsistent standards across employee classes — which can create nondiscrimination concerns under IRS rules.

Communication Strategy Around a Runout Period

In my experience, compliance isn’t just about documents — it’s about communication rhythm.

Here’s a practical communication framework small businesses can use:

Before the Plan Year Ends

• Send a reminder explaining what expenses qualify.
• Clarify that only expenses incurred before the last day of the plan year are eligible.
• Reinforce the upcoming Runout Period deadline.

During the Runout Period

• Send at least two deadline reminders.
• Provide simple instructions for submission.
• Offer support for employees who are unsure about eligibility.

After the Runout Period Closes

• Notify employees that the submission window has officially ended.
• Confirm rollover amounts, if applicable.
• Remind employees of the new plan year rules.

Consistency builds trust. And trust matters when you’re handling people’s healthcare dollars.

Runout Period Considerations for Growing Startups

Startups move fast. Headcount changes quickly. Processes evolve. That’s exactly why Runout Period clarity becomes even more important.

High Employee Turnover

If you’re hiring aggressively — or experiencing turnover — you need a defined policy for:

• Employees who terminate near year-end.
• Employees who forget to submit claims before leaving.
• Former employees attempting to submit claims after the deadline.

Your plan document governs these scenarios. Deviating from it on a case-by-case basis increases legal exposure.

Multi-State Workforce

With remote work now standard, small businesses often operate across multiple states.

While federal law governs HRA tax treatment, state insurance rules and wage laws may intersect with:

• Payroll deductions.
• Timing of reimbursements.
• Final paycheck requirements.

A well-administered Runout Period ensures you’re not accidentally violating wage timing rules by mishandling reimbursements.

Audits, Documentation, and Risk Mitigation

The Department of Labor and IRS both have authority to examine employer-sponsored benefit plans.

If audited, you may need to produce:

• Plan documents specifying the Runout Period.
• Summary Plan Descriptions provided to employees.
• Claims substantiation records.
• Proof that deadlines were consistently enforced.

That’s why documentation discipline matters. Keep digital records organized and accessible. Retain them for at least seven years unless your advisor recommends longer.

One of the most common audit triggers? Inconsistent treatment between employees.

If one employee’s late claim was approved but another’s was denied, regulators may ask why.

Strategic Plan Design Decisions Around a Runout Period

Employers sometimes ask me, “Should we shorten our Runout Period to limit liability?”

It’s a fair question — but here’s the nuance.

A shorter Runout Period:

• Limits how long claims can trickle in.
• Simplifies financial forecasting.

But it may also:

• Frustrate employees.
• Increase last-minute claim surges.
• Create avoidable employee relations friction.

A longer Runout Period:

• Offers employees breathing room.
• Reduces rushed submissions.
• Requires stronger tracking systems.

There’s no one-size-fits-all answer. The right duration balances administrative efficiency with employee experience.

Why Runout Period Discipline Protects Your HRA Strategy

The Runout Period may seem like a small administrative detail. In reality, it reinforces the structural integrity of your entire HRA plan.

When properly defined and consistently enforced, it:

• Preserves tax-advantaged status.
• Protects against discrimination claims.
• Supports clean accounting practices.
• Builds employee confidence in the benefit.

When handled casually, it can undermine compliance and trust.

Partner with SimplyHRA for Confident HRA Administration

At SimplyHRA, we don’t just set up your HRA and walk away. We help small businesses structure compliant Runout Period rules, automate deadline enforcement, maintain audit-ready documentation, and provide 24/7 employee support so nothing slips through the cracks. Whether you’re launching your first ICHRA or refining an existing plan, our platform keeps your benefits organized, compliant, and employee-friendly. If you’d like guidance tailored to your business, email info@simplyhra.com or schedule a consultation at https://www.simplyhra.com/contact. Let’s make your health benefits simple, structured, and built to last.

Frequently Asked Questions (FAQs) about Runout Period:

Q: Can an employer change the Runout Period mid-year?

A: Generally, no — at least not casually. The Runout Period is part of your official plan design and must be described in your plan documents and Summary Plan Description under ERISA rules. Changing it mid-year typically requires a formal plan amendment and advance employee notice. Retroactively shortening a Runout Period could expose an employer to compliance and fiduciary risk. If a change is necessary, it should be done prospectively and with proper documentation.

Q: Does a Runout Period apply to new hires who join late in the plan year?

A: Yes, but only for expenses incurred during their eligible coverage period. For example, if an employee becomes eligible on October 1 and your plan year ends December 31 with a 90-day Runout Period, they may submit claims during that 90-day window — but only for expenses incurred between October 1 and December 31. The Runout Period doesn’t expand eligibility; it simply extends the submission window.

Q: Are prescription refill dates based on purchase date or prescription date during a Runout Period?

A: Reimbursement eligibility is based on when the expense was incurred, which for prescriptions is typically the date the medication was filled and paid for — not the date the prescription was originally written. If the refill occurred before the plan year ended, it may be submitted during the Runout Period. If it was filled after the plan year ended, it belongs to the new plan year.

Q: Can an employer deny a claim submitted on the last day of the Runout Period?

A: The submission deadline and the eligibility of the expense are two separate standards. A claim submitted on the final day of the Runout Period must still meet all plan requirements, including proper documentation and eligible expense criteria under Internal Revenue Code Section 213(d). If it lacks required substantiation, the employer may request additional documentation — but the original submission date should be recorded to show it met the deadline.

Q: How does a Runout Period work if an employer switches HRA administrators?

A: If you transition to a new administrator, responsibility for prior plan year claims during the Runout Period must be clearly assigned in writing. Employers remain legally responsible for plan compliance even if vendors change. Best practice includes ensuring all prior-year claims data, deadlines, and documentation are securely transferred and that employees are notified about where and how to submit claims during the transition.

Q: Does the Runout Period affect employees on leave, such as FMLA?

A: Employees on protected leave under the Family and Medical Leave Act (FMLA) generally retain access to benefits under the same terms as active employees. If they incur eligible expenses during the plan year, they may submit those expenses during the Runout Period just like other employees. Employers should be careful not to treat employees on protected leave differently when enforcing submission deadlines.

Q: What happens if an employee misses the Runout Period due to a medical emergency?

A: This is one of the more sensitive scenarios. While employers may feel compelled to make exceptions, doing so can create plan inconsistency and discrimination risk. The plan must be administered uniformly. Some employers include limited extension provisions for documented incapacity, but these must be clearly defined in the plan documents in advance. Ad hoc exceptions are strongly discouraged from a compliance standpoint.

Q: Is a Runout Period required by federal law?

A: No. Federal law does not mandate that HRAs include a Runout Period. However, if an employer chooses to include one — which most do as a practical matter — it must be formally documented and consistently applied. Without a Runout Period, claims would need to be submitted before the plan year ends, which can be administratively unrealistic.

Q: Can unused funds still be reimbursed after the Runout Period if the plan allows rollovers?

A: Only if the expense was incurred in the current active plan year. Even when rollover is permitted, the Runout Period governs submission timing for prior-year expenses. Once that deadline closes, prior-year expenses generally cannot be reimbursed, even if unused funds rolled into the new year. The rollover applies to new eligible expenses incurred in the new plan year.

Q: How should employers handle Runout Period reminders for remote or deskless workers?

A: Employers should use multiple communication channels — email, payroll inserts, internal messaging apps, and even mailed notices when necessary. Documentation of outreach efforts is helpful in demonstrating good-faith compliance. The key is ensuring that all eligible employees, regardless of work location or access to technology, have a fair opportunity to submit claims within the Runout Period.

Q: Can a Runout Period cross into a new tax year?

A: Yes, and it often does. For calendar-year plans ending December 31, a 90-day Runout Period typically extends into March of the following year. That’s perfectly permissible. What matters is that the expense was incurred during the correct plan year and the reimbursement follows plan terms. Crossing into a new tax year doesn’t automatically change the tax treatment, but employers should coordinate with their accounting team to properly allocate expenses.

Q: Does the Runout Period apply to dependent expenses as well?

A: If your HRA plan allows reimbursement for eligible dependents under IRS Section 213(d), then yes — the Runout Period applies to those expenses too. The same rules apply: the dependent’s expense must have been incurred during the active plan year, and the claim must be submitted before the Runout Period ends. Employers should clearly define dependent eligibility in their plan documents to avoid confusion.

Q: What happens if payroll processing delays reimbursement during the Runout Period?

A: As long as the claim was submitted within the Runout Period and approved under plan rules, minor payroll timing delays generally do not invalidate reimbursement. However, employers should avoid excessive delays. Reimbursements should be processed within a reasonable and consistent timeframe to maintain plan integrity and employee trust.

Q: Can an employer require additional documentation during the Runout Period?

A: Yes. Employers have a fiduciary responsibility under ERISA to ensure that reimbursements are properly substantiated. Even during the Runout Period, a claim must include adequate documentation such as provider name, date of service, and amount. If documentation is incomplete, the employer may request clarification — but the original submission date should still be recorded to confirm it met the deadline.

Q: If an employee switches from full-time to part-time status, does the Runout Period change?

A: The Runout Period itself typically does not change based on employment status shifts. However, eligibility for future reimbursements may change depending on how the plan defines employee classes. Any expenses incurred while the employee was eligible during the plan year can still be submitted within the Runout Period. Plan terms should clearly address class changes to prevent inconsistent treatment.

Q: Can an employer shorten the Runout Period for one employee class but not another?

A: Potentially, yes — but only if the classification structure complies with IRS rules, particularly for ICHRAs, which allow defined employee classes such as full-time, part-time, salaried, or geographic groupings. The Runout Period must apply uniformly within each class. Disparate treatment within the same class could raise nondiscrimination concerns.

Q: Does a Runout Period apply if the entire HRA plan is terminated?

A: In many cases, yes. When an employer formally terminates an HRA, the plan documents typically specify a final Runout Period during which participants may submit claims for expenses incurred before the termination date. After that window closes, no further reimbursements are allowed unless required by COBRA or other continuation laws. Clear written notice to employees is critical in these situations.

Q: Can claims submitted during the Runout Period be appealed if denied?

A: Yes. HRAs subject to ERISA must include a formal claims and appeals procedure. If a claim submitted during the Runout Period is denied, the employee generally has the right to receive a written explanation and an opportunity to appeal within specified timeframes outlined in the plan documents. Employers should ensure appeal rights are clearly communicated and consistently administered.

Q: Does the Runout Period affect how long records must be retained?

A: Indirectly, yes. Since claims may be submitted after the plan year ends, record retention policies should account for that extended activity. The Department of Labor generally recommends retaining ERISA-related plan documents and supporting records for at least six years from the filing date of related reports, though many advisors recommend longer retention for added protection. Employers should ensure both plan-year and Runout Period records are preserved.

Q: Can an employee authorize someone else to submit claims during the Runout Period?

A: Yes, but proper authorization procedures must be followed. Many plans allow employees to designate an authorized representative, particularly in cases involving illness or incapacity. Employers should require written authorization and maintain it in their records to comply with privacy standards and fiduciary obligations.

Bringing Structure and Simplicity to Your Runout Period

A well-defined Runout Period isn’t just a technical footnote in your HRA documents — it’s a safeguard. It protects your tax advantages, reinforces compliance under IRS and Department of Labor rules, supports clean accounting, and gives employees a fair opportunity to claim what they’ve earned. When deadlines are clear and consistently enforced, you avoid disputes, reduce audit risk, and maintain trust across your team. When they’re vague or manually tracked? That’s when stress creeps in.

At SimplyHRA, we’ve worked with small business owners and HR managers who were juggling spreadsheets, chasing receipts, and second-guessing deadlines. We’ve been in those shoes. That’s exactly why our platform automates Runout Period tracking, enforces submission cutoffs, stores audit-ready documentation, and provides employees with 24/7 support so questions don’t pile up on your desk. Employees get clarity on what’s eligible and when it’s due. Employers get confidence that their HRA is structured properly and administered consistently.

If you want to remove the guesswork from your Runout Period — and from your health benefits program as a whole — let’s talk. Email us at info@simplyhra.com or schedule a call at https://www.simplyhra.com/contact. We’ll help you build a compliant, employee-friendly benefits experience that actually feels manageable.