Health reimbursement arrangements are one of the most flexible ways to fund employee health coverage, and the rules that govern them are what make that flexibility work. An ICHRA or a QSEHRA lets you reimburse employees tax-free for individual insurance premiums and qualified medical expenses, and a clear set of guidelines keeps those reimbursements tax-advantaged for everyone involved. The encouraging part is that most of the work happens up front. Set the plan up correctly, send the right notices, and keep good records, and ongoing administration becomes routine.
This guide walks through the compliance rules that matter most heading into 2026, organized so you can find what applies to your situation quickly. Every figure has been refreshed for the new plan year, and we have added the latest legislative developments worth keeping an eye on.
Why HRA compliance deserves your attention
It helps to think of these rules as the structure that protects the benefit rather than a hurdle standing in front of it. Following them keeps reimbursements tax-free for your employees, keeps your contributions deductible, and gives everyone confidence that the plan is built on solid ground. Because most compliance obligations are predictable and concentrated at setup, employers who plan well at the start rarely think about compliance again during the year. The goal of this guide is to make that planning straightforward.
Rules that apply to every HRA
A few obligations follow any HRA regardless of which type you choose. Understanding these first makes the plan-specific rules easier to understand.
HIPAA privacy. Every health plan that reimburses medical expenses, including a ICHRA or QSEHRA, follows the HIPAA Privacy Rule, no matter the size of the company. Protected health information such as a doctor's bill, a lab result, or an individual premium amount is handled with care. Most employers route the verification of expenses through a third party, which keeps that information out of the office and simplifies the process for everyone.
Plan documents. An HRA is a formal benefit, so it comes with written plan documents that spell out eligibility, reimbursement amounts, covered expenses, and how the plan is administered. These documents establish the plan's legal footing and make the benefit easy to explain to employees and advisors alike.
Substantiation. To keep reimbursements tax-free, you verify that employees hold the required coverage and are using funds on qualified expenses. Done well, this is a quick, behind-the-scenes step rather than a paperwork project.
Recordkeeping. The IRS generally expects small businesses to retain records for up to seven years. Organized digital records make this effortless and keep everything secure and easy to find if you ever need it.
ICHRA compliance in 2026
The individual coverage HRA is available to employers of any size and offers even more design flexibility than a QSEHRA. A little planning at the outset lets you take full advantage of it. Here's what to know about ICHRA compliance:
Employee classes. ICHRA lets you divide your workforce into permitted classes and offer different reimbursement amounts to each. Classes are defined by objective, job-based criteria such as full-time, part-time, seasonal, salaried, non-salaried, and employees in different geographic rating areas. Building your plan around these recognized categories gives you room to tailor benefits to different parts of your team while keeping everything above board. Minimum class-size rules apply when you pair a class-based ICHRA with a traditional group plan.
The one-offer rule. You can offer an ICHRA to one class and a group health plan to another, and each individual receives one or the other. This keeps the structure clean and the choice clear.
Affordability for applicable large employers. If you have 50 or more full-time equivalent employees, your ICHRA offer should meet the affordability standard under the employer mandate. Affordability is measured against the lowest-cost silver plan available to the employee, minus your ICHRA contribution, compared to a set percentage of income. For plan years beginning in 2026, that threshold is 9.96 percent, up from 9.02 percent in 2025.³ The higher percentage gives employers a little more flexibility in how they structure contributions. The IRS also offers safe harbor methods, including W-2 wages and the federal poverty line, so you can demonstrate affordability without needing to know each employee's household income.⁴
Notice requirements. ICHRA includes a written notice, generally provided at least 90 days before the plan year begins, that explains the benefit and how it works alongside the employee's premium tax credit eligibility.
Substantiation and privacy. As with any HRA, you confirm that employees hold qualifying individual coverage and use funds on eligible expenses. Routing this verification through an administrator keeps protected health information secure and makes the process smooth for employees.
→ Compare ICHRA vs QSEHRA to see what's best for you.
QSEHRA compliance in 2026
The qualified small employer HRA is designed for businesses with fewer than 50 full-time equivalent employees that do not offer a group health plan. Here's what to know about QSEHRA compliance:
2026 contribution limits. The IRS sets the maximum you can reimburse tax-free and adjusts it annually for inflation. For 2026, employers can reimburse up to $6,450 per year for self-only coverage and up to $13,100 for family coverage through a QSEHRA. That comes to $537.50 per month for self-only and $1,091.66 per month for family coverage. The IRS published these limits in Revenue Procedure 2025-32 on October 9, 2025.¹ You are free to set any allowance up to these caps, and if an employee becomes eligible partway through the year, you simply prorate the limit for the months they participate.
The 90-day written notice. You provide each eligible employee with written notice at least 90 days before the start of each plan year. For someone who becomes eligible after the year begins, the notice is due on their first day of eligibility. The notice states the benefit amount and explains how the QSEHRA interacts with the employee's premium tax credit eligibility and tax filing, which helps them make good decisions about their coverage.
A note on timing. A common question is whether the 90-day rule means you have to wait 90 days to launch. It does not. The rule governs when notice goes out, not when reimbursements can begin. For reference, Internal Revenue Code Section 6652(o) sets a penalty of $50 per employee, capped at $2,500 per calendar year,
W-2 reporting. You report the benefit amount the employee was eligible for in Box 12 of the W-2 using code FF. This is a standard payroll step that keeps the plan in good standing.
The same-terms rule. A QSEHRA is offered on the same terms to all eligible employees, with allowances allowed to vary by age or family size. This keeps the benefit fair and equitable across your team, which is one of its defining strengths.
On the horizon: the CHOICE Arrangement
ICHRA currently exists through federal regulation, and Congress has shown steady interest in giving it a permanent home in statute. The One Big Beautiful Bill Act, signed in July 2025, originally included provisions to codify ICHRA as the CHOICE Arrangement, short for Custom Health Option and Individual Care Expense, though the Senate removed those provisions before the bill became law. The House revived the effort with H.R. 6703, the Lower Health Care Premiums for All Americans Act, which passed on December 17, 2025 by a vote of 216 to 211 and would move ICHRA into federal statute under the CHOICE name.⁵ The Senate received the bill the following day, and while it remains under consideration, existing ICHRA plans continue operating exactly as designed.
For employers, this is good news on the horizon. Codification would strengthen the long-term footing of individual-coverage reimbursement, and the repeated legislative interest reflects durable confidence in the model. There is nothing to act on today, but it is a development worth following.
Where an administrator fits in
Compliance is very manageable, and a qualified administrator makes it seamless. Plan documents, notice deadlines, affordability testing, secure verification of expenses, recordkeeping, and the occasional regulatory update all get handled in the background, so you can offer a great benefit without tracking every detail yourself.
The Take Command platform takes care of compliance automatically, with built-in updates that keep your plan aligned with the latest IRS figures and rules. Whether you are setting up a new HRA or confirming that your current plan is ready for 2026, talk to a Take Command expert.
Disclaimer: We always recommend that business owners consult a CPA or attorney to confirm that all relevant laws are followed. Some rules apply to every employer, but state-specific regulations and circumstances unique to your business may also come into play. Do your homework.
References
-
Internal Revenue Service, Revenue Procedure 2025-32 (released October 9, 2025), 2026 QSEHRA inflation-adjusted limits.
-
Internal Revenue Code Section 6652(o); IRS Notice 2017-67, written notice requirement for QSEHRA.
-
Internal Revenue Service, Revenue Procedure 2025-25, 2026 ACA affordability percentage.
-
Internal Revenue Service, "Affordable Care Act Tax Provisions for Employers," irs.gov, ICHRA affordability safe harbors.
-
H.R. 6703, Lower Health Care Premiums for All Americans Act, U.S. House of Representatives (passed December 17, 2025).
Let's talk through your HRA questions
A wife to one and mother to four, Keely does all of the things. She’s also dabbled in personal finance blogging and social media management, contributed to MetroFamily magazine, and is passionate about good food, treasure hunting and upcycling. With a B.S. in Psychology from the University of Oklahoma and a knack for a witty punchline, it’s no surprise that Keely’s social posts are as clever as they get. In her (very little) free time, you’ll find Keely with her nose in a book or trying out a local restaurant with her family.
