ICHRA eligibility rules are important first step when considering an individual coverage health reimbursement arrangement, or ICHRA. Who is eligible for ICHRA? Can owners participate in ICHRA? Is ICHRA a good option for healthcare for business owners? Let’s clear up any confusion you might have about ICHRA eligibility rules and ICHRA owner eligibility.
First, a refresher on ICHRA:
An ICHRA plan is a new type of HRA that expands upon the capabilities and benefits of its predecessor, the Qualified Small Employer HRA. This tax-advantaged tool gives employers the ability to design a plan that’s tailor-made for their company. If you have employees, an ICHRA can be a great benefits solution and an affordable alternative to traditional group insurance.
Now, instead of being capped at 50 employees, employers of any size can set up an HRA for their employees.
The ICHRA health insurance model also allows business owners to customize their reimbursements across different classes of employees. While everyone must be treated fairly within a certain class, reimbursement rates can vary between full time, part time, seasonal, remote, etc. This allows for a higher degree of efficiency when it comes to spending your benefits budget.
This new model of health benefits has taken off since it was introduced in 2020.
In fact, according the the HRA Council's recent report, ICHRAs have tripled in growth since their inception.
Helpful resource: Full list of ICHRA classes.
How ICHRA works:
- First, the business owner sets the monthly reimbursement amount and the employees purchase an individual health plan that works best for them.
- After an employee submits receipts, the business owner simply reimburses them for healthcare costs. The funds aren't subject to payroll tax from an employer standpoint and aren't considered income for the employee and taxed accordingly.
- Plus, the employer can skip the hassle of choosing and administering a group plan that would bring with it premium hikes and participation rate requirements.
ICHRA eligibility rules
If you're wondering about owner eligibility for ICHRA, here's a helpful list to determine if you can participate in tax-free health insurance reimbursement. Employees are eligible if they are enrolled in a qualified health plan.
But what about employers?
When it comes to ICHRA eligibility, here's a good rule to follow: in order for a business owner to be eligible to participate in an ICHRA, they must be considered an employee of the business.
Wondering if owners can deduct medical expenses with an ICHRA? Let’s take a look at how the ICHRA eligibility rules shake out for specific business types.
Can owners participate in ICHRA?
Here's a helpful guide to see if a business owner can participate in ICHRA.
Partnerships: Partners are directly taxed, making them self-employed and not eligible for participation in an ICHRA.
→ Read about Partnerships and ICHRA
Corporations: (Including C-Corps, B-Corps, Non-Profits, and LLCs taxed as C-Corps - anything where the entity is separate from ownership.) Corporations are the easiest entity type to handle when it comes to health insurance because owners are considered employees and can benefit from the company’s ICHRA. Their dependents and any W2 employees can benefit as well.
→ Read about Corporations and ICHRA
S-Corps: An S-Corp owner that owns more than 2% of the company is considered self-employed and not an employee, therefore typically cannot participate in ICHRA. However, self-employed individuals can already deduct some health insurance expenses without an HRA.
→ Read about S-Corps and ICHRA
Sole proprietors: These unincorporated businesses are owned and operated by one individual with no distinction between the business and owner. In a nutshell: The sole proprietor is not an employee and will not qualify for an ICHRA.
→ Read about Sole Proprietors and ICHRA
Wondering which employees are eligible for the ICHRA?
More questions about ICHRA eligibility rules?
As you can see, the way a business is set up affects if the business owner and their dependents will qualify to participate in the HRA. Take Command has a team of ICHRA administration experts ready to answer your questions regarding your HRA and health insurance options. Our Small Business Platform and ICHRA administration tool are designed to make tax time a breeze.
You can also find plenty of information in our ICHRA FAQ post or our comprehensive ICHRA Guide!
Additional resources →
- Learn about ICHRA Rules
- Learn about ICHRA Classes
- Learn about ICHRA Requirements
- Learn about ICHRA Regulations
- Learn about ICHRA Plan FAQs
- Learn about our ICHRA administration platform
This post was originally published in 2021 and has been updated in 2023 to reflect the most recent ICHRA changes.
