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ichra eligibility rules

ICHRA eligibility rules: what employers need to know

ICHRA eligibility rules are important first step when considering an individual coverage health reimbursement arrangement, or ICHRA. 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. Perhaps you’re wondering if you, as a small business owner, qualify for ICHRA as well. Let’s clear up any confusion you might have about ICHRA eligibility rules.

First, a refresher on ICHRA:

ICHRA is a new type of HRA that expands upon the capabilities and benefits of its predecessor, the Qualified Small Employer HRA.

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.

Ready to learn how much you can reduce benefits cost?

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. 

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.

Wondering how our platform might work for you? Ask us. 

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 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 →

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