The individual coverage health reimbursement arrangement, or ICHRA, gives employers the ability to design a plan that’s tailor-made for their company. That has made it a real game-changer, because so many businesses can take advantage of its benefits. 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.
ICHRA 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.
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. 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
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.
Let’s take a look at how the ICHRA eligibility rules shake out for specific business types.
Partnerships: Partners are directly taxed, making them self-employed and not eligible for participation in an 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.
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.
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.
Wondering which employees are eligible for the ICHRA?
Take Command can help make sense of 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.
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.