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small business owner participate in an HRA
Small Business

Can a small business owner participate in an HRA?

Wondering if small business owners can participate in an HRA? With health reimbursement arrangements (HRAs), you can offer your employees flexible, customizable, tax-free reimbursements for health insurance. In many cases, owners can participate as well. Notice we said “in many cases.” Can a small business owner participate in an HRA? It depends! Your eligibility depends on how the plan and business are set up. Let’s walk through HRAs for business owners and HRAs for small business owners specifically.


Recent changes in regulatory rules have transformed HRAs into a comprehensive benefits solution. Employers adopting the reimbursement model are discovering the many benefits of HRAs, including freedom from the stress of huge renewals, participation rate requirements, and the unpredictability of managing employees' health costs. With HRAs, business owners can provide a valuable benefit and focus on what they do best – running their businesses.

There are several types of HRAs, but there are currently only two types that allow for employers to reimburse tax-free for qualified individual insurance premiums.

HRA for small business owners

ICHRA : the individual coverage HRA is based on reimbursing employees for insurance rather than buying it for them, and brings with it a design feature that allows owners to scale benefits by class.

  • It offers the most flexibility, with 11 ICHRA employee classes, the employer gets to choose, for example, how much to reimburse full time vs. part time employees, seasonal employees, and salaried vs. non-salaried employees.
  • ICHRA works for companies of any size: from a start-up to a large company.
  • There are no reimbursement limits.
  • It can also be combined with a group plan.

QSEHRA : the qualified small employer HRA (sometimes called a small business HRA) allows small employers to set aside a fixed amount of money each month that employees can use to purchase individual health insurance or use on medical expenses, tax-free.

  • It works for businesses with fewer than 50 employees.
  • There are QSEHRA contribution limits (for 2021: For an individual: $5,300/year or $10,700 for a family.)
  • It cannot be combined with a group plan.
  • Unlike ICHRA, QSEHRA reimbursements must be the same for everyone, but you can vary by age and family size.

When can a small business owner participate in an HRA?

As a business owner, your ability to participate in an HRA for business owners depends on how your company is set up. Here's how each type of company interacts with HRA eligibility for owners.

Partnerships: Partners are directly taxed, making them self-employed and not eligible for participation in either ICHRA or QSEHRA. The QSEHRA Loophole: if the partner’s spouse is a W-2 employee (and not a partner spouse) then the owner can participate in the QSEHRA as a dependent of the spouse.

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 QSEHRA or 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 the HRA. 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 HRA.

In order for a business owner to participate in an HRA, they must be considered an employee of the business.

More questions about HRAs for business owners? 

While we always advise our clients to speak with their CPA before jumping in, we are ready to chat on our website if you have any specific questions about your business and how HRAs could help. Setting up a QSEHRA or an ICHRA is simple and quick, and our team is here to help if you need it. We’ve also created a Small Business health insurance guide to walk you through all of your options in more detail.

This post was originally written in 2020 and has been updated in 2023 with all the latest ICHRA updates!

Small Business