ICHRA Requirements: The 8 Rules Every Employer Must Meet in 2026

• An ICHRA must be offered on the same terms to all employees in a class, with limited exceptions for age and family size (26 CFR 54.9802-4).
• The notice is due at least 90 calendar days before the plan year starts (26 CFR 54.9802-4).
• Minimum class sizes of 10, 10% or 20 apply only when an employer offers a group plan to some classes and an ICHRA to others (26 CFR 54.9802-4).
• The 2026 affordability line is 9.96% of household income, and it applies only to employers with 50 or more full-time equivalent employees (Mercer, 2026; IRS, 2026).
• An employer cannot let employees in one class choose between the group plan and the ICHRA (final rule, 2019).

Most employers who search for ICHRA requirements already like the idea of a fixed health budget. What they want to know is what can go wrong. This guide lists the rules in plain English, shows which ones depend on your size, and ends with a checklist you can run before you sign with an administrator.

What is an ICHRA, and what are the requirements?

An ICHRA (individual coverage health reimbursement arrangement) is an employer-funded account that reimburses employees for individual health insurance premiums. The requirements come from a 2019 final rule by the IRS, Department of Labor and HHS, effective August 19, 2019, for plan years starting January 1, 2020 or later (Federal Register, 2019).

Every ICHRA must meet the same core conditions. The employer sets up a written plan, offers it to defined classes of employees, sends a timely notice, checks that employees hold individual coverage, and lets employees opt out. Larger employers have extra ACA duties on top.

Our guide to how an ICHRA works→ covers the basics. This page focuses on the rules.

Which employee classes can an employer use?

An employer can group employees into classes only by the categories the rule allows, and it cannot invent its own. The allowed classes are:

• Full-time employees
• Part-time employees
• Salaried employees
• Non-salaried (hourly) employees
• Seasonal employees
• Employees covered by a collective bargaining agreement
• Employees who have not finished a waiting period
• Non-resident aliens
• Employees of a temporary staffing firm
• Employees in the same geographic rating area

Employers can combine classes, such as full-time employees in one rating area (26 CFR 54.9802-4, via Cornell Legal Information Institute). The class rule exists to stop an employer from steering sicker employees to the ICHRA and healthier ones to a group plan.

What is the same-terms rule?

The same-terms rule says an ICHRA must be offered on the same terms to every employee in a class. The allowance must match for each person in that class (26 CFR 54.9802-4).

The rule allows a few exceptions. An employer can raise the allowance by age, but the oldest employee's allowance cannot be more than three times the youngest's. An employer can also adjust for the number of dependents, and it can prorate for mid-year hires (26 CFR 54.9802-4, via Cornell).

When do minimum class sizes apply?

Minimum class sizes apply only when an employer offers a traditional group plan to some classes and an ICHRA to others. If everyone gets the ICHRA, the minimums do not apply.

The minimums are 10 employees for employers with fewer than 100 employees, 10% of the workforce (rounded down) for employers with 100 to 200 employees, and 20 for employers with more than 200 employees. Classes based on a whole state are exempt (26 CFR 54.9802-4, via Cornell).

A 30-person company that keeps a group plan for full-time staff and offers an ICHRA to part-time staff needs at least 10 part-time employees in that class. With fewer than 10, the split fails the rule.

What does the 90-day notice have to say?

Employers must give each eligible employee a written notice at least 90 calendar days before the plan year begins (26 CFR 54.9802-4). For a January 1 plan, that means getting the notice out by early October.

According to PeopleKeep's summary of the rule, the notice must cover:

1. The terms of the ICHRA.
2. The employee's right to opt out and waive future reimbursement.
3. How the ICHRA affects eligibility for marketplace premium tax credits.
4. A reminder to tell the exchange if the employee is offered an ICHRA.
5. The special enrollment period that an ICHRA offer can trigger.
6. How to get help with affordability, and a contact for questions.

Most administrators send a template notice. The employer is still responsible for timing, so confirm the send date in writing.

How must employees prove they have coverage?

An employee must be enrolled in individual health insurance coverage to get reimbursed, and the employer must check this before paying (Federal Register, 2019). The coverage cannot be a plan that consists only of excepted benefits, such as a stand-alone dental or vision plan.

PeopleKeep lists two accepted proofs. The first is an insurance card, an explanation of benefits or another document showing coverage. The second is a written or electronic attestation that names the coverage start date and the insurer (PeopleKeep, ICHRA rules, 2026).

Employers should also collect proof again each year, since coverage can end or change.

Can employees opt out of an ICHRA?

Yes. The ICHRA must let each employee opt out and waive future reimbursements, at least once each plan year before the plan year begins (26 CFR 54.9802-4, via Cornell; Federal Register, 2019).

The opt-out matters for subsidies. An employee who is offered an affordable ICHRA generally cannot take marketplace premium tax credits, so some employees opt out to keep their eligibility. If an employee opts out, the employer does not pay that employee's allowance.

Do employers with 50 or more employees have extra requirements?

Yes. An applicable large employer (ALE) has an average of at least 50 full-time employees, counting anyone who works 30 or more hours a week or 130 or more hours a month (IRS, Employer Shared Responsibility Provisions). An ALE must make the ICHRA affordable and meet coverage-offer rules, or face a penalty.

For 2026, the affordability line is 9.96% of household income, up from 9.02% in 2025 (Mercer, 2026). The 2026 penalties are $3,340 per full-time employee under Section 4980H(a) and $5,010 under Section 4980H(b) (IRS Revenue Procedure 2025-26, via Thomson Reuters).

ICHRA affordability uses the cost of the lowest-cost silver plan in the employee's rating area. The test is the lowest silver premium minus the allowance, compared with 9.96% of income (PeopleKeep, 2026). A federal poverty line safe harbor also exists for 2026, set at $129.90 a month on the mainland (Mercer, 2026).

Source: PeopleKeep, Determining ICHRA Affordability in 2026. Hypothetical example.

Employers under 50 full-time equivalent employees do not face the employer mandate penalty. They still follow the class, notice and proof rules.

What can go wrong if an employer misses a requirement?

Missing a rule can make the arrangement non-compliant, and a non-compliant ICHRA may lose its tax-free treatment, so ask a tax advisor before you act. The employer mandate penalties above also apply to ALEs that fail affordability and cause an employee to take a premium tax credit.

The most common slips are simple ones. The notice goes out late. The employer splits classes in a way the rule does not allow. Or the employer pays reimbursements without proof of coverage.

What is the ICHRA compliance checklist?

Run this list before you pick an administrator.

1. Decide which classes get the ICHRA, using only the allowed categories.
2. Confirm every employee in a class gets the same terms, except for age and dependent adjustments.
3. If you keep a group plan for another class, check the class minimums of 10, 10% or 20.
4. Write the plan document and set the allowance by class.
5. Send the notice at least 90 days before the plan year.
6. Collect proof of individual coverage, either a document or an attestation.
7. Offer each employee the right to opt out.
8. If you have 50 or more full-time equivalent employees, run the 9.96% affordability test for your lowest-paid class.

Costs matter too. Published administration rates start near $25 per enrolled employee per month, as we show in our ICHRA administration cost guide→. For the trade-offs, read our ICHRA pros and cons→ guide.

Can an ICHRA work with a Section 125 plan?

Yes, in some cases. If an employee buys an individual plan that costs more than the ICHRA allowance, a Section 125 premium only plan can let the employee pay the gap before tax. Marketplace plan premiums cannot be paid this way. Our guide to ICHRA and Section 125 together→ explains the rule.

If you want a second set of eyes on your setup, request an ICHRA compliance check→ with a Benecor benefits expert. Results depend on your plan terms and IRS rules. Not legal or tax advice.

Sources: Federal Register, Health Reimbursement Arrangements and Other Account-Based Group Health Plans, final rule (June 20, 2019); 26 CFR 54.9802-4, Cornell Legal Information Institute; PeopleKeep, ICHRA rules you need to know (2026); PeopleKeep, Determining ICHRA Affordability in 2026; Mercer, 2026 affordability percentage for employer health coverage increases; IRS Revenue Procedure 2025-26 via Thomson Reuters, 2026 employer shared responsibility penalties; IRS, Employer Shared Responsibility Provisions.