What Is an ICHRA? What Your Employer's Offer Means for Your Coverage and Taxes
An ICHRA, or individual coverage health reimbursement arrangement, is an employer benefit that reimburses the premiums for individual health insurance you buy yourself. This guide explains how an ICHRA works for an employee, how the allowance reduces your cost, how accepting or declining it affects the premium tax credit, and what to ask your employer. It includes a worked example using the 9.96% 2026 and 10.22% 2027 affordability percentages.
- An ICHRA has no fixed dollar cap on the allowance, so the employer sets the amount (Federal Register, 2019).
- An ICHRA is affordable when your cost for the lowest-cost silver plan after the allowance is at or below 9.96% of income in 2026 and 10.22% in 2027 (IRS Revenue Procedures 2025-25 and 2026-26).
- A $300 ICHRA reimbursement is worth $300 tax-free, versus $241.05 if paid as wages at a 12% bracket plus 7.65% payroll tax (IRS Revenue Procedure 2025-32; Social Security Administration, 2026).
- An ICHRA offer opens a Special Enrollment Period of 60 days before or after the offer (HealthCare.gov, 2026).
- Employers must send eligible employees a 90-day notice about how the offer affects their tax credit (Federal Register, 2019).
An ICHRA is money from your employer to help you pay for an individual health plan you pick yourself. It replaces the group plan some companies offer, and it changes how you shop, how you are taxed and whether you can get a marketplace subsidy. This page explains what an ICHRA means in plain English and what to do when your employer offers one.
Reviewed by a licensed benefits professional. Last reviewed: October 6, 2026.
What is an ICHRA?
An ICHRA is an employer-funded arrangement that reimburses your premiums and other medical costs while you hold individual health coverage or Medicare. HealthCare.gov (2026) says reimbursements are tax-free for qualified medical expenses, up to the annual limit your employer sets.
The letters stand for individual coverage health reimbursement arrangement. The federal rules that created it appeared in a 2019 final rule titled "Health Reimbursement Arrangements and Other Account-Based Group Health Plans" (Federal Register, 2019). You may also see it called an individual coverage HRA. Benecor Health's ICHRA requirements guide covers what employers must do to offer one.
How does an ICHRA work for an employee?
An ICHRA works in four steps: your employer sets an allowance, you choose an individual plan, you pay the premium, and the employer reimburses you. The employer, not the insurance company, pays the ICHRA money.
- You get a notice. Employers must give eligible employees a 90-day notice about how the offer affects the premium tax credit (Federal Register, 2019).
- You pick a plan. You shop for an individual plan on the marketplace or directly from an insurer. Your plan must be individual coverage, not a group plan.
- You pay the premium. You send proof of coverage and proof of payment to the employer or its administrator.
- You are reimbursed. The employer pays you back up to your monthly allowance.
The ICHRA has no maximum fixed dollar amount, so employers set it themselves and may offer different allowances to different classes of employees (Federal Register, 2019). The final rule allows 11 employee classes, such as full-time, part-time and seasonal.
How much will I pay out of pocket with an ICHRA?
Your monthly cost is the premium of the plan you pick minus your allowance. A higher allowance or a cheaper plan lowers what you pay.
Here is a worked example. The premiums are hypothetical so you can see the math. Your area will differ. You earn $48,000 a year, your employer offers a $300 monthly allowance, and the lowest-cost silver plan for one person in your area costs $520 a month.
| Plan you pick | Monthly premium | Allowance | You pay each month | You pay each year |
|---|---|---|---|---|
| Lowest-cost silver | $520 | $300 | $220 | $2,640 |
| A bronze plan | $380 | $300 | $80 | $960 |
The allowance is reimbursed tax-free, which beats a raise of the same size. If your employer paid you the $300 as wages instead, a 12% federal income tax bracket and 7.65% Social Security and Medicare tax would take about 19.65%, leaving $241.05 (IRS Revenue Procedure 2025-32, 2025; Social Security Administration, 2026). The $300 reimbursement stays $300. State income tax is not included in this example.
The cheaper plan is not always better. A bronze plan usually means a higher deductible, so look at the deductible and your doctors before you decide. Benecor Health's ICHRA pros and cons guide lists the trade-offs.
Is my ICHRA affordable?
An ICHRA is affordable when your cost for the lowest-cost silver plan after the allowance is at or below the required percentage of your income. That percentage is 9.96% for 2026 and 10.22% for 2027 (IRS Revenue Procedures 2025-25 and 2026-26).
The rule is in 26 CFR 1.36B-2(c)(5)(ii). The test takes the lowest-cost silver self-only premium in your rating area, subtracts the monthly allowance, and compares the result with one-twelfth of your household income times the required percentage.
| Item | Offer A | Offer B |
|---|---|---|
| Lowest-cost silver self-only premium | $520.00 | $520.00 |
| Monthly ICHRA allowance | $300.00 | $100.00 |
| Your cost after the allowance | $220.00 | $420.00 |
| Highest affordable cost ($48,000 x 9.96% / 12) | $398.40 | $398.40 |
| Result | Affordable | Not affordable |
Employers often test with Form W-2 wages, but the marketplace uses your actual household income to decide your tax credit (IRS, 2026). Summit Health Benefits explains how employers run the same math in its guide to ICHRA affordability.
How does an ICHRA affect my premium tax credit?
If your ICHRA is affordable, you cannot get a premium tax credit while you accept it. If it is not affordable and you opt out and waive the reimbursements, you may qualify for the credit (26 CFR 1.36B-2; HealthCare.gov, 2026).
This is the most important choice in the offer. Accepting gives you tax-free reimbursement but ends your subsidy. Declining an unaffordable ICHRA keeps the door open to a subsidy, but you give up the allowance. You can permanently opt out and waive future reimbursements at least once a year (Federal Register, 2019).
| Your situation | What the rules say |
|---|---|
| ICHRA is affordable | You are treated as having an offer of employer coverage and cannot get a premium tax credit |
| ICHRA is not affordable and you opt out and waive it | You may qualify for the premium tax credit |
| You accept an unaffordable ICHRA | You take the reimbursement and are not eligible for the credit for those months |
An Exchange can also decide that an ICHRA is not affordable for you (26 CFR 1.36B-2(c)(5)(iv)). Ask the marketplace before you decide.
When can I buy a plan with my ICHRA?
You may qualify for a Special Enrollment Period if you were offered an ICHRA in the past 60 days or expect an offer in the next 60 days (HealthCare.gov, 2026). That means you may not have to wait for open enrollment.
Act early, because the notice arrives at least 90 days before the plan year starts (Federal Register, 2019). Use that time to check which plans your doctors accept and what each costs after the allowance. Read Benecor Health's ICHRA guide for employers if you want to see how the offer looks from HR's side.
What should I ask my employer about my ICHRA?
Ask HR for your allowance, the plan types that qualify, how reimbursement works and how affordability was tested. A written answer gives you a record.
If you are unsure which plan to buy, request a free plan review with a Benecor benefits expert. For the full overview, see Benecor Health's ICHRA explainer.
Sources: HealthCare.gov, Individual coverage HRA glossary entry (2026); HealthCare.gov, Special Enrollment Period page (2026); Federal Register, Health Reimbursement Arrangements and Other Account-Based Group Health Plans, June 20, 2019 (2019); 26 CFR 1.36B-2, Eligibility for minimum essential coverage (2026); IRS Revenue Procedure 2025-25, 2026 required contribution percentage (2025); IRS Revenue Procedure 2026-26, 2027 required contribution percentage (2026); IRS Revenue Procedure 2025-32, 2026 inflation adjustments (2025); IRS, Minimum Value and Affordability (2026); Social Security Administration, 2026 Social Security and Medicare tax rates (2026).
Frequently asked questions
- What is an ICHRA?
- An ICHRA is an individual coverage health reimbursement arrangement. Your employer sets an allowance, you buy your own individual health plan, and the employer reimburses your premium up to that allowance tax-free (HealthCare.gov, 2026).
- What is an ICHRA plan?
- An ICHRA plan is the employer arrangement that pays the allowance, not a health insurance policy. You still buy an individual policy yourself, and the ICHRA reimburses part or all of the premium.
- What is ICHRA health insurance?
- ICHRA health insurance means the individual health plan you buy with help from an ICHRA. The insurance company covers your care, and your employer covers some or all of your premium through the allowance.
- How does an ICHRA work?
- Your employer gives you a notice and a monthly allowance. You choose an individual plan, pay the premium, submit proof and receive reimbursement. Employers must send the notice 90 days before the plan year (Federal Register, 2019).
- What are the benefits of an ICHRA for employees?
- ICHRA benefits for employees include tax-free reimbursement, a choice of plan and doctors, and a plan that stays with you if you change jobs. The trade-off is that an affordable ICHRA makes you ineligible for a premium tax credit (26 CFR 1.36B-2).
- Is an ICHRA good for employees?
- An ICHRA is good for an employee when the allowance covers a meaningful share of a plan that fits their doctors and budget. Compare your cost after the allowance with what the marketplace subsidy would give you before you accept.
Continue reading
- How Does ICHRA Work? A Plain-English Guide for Employers — Health Insurance
ICHRA lets employers set a fixed monthly tax-free allowance for individual health coverage. No carrier renewal, no participation requirements. The 3-step mechanics, cost comparison vs. group plans, and ICHRA vs. QSEHRA table.
- ICHRA Pros and Cons — Health Insurance
ICHRA pros: fixed budget, no participation minimum, tax-free allowance. Cons: subsidy loss, admin work, plan gaps. See both sides and who it fits best.
- ICHRA Requirements — Health Insurance
ICHRA requirements for employers: eligible classes, same-terms rule, 90-day notice, class size minimums, proof of coverage and affordability at 50 employees.
About the author
Muhammad Mudassir — Co-founder & Health Tech Sales Lead
Muhammad Mudassir, who goes by Moe, is a co-founder and health technology operator focused on Section 125 cafeteria plans and zero-cost employer benefits. He has spent years getting employers enrolled in compliant cafeteria plans, onboarding nationwide workforces into the WoW Health and UnifyWell ecosystems, and translating the mechanics of FICA recapture into language that HR, finance, and ownership can act on.