Glossary

ICHRA

An employer-funded account that reimburses employees tax-free for individual health insurance premiums they buy themselves, with no federal dollar cap.

Also called: individual coverage HRA, individual coverage health reimbursement arrangement, ICHRA allowance

An individual coverage health reimbursement arrangement lets an employer give each employee a monthly allowance toward premiums for an individual-market plan or Medicare. Employees choose their own plan. Unlike a QSEHRA, an ICHRA has no federal dollar cap and has no limit on employer size, so employers with 50 or more full-time equivalents can use it too.

Employers may vary allowances by permitted class, such as full-time, part-time, salaried, hourly, seasonal or geographic rating area, and may scale allowances by age and family size within a class, but must offer the same terms to everyone in a class (26 CFR 54.9802-4). Those classes must be set before the plan year. If an employer offers a group plan to some classes and an ICHRA to others, minimum class-size rules apply to some class types.

Large employers should know the affordability test. An ICHRA is affordable if the lowest-cost silver self-only premium in the employee's rating area, less the monthly allowance, does not exceed 9.96% of household income for 2026 (Rev. Proc. 2025-25). An unaffordable offer can trigger the employer mandate penalty and the employee's ability to claim a premium tax credit. Employees must also enroll in qualifying coverage. The guide on ICHRA explained: individual coverage HRAs for employers covers setup and notices, and the QSEHRA and ICHRA allowance calculator estimates allowances.

Last reviewed October 10, 2026

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Related terms

Health reimbursement arrangement (HRA) An employer-funded plan that reimburses employees tax-free for medical expenses and, in some versions, individual health insurance premiums. QSEHRA An employer-funded account for businesses under 50 full-time equivalent employees that reimburses workers for premiums and medical costs up to an annual cap. Health savings account (HSA) A tax-advantaged personal account for medical costs that is open only to people enrolled in a qualifying high-deductible health plan. Applicable large employer (ALE) Under the ACA, an employer with an average of 50 or more full-time and full-time-equivalent employees in the prior year, subject to the employer mandate.

Related guides

ACA reporting: Forms 1094-C and 1095-C for large employers Who files Forms 1094-C and 1095-C, 2026 deadlines, the website-notice option under the Paperwork Burden Reduction Act, e-filing and penalty amounts. Building an employee benefits package that fits your budget How to build a benefits package in layers, what private employers actually offer per 2026 BLS data, and a budgeting worked example with 2026 FSA and HSA limits. ICHRA explained: individual coverage HRAs for employers How an ICHRA works: tax treatment, employee classes, allowance rules, the affordability test (9.96% for 2026), ACA mandate treatment, notices and risks. QSEHRA explained: the small employer HRA, 2026 limits and rules How a QSEHRA works for employers under 50 full-time employees: 2026 limits ($6,450 and $13,100), eligibility, notice, W-2 reporting and tax credit effects. The SHOP Marketplace for small employers: how it works in 2026 What SHOP coverage is, who qualifies, why employers now enroll through brokers or insurers instead of HealthCare.gov, and how it ties to the 45R tax credit.

Related tools

QSEHRA and ICHRA allowance calculator Prices a QSEHRA against the 2026 IRS maximums and an ICHRA by employee class, then sets both beside the cost of a group health plan.