ICHRA for the self employed – how it works

If you own a business that brings in income, but you have no employees, you’re considered self-employed. There are options for small business health insurance for owners, and they are probably more affordable than you think! Many small business owners are opting for the new reimbursement model, which helps with budget control and is more predictable. Let’s check out the ICHRA option for the self employed.

ICHRA: a health reimbursement arrangement

A health reimbursement arrangement is an affordable, tax-advantaged alternative to traditional insurance where employers reimburse their employees for individual insurance premiums and medical expenses (if applicable) on a pre-tax basis.

The use of new reimbursement models like ICHRA puts the employer’s reimbursements on nearly the same tax playing field as traditional small group plans, but without all the hassles and requirements.

ICHRA features:  

The Individual Coverage Health Reimbursement Arrangement has no maximum contribution limits and no company size limit.
The hallmark feature of ICHRA is that benefits can be scaled across different classes of employees.
An ICHRA can also be integrated with a group plan, which is another distinction.

ICHRA for the self employed

Whether or not self-employed owners can participate in an HRA depends on how the plan and business are set up. In order for a business owner to participate in an HRA, they must be considered an employee of the business.

C- Corps are legal entities separate from the owners. Under a C-corporation the business owner and dependents can utilize an HRA!
S- Corps prevent businesses from being taxed by passing any profits and losses through shareholders personal income tax returns. Because of this set-up an S-Corp owner that owns more than 2% of the company is considered self-employed and not an employee. The bad news? Since S-Corp owners are not employees, they typically cannot participate in an HRA. The good news? Self-Employed individuals can already deduct some health insurance expenses without an HRA.
Partnerships also are not subject to income tax. Partners are directly taxed, making them self-employed and not eligible for participation. The Loophole: if the partner’s spouse is a W-2 employee (and not a partner spouse) then the owner can participate in the HRA as a dependent of the spouse.
Sole-Proprietorships are unincorporated businesses owned and operated by one individual with no distinction between the business and owner. The owner is not an employee and will not qualify for the HRA unless their spouse is a W-2 employee, then the owner can access the HRA as a dependent of the spouse (for QSEHRA only).

If you’re self-employed with no employees and you’re married, this post walks you through the steps you can take to participate in an HRA.

Take Command can help with ICHRA for the self employed!

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 an ICHRA is simple and quick, and our team is here to help if you need it.