An ICHRA is an individual coverage health reimbursement arrangement. A Florida employer of any size uses it to reimburse employees tax-free for individual health insurance premiums and qualifying medical expenses instead of buying a group plan. The employer sets the dollar amount, may vary it by permitted employee class, and employees buy their own coverage. Reimbursements are excluded from income only when the employee is actually enrolled in qualifying individual coverage and substantiates it.
For 2027 planning, this matters more than it did a few years ago. The temporary rule that let households above 400% of the federal poverty level qualify for premium tax credits has lapsed, so the statutory cap is back in force. The IRS states that household income must be “at least 100 percent and, for years other than 2021 and 2022, no more than 400 percent of the federal poverty line” to qualify (IRS, Eligibility for the Premium Tax Credit). Florida employers whose staff sat just above that line lost subsidy help. An employer contribution through an ICHRA is one of the few ways to put money back into that gap.
How does an ICHRA actually work for a Florida small business?
The mechanics are straightforward. The employer adopts a written plan, names which classes of employees are eligible, and sets a monthly reimbursement allowance. Employees go buy individual health coverage on their own, on or off the Marketplace. They submit proof of enrollment and their premium, and the employer reimburses up to the allowance.
Three structural points define the arrangement under 26 CFR 54.9802-4, the Treasury rule finalized in 2019:
- Enrollment in individual coverage is mandatory. An employee who is not enrolled in qualifying individual health insurance cannot be reimbursed. The employer must have a reasonable substantiation procedure.
- No same-class duplication. An employer cannot offer the same class of employees both a traditional group health plan and an ICHRA. It picks one per class.
- There is no cap on the employer contribution. Unlike a QSEHRA, an ICHRA has no statutory dollar ceiling. The employer decides what it can afford.
Employees who are newly offered an ICHRA get a special enrollment opportunity to buy individual coverage. CMS guidance describes that window as generally running within 60 days before the date the ICHRA starts, with employers permitted in some mid-year situations to allow enrollment up to 60 days after the ICHRA start date (CMS, How an Individual Coverage HRA Offer Works, 2020).
What are the ICHRA employee class rules?
An employer may treat different groups of employees differently, but only along lines the regulation permits. Under 26 CFR 54.9802-4, the permitted classes are full-time employees, part-time employees, salaried employees, non-salaried employees, employees whose primary site of employment is in the same rating area, seasonal employees, employees covered by a collective bargaining agreement, employees in a waiting period, non-resident aliens with no U.S.-source income, temporary employees placed at other entities by a staffing firm, and combinations of two or more of those classes.
You cannot invent a class. A group defined by tenure or by which office someone sits in is not a permitted class unless it maps onto the categories above.
Minimum class size
A minimum class size requirement kicks in only when an employer offers a traditional group health plan to at least one class and an ICHRA to a different class. The thresholds in the 2019 regulation are:
- Employers with fewer than 100 employees: at least 10 employees in the class
- Employers with 100 to 200 employees: at least 10% of total employees
- Employers with more than 200 employees: at least 20 employees in the class
Most Florida businesses looking at an ICHRA are moving everyone off group coverage at once, in which case this rule does not apply. It exists to stop an employer from carving a small group of high-cost employees out of the group plan.
What is the ICHRA affordability test and how does it interact with subsidies?
This is the part that decides whether an ICHRA helps or hurts a given employee, and it is the reason employer benefit design needs a professional review rather than a spreadsheet.
An ICHRA offer is treated as affordable when the monthly premium for the lowest cost silver plan for self-only coverage in the employee’s area, minus one-twelfth of the annual ICHRA amount, does not exceed the required contribution percentage of the employee’s household income. For plan years beginning in calendar year 2026, that percentage is 9.96% (IRS Rev. Proc. 2025-25, 2025). The IRS had not published the corresponding figure for 2027 as of this writing, so 2027 affordability modeling should be done as a range, not a fixed answer.
The consequences follow from that test:
- If the ICHRA is affordable, the employee is not eligible for a premium tax credit for that coverage. The employer money replaces the subsidy.
- If the ICHRA is not affordable, the employee may opt out of the ICHRA and claim a premium tax credit instead, assuming all other eligibility rules are met.
- An employee who accepts the ICHRA cannot also use a premium tax credit, regardless of affordability. HealthCare.gov puts it plainly: you cannot use both.
The regulation requires that employees be allowed to opt out of and waive future reimbursements at least once with respect to each plan year, generally before the plan year begins. That annual opt-out is what makes the subsidy alternative real rather than theoretical.
For an employee whose household income now lands above 400% of the federal poverty level, the calculus changed. That employee has no premium tax credit to give up. An affordable ICHRA is pure gain for them. For an employee at 200% of poverty with a large subsidy, an ICHRA may be worse than the subsidy unless the employer contribution is generous. Running both scenarios before you adopt a plan design is the whole job. If you want to see how the income thresholds fall out, our breakdown of Florida ACA subsidy income limits for 2027 works through the tiers.
ICHRA vs QSEHRA: which one fits a Florida small employer?
QSEHRA is the older, smaller, more rigid cousin. It is only available to employers that are not applicable large employers and that offer no group health plan at all.
| Feature | ICHRA | QSEHRA |
|---|---|---|
| Authority | 2019 tri-agency regulations (26 CFR 54.9802-4 and parallel DOL/HHS rules) | IRC section 9831(d), enacted 2016 |
| Employer size limit | None. Any size employer. | Fewer than 50 full-time equivalent employees in the prior calendar year (IRS Notice 2017-67) |
| Can employer also offer a group plan? | Yes, to a different permitted class | No. No group health plan to any employee, including standalone dental or vision |
| Annual contribution cap | None | 2026: $6,450 self-only, $13,100 family (IRS Rev. Proc. 2025-32, section 4.63). The IRS had not published 2027 figures as of this writing. |
| Can amounts vary by employee? | Yes, by permitted class, and by age and family size within a class | Same terms to all eligible employees, with variation only by age and number of covered individuals |
| Employee must be enrolled in individual coverage? | Yes, individual health insurance coverage | Employee must have minimum essential coverage for reimbursements to be excluded from income |
| Written notice deadline | At least 90 days before the start of the plan year | At least 90 days before the start of the year |
| Effect on premium tax credit | Affordable offer blocks the credit; unaffordable offer allows opt-out and credit | Credit is reduced by the permitted benefit; an affordable QSEHRA blocks the credit for that month |
| Annual opt-out right | Required at least once per plan year | Not structured as an opt-out; the credit is offset instead |
In short: a Florida employer with fewer than 50 full-time equivalents and no group plan can use either. An employer with 60 employees, or one that wants to keep a group plan for management and move hourly staff to individual coverage, can only use an ICHRA.
Did the 2025 tax law change ICHRA rules?
No. This is worth stating clearly because a great deal of 2025 commentary assumed otherwise.
The House-passed version of the 2025 reconciliation bill contained provisions that would have written ICHRA into statute under a new name, the CHOICE Arrangement, and added an employer tax credit and other features. Those provisions were not in the law that was enacted in July 2025. As healthinsurance.org reported, the enacted bill “did not include the CHOICE Arrangement provisions that had been in the version that originally passed in the House, or anything related to ICHRAs” (healthinsurance.org, 2025). A separate bill carrying the CHOICE provisions passed the House in December 2025 but was not taken up by the Senate.
The practical takeaway: ICHRA still operates under the 2019 tri-agency regulations and nothing else. Design your 2027 plan to those rules. Do not build around a statute that does not exist.
What should a Florida employer do before adopting an ICHRA for 2027?
- Count your full-time equivalents. This determines whether QSEHRA is even on the table and whether employer shared responsibility rules apply to you.
- Pull a census with ages, ZIP codes and family sizes. Individual premiums in Florida vary by rating area, so the same allowance buys different coverage in different counties.
- Model the affordability test both ways. Identify which employees would be better off opting out and taking a premium tax credit. If that group is large, an ICHRA may be the wrong tool.
- Decide your classes before you decide your dollars. Classes drive everything else, including whether the minimum class size rule applies.
- Calendar the 90-day notice. For a January 1, 2027 plan year, that notice goes out in early October 2026.
- Get tax counsel on payroll treatment. Reimbursements are excluded from employee income only when the substantiation and coverage conditions are met.
Owners of closely held Florida businesses often find that an ICHRA solves the employee problem but not their own, because ownership structure affects who can participate. If you are a sole proprietor or an S corporation shareholder, start with our guide to self-employed health insurance in Florida. And if the business depends on one or two people, the benefits conversation usually runs alongside a key person life insurance review, since both are about what happens to the company when someone leaves.
Frequently asked questions
Does an ICHRA satisfy the employer shared responsibility requirement?
An ICHRA can be used by an applicable large employer to meet its obligations, but only if the offer meets the affordability standard described above for the relevant plan year. An unaffordable ICHRA offer does not shield an employer from potential liability. Confirm this with your tax advisor before relying on it.
Can an employer offer an ICHRA to some employees and a group plan to others?
Yes, provided the two groups are separate permitted classes under 26 CFR 54.9802-4 and the minimum class size requirement is satisfied where it applies. The same class cannot be offered both.
Are ICHRA reimbursements really tax-free?
Reimbursements are excluded from the employee’s gross income only when the employee is enrolled in qualifying individual health insurance coverage for the month in question and substantiates that enrollment to the plan. If coverage lapses, the exclusion does not apply. Payroll and reporting treatment should be confirmed with a tax professional.
What is the QSEHRA limit for 2027?
The IRS had not published 2027 QSEHRA limits as of this writing. The 2026 limits are $6,450 for self-only and $13,100 for family coverage under Rev. Proc. 2025-32, section 4.63 (IRS, 2025). The figure is adjusted annually for inflation, so treat 2027 as unknown until the IRS releases it.
Can an employee keep their premium tax credit and take the ICHRA money too?
No. An employee who accepts an ICHRA cannot claim a premium tax credit for the same coverage. If the offer is not affordable, the employee may opt out of the ICHRA and pursue the credit instead, subject to the usual eligibility rules.
Do employees have to buy coverage through the Marketplace?
No. Individual coverage purchased off the Marketplace can satisfy the ICHRA enrollment requirement. Employees who want to compare their subsidy alternative, however, need a Marketplace application to see what credit they would otherwise qualify for.
How long does it take to set up an ICHRA?
The binding constraint is usually the 90-day advance notice, not the paperwork. Working backward from a January 1 effective date, plan design should be settled by late summer so notices can go out in early October.
Talk it through before you commit
Benefit design decisions are hard to unwind mid-year, and the right answer depends on your specific census. If you want a second set of eyes on whether an ICHRA, a QSEHRA or a group plan fits your Florida business for 2027, call Lifeworth Insurance Agency at (954) 834-5433. No obligation.
Lifeworth Insurance Agency, NPN 21228343, is a trade name of Lifeworth Financial Group LLC, licensed in Florida for life, health and annuity products. This article is general information, not tax, legal or individualized insurance advice. Employer benefit plan design has tax and legal consequences; consult a qualified tax advisor or benefits attorney about your specific situation.