Can Owners Participate in an ICHRA?

Team Orca
Jan 12, 2024

In recent years, Individual Coverage Health Reimbursement Arrangements (ICHRA) have gained popularity as a flexible and cost-effective way for employers to provide health benefits to their employees. However, one question that often arises is whether business owners can also participate in an ICHRA. In this blog post, we will explore the eligibility of owners to participate in an ICHRA and provide insights into the rules and regulations surrounding this issue.

Understanding ICHRA

Before we delve into whether owners can participate in an ICHRA, let's briefly understand what an ICHRA is. An Individual Coverage Health Reimbursement Arrangement is a type of health benefit plan that allows employers to reimburse their employees for qualified medical expenses, including health insurance premiums, on a tax-free basis. Unlike traditional group health insurance, ICHRA is more flexible, as it allows employees to choose their own health insurance plans while the employer provides financial support.

Eligibility of Owners in ICHRA

Now, let's address the main question: Can business owners participate in an ICHRA? The answer is yes, but it depends on the business type of your organization. In general, employee/owners of C-Corps are nearly always eligible. If you own an LLC or an S-Corps, your eligibility depends on: 

  1. Ownership Percentage: Owners, including sole proprietors, partners, and S corporation shareholders, can participate in an ICHRA. However, the percentage of ownership they hold in the business can impact their eligibility. In general, shareholders with a more than 2% ownership stake are not eligible to participate in the ICHRA plan.
  2. No Discrimination: ICHRA rules stipulate that contributions and benefits must be provided on a non-discriminatory basis. This means that owners cannot receive preferential treatment compared to other employees. The ICHRA benefits must be offered to all eligible employees, including owners, in a consistent manner.

Tax Implications

Owners participating in an ICHRA should also be aware of the tax implications. Contributions made by the business to fund the ICHRA are generally tax-deductible for the employer. However, the tax treatment for the owner's reimbursements may vary depending on their business structure.

  • Sole Proprietors: Reimbursements for health insurance premiums may not be subject to payroll taxes for sole proprietors.
  • Partners: Partners may need to include the reimbursements in their self-employment income for tax purposes.
  • S Corporation Shareholders: S corporation shareholders with a more than 2% ownership stake may have different tax treatment for ICHRA benefits.


In conclusion, business owners can participate in an ICHRA, but they must adhere to specific eligibility criteria and comply with IRS regulations. It's essential to consult with a qualified tax advisor or benefits specialist to navigate the complexities of ICHRA participation as a business owner. When properly implemented, an ICHRA can provide owners with a valuable and flexible health benefit solution while also benefiting their employees.

Remember that health benefit regulations may change over time, so staying informed and seeking professional advice is crucial for ensuring compliance and maximizing the benefits of an ICHRA for both owners and employees.

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