Business owners may be eligible to participate in an ICHRA or QSEHRA only if they are treated as W-2 employees of the business; self-employed owners, partners, and certain shareholders are not eligible.
Are business owners eligible for an ICHRA or QSEHRA?
Owner eligibility depends on how the owner is classified for payroll and tax purposes—not just ownership status.
Owners can participate if they are W-2 employees of the business
Owners cannot participate if they are self-employed without W-2 wages
Some ownership structures (like partnerships and certain S-corp shareholders) are not eligible for tax-free reimbursement
C-Corporations: Owners and directors are considered W-2 employees and are eligible to participate in the HRA, including reimbursement for individual premiums and eligible medical expenses.
S-Corporations: Owners with more than 2% ownership are considered self-employed and are not eligible to participate in the HRA, even if they receive W-2 wages. Immediate family members are also excluded.
Partnerships: Partners are considered self-employed and cannot participate in an HRA. However, if a partner’s spouse is a W-2 employee, the partner may access the HRA as a dependent of their spouse.
Sole Proprietorships: Sole proprietors are not considered employees and are therefore ineligible to participate in an HRA. However, if the sole proprietor’s spouse is a W-2 employee, the owner may participate as a dependent of their spouse.
If the owner is not a W-2 employee, they are treated as a non-employee and are not eligible for HRA participation.
Who is not eligible in either QSEHRA or ICHRA?
The following individuals are generally not eligible to participate in either HRA type:
Self-employed individuals with no W-2 wages
Partners in a partnership
Individuals who are not treated as employees for payroll purposes
1099 contractors are not eligible to participate in any HRA under IRS rules.
S-Corp owners with more than 2% ownership are ineligible, even if they receive W-2 wages.
Sole proprietors are ineligible unless their spouse is a W-2 employee, in which case they may participate as a dependent.
If the owner does not receive W-2 wages from the business, they cannot participate in either arrangement.
What if I own the company but also run payroll for myself?
If you receive W-2 wages from your business, you may be eligible depending on your business structure and HRA type. For example, C-Corp owners receiving W-2 wages are eligible to participate in the HRA. However, S-Corp owners with more than 2% ownership are not eligible, even if they receive W-2 wages.
What if I have multiple owners?
Each owner is evaluated individually based on whether they are a W-2 employee of the company. Additionally, if one of the owners is a partner or sole proprietor, their spouse (if a W-2 employee) may enroll in the HRA and cover the ineligible owner as a dependent.
Does ownership percentage alone determine eligibility?
No. Eligibility depends on tax classification and employee status, not ownership percentage by itself. However, for S-Corp owners, a specific threshold of more than 2% ownership renders them ineligible, even if they receive W-2 wages.
Recommendation
It is highly recommended to consult a tax professional for guidance specific to your business structure and eligibility for HRAs.