The effect on an employee's tax credit depends on whether your company’s ICHRA is considered “Affordable.”
If it is deemed affordable, then the employee cannot accept tax credits.
If it is deemed unaffordable, the employee can choose to either accept tax credits or the ICHRA reimbursement, but not both.
Note that even if an employee opts out of the HRA and the HRA is still considered affordable, they cannot claim the premium tax credits for themselves or their family members.
How is Affordability Determined?
We can help you figure out how much you have to offer for your ICHRA to be affordable with our ICHRA Affordability Calculator.
The IRS recognizes that it may be difficult for an employer to collect all of the information needed to accurately determine affordability for each employee. As a result, the IRS provides several "safe harbors" or assumptions that employers can make to determine affordability. For a complete list and examples, please see the "Affordability" section of our ICHRA Guide.
If you utilize the safe harbors for your plan design, your employee's actual information may determine the HRA to be unaffordable for them, and they could still opt out of the ICHRA and instead accept tax credits. We will help your employees determine whether your company’s ICHRA is affordable to them during your onboarding process.
For more information, read our blog titled ICHRA, affordability, and premium tax credits.
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