If you offer an ICHRA, the amount you put in matters for more than your budget. It decides if your workers can still get help paying for a Marketplace plan. For larger employers, it can also affect IRS employer rules.
This guide walks through the affordability test step by step, with the percentages for 2026 and 2027.
First, a quick refresher
An ICHRA (individual coverage HRA) is a type of health reimbursement arrangement. It lets an employer pay workers back, tax-free, for individual health insurance they buy themselves. Workers need individual coverage that follows the ACA's rules, like a Marketplace plan. Short-term plans and dental-only or vision-only plans don't count.
A new label: as of October 14, 2026, CMS and HealthCare.gov use the label "CHOICE Arrangement" for the ICHRA. CMS announced it in September 2026. The legal name in the federal rules is still ICHRA (individual coverage HRA), and the rules in this post come from the 2019 federal rule that created it.
New to ICHRAs? Our ICHRA vs QSEHRA guide covers the basics.
Why affordability matters
HealthCare.gov explains what happens either way:
- If your ICHRA is affordable, the worker and their household can't get the premium tax credit, even if they turn the ICHRA down.
- If it isn't affordable, the worker can pick the ICHRA or the tax credit, but not both. To get the credit, they must opt out of the ICHRA.
So the amount you offer can change which kind of help a worker can use.
How the affordability test works
Federal tax rules set the test. Here are the steps:
- Step 1: Find the monthly premium for the lowest-cost Silver plan for self-only coverage for that worker, in the area where the worker lives. Use the non-tobacco rate.
- Step 2: Subtract your monthly self-only ICHRA amount. What's left is the worker's cost.
- Step 3: Multiply the worker's household income for the year they are covered by the IRS percentage. Then divide by 12.
- Step 4: If the worker's cost from Step 2 is no more than the amount from Step 3, the ICHRA is affordable.
As of October 14, 2026, under current law, the IRS percentage is 9.96% for plan years that start in 2026 (Rev. Proc. 2025-25) and 10.22% for plan years that start in 2027 (Rev. Proc. 2026-26).
The test always uses self-only coverage, even if the worker buys a family plan. If the ICHRA isn't available for the whole plan year, divide the yearly amount by the number of months it's available.
A made-up example
Here's how the math works. These are made-up numbers, not real prices.
- A worker's household income for 2027 is $48,000.
- 10.22% of $48,000 is $4,905.60 a year, or $408.80 a month.
- The lowest-cost self-only Silver plan where the worker lives costs $600 a month.
- With a $200 monthly ICHRA, the worker's cost is $400. That's no more than $408.80, so the ICHRA is affordable. The worker can't get the tax credit.
- With a $150 monthly ICHRA, the worker's cost is $450. That's more than $408.80, so it isn't affordable. The worker can pick the ICHRA or the tax credit.
In real life, you usually don't know a worker's household income. HealthCare.gov has a CHOICE Arrangement affordability tool for estimates. When the worker applies for Marketplace coverage, the Marketplace decides if the offer is affordable.
Extra rules for employers with 50 or more full-time workers
The IRS employer rules apply to applicable large employers. In general, that means you had 50 or more full-time workers, counting full-time equivalents, on average in the prior year.
If a large employer offers an ICHRA to at least 95% of its full-time workers, it can still owe an IRS payment for any full-time worker who gets a Marketplace tax credit because the ICHRA wasn't affordable.
Proposed IRS rules from 2019 give large employers shortcuts, called safe harbors, for this test. As of October 14, 2026, under current law, those rules are still proposed. The IRS says employers may rely on them for plan years that start before six months after any final rules are published. The main shortcuts:
- Location: use the lowest-cost Silver plan where the worker's main job site is, instead of where the worker lives.
- Look-back month: for a calendar-year ICHRA, use the plan prices from January of the prior year. For a 2027 plan year, that means January 2026 prices.
- Income: since you don't know household income, use a stand-in, like the worker's W-2 wages, rate of pay, or the federal poverty line.
These shortcuts are only for the IRS employer rules. They don't change whether a worker can get a tax credit. That still uses the worker's real household income and where the worker lives.
These rules are complex. Talk to a tax pro or benefits adviser before you set your amounts.
Employers with fewer than 50 full-time workers
If you're not an applicable large employer, the IRS employer rules don't apply to you. Affordability still matters for your workers, since it decides if they can get a Marketplace tax credit.
Our guide on how to offer health insurance to employees compares the options for a small crew. Still weighing a regular group plan? Read our guide to small group health insurance in Orlando.
Other rules to know when you set amounts
- You can set different amounts for different classes of workers, like full-time and part-time workers, or by work location.
- Within a class, amounts can go up with age (no more than 3 to 1) and with the number of dependents. Otherwise, the terms must be the same for everyone in the class.
- You must give current workers a written notice at least 90 days before each plan year, and give new workers one when they become eligible. For a plan year that starts January 1, 2027, 90 days before is October 3, 2026. That date has passed, so if you're planning a 2027 ICHRA, check your timing with a benefits adviser.
- Workers must be able to opt out each year.
HealthCare.gov notes that a January 1 start lets workers pick a plan during the Marketplace's yearly Open Enrollment.
Getting help
Daniels Health Advisors is licensed in 30+ U.S. states. We work with small employers in many fields. See the industries we serve.