Quick Answer
An Individual Coverage HRA (ICHRA) lets employers reimburse employees for individual health insurance premiums and qualified medical expenses tax-free. Unlike traditional group plans, there's no contribution limit—employers can reimburse 100% of premiums plus additional medical costs, making it valuable for freelancers with employees.
Best Answer
Priya Sharma, CPA
Best for successful freelancers with employees looking to provide competitive benefits
What is an Individual Coverage HRA (ICHRA)?
An Individual Coverage HRA (ICHRA) is an employer-funded account that reimburses employees for individual health insurance premiums and qualified medical expenses. Introduced in 2020, ICHRAs allow employers to provide health benefits without offering traditional group health insurance.
According to IRS regulations in Notice 2018-88, ICHRA participants must have individual health coverage (including ACA marketplace plans) to receive reimbursements, but there's no annual contribution limit—unlike traditional HRAs capped at specific dollar amounts.
How ICHRAs work for high-earning freelancers
As a successful freelancer with employees, you can establish an ICHRA to:
Example calculation for a $150K freelance consultancy:
ICHRA vs. traditional group health insurance
Advantages of ICHRA:
Considerations:
ICHRA contribution strategies
Fixed dollar amount: Provide each employee $6,000 annually regardless of actual premium costs.
Percentage reimbursement: Cover 80% of each employee's actual premiums up to a maximum.
Tiered by employee class: Offer different amounts based on job role, location, or other permissible factors.
Example tiered structure:
Setting up an ICHRA
1. Create plan documents outlining contribution amounts, eligibility, and reimbursement procedures
2. Choose administration method (self-administered or third-party)
3. Communicate with employees about individual coverage requirements
4. Establish reimbursement processes for premiums and medical expenses
5. Maintain compliance with non-discrimination and reporting requirements
Administrative costs:
Tax implications for employers and employees
For your business:
For employees:
What you should do
If you're earning $100K+ as a freelancer with employees:
1. Calculate potential tax savings using current employee premium costs
2. Survey employees about their current health insurance situations
3. Compare costs between ICHRA and traditional group plans
4. Consult with a benefits advisor about plan design options
5. Document everything for tax compliance
Use our [deduction finder tool](deduction-finder) to explore all health benefit deductions available to your freelance business.
Key takeaway: ICHRAs offer unlimited contribution potential and can save high-earning freelancers $10,000+ annually in taxes while providing valuable, flexible health benefits to employees—often at lower cost than traditional group insurance.
*Sources: [IRS Notice 2018-88](https://www.irs.gov/pub/irs-drop/n-18-88.pdf), [IRS Publication 969](https://www.irs.gov/pub/irs-pdf/p969.pdf)*
Key Takeaway: ICHRAs offer unlimited contribution potential and can save high-earning freelancers $10,000+ annually in taxes while providing flexible health benefits to employees.
ICHRA vs. traditional health benefit options for freelancer-employers
| Benefit Type | Annual Cost Range | Tax Deductible | Employee Flexibility | Setup Complexity |
|---|---|---|---|---|
| Traditional Group Plan | $16,000-26,000 | Yes | Low (limited networks) | High |
| ICHRA | $9,000-18,000 | Yes | High (any ACA plan) | Medium |
| Health Stipend (taxable) | $6,000-12,000 | Yes | High (any coverage) | Low |
| No Health Benefits | $0 | N/A | Complete (employee pays) | None |
More Perspectives
Priya Sharma, CPA
Best for consultants who work with clients and may have project-based employees
ICHRAs for consulting businesses
As a consultant, ICHRAs offer unique advantages for managing variable staffing needs. Unlike traditional group plans that require ongoing participation commitments, ICHRAs can accommodate consultants who hire project-based employees or independent contractors (when properly classified as employees).
Flexible workforce benefits
Seasonal staffing: If you bring on additional consultants during busy periods, ICHRAs allow you to provide immediate health benefits without waiting periods or minimum participation requirements.
Geographic flexibility: When you work with remote team members across different states, ICHRA participants can choose local insurance plans while you provide consistent contribution amounts.
Project-based teams: For consultants who assemble teams for specific client engagements, ICHRAs provide a way to offer competitive benefits without long-term group insurance commitments.
Example consulting ICHRA structure
A management consultant earning $120,000 annually works with 2 regular subcontractors (classified as employees) and occasionally hires additional specialists:
Client billing considerations
Some consulting contracts allow you to bill client management fees or administrative costs, which may include employee benefits. ICHRA costs could potentially be:
Important: Ensure contract language supports benefit cost recovery and maintain clear documentation of employee vs. contractor classifications.
Key takeaway: ICHRAs give consulting businesses the flexibility to provide health benefits to variable workforces while maintaining tax advantages and avoiding long-term group insurance commitments.
Key Takeaway: ICHRAs provide consulting businesses flexibility to offer health benefits to variable workforces without long-term group insurance commitments.
Priya Sharma, CPA
Best for established freelancers considering hiring their first employees
ICHRAs for growing freelance businesses
If you're a full-time freelancer considering hiring your first employee, ICHRAs can be an attractive alternative to expensive group health plans. They allow you to offer competitive benefits without the high costs and administrative burden of traditional group insurance.
Cost comparison: ICHRA vs. group insurance
Traditional group plan for 2 people:
ICHRA alternative:
Getting started with your first ICHRA
1. Research your employees' current insurance costs to set appropriate contribution levels
2. Start simple with fixed monthly amounts rather than complex reimbursement structures
3. Use basic administration tools rather than expensive third-party services initially
4. Plan for growth by establishing scalable policies and procedures
Common beginner mistakes to avoid
Budget planning tip: Start with contribution amounts equal to 70-80% of average individual premiums in your area, plus $1,000-2,000 for additional medical expenses.
Key takeaway: ICHRAs can save new employer-freelancers $5,000-15,000 annually compared to group insurance while providing employees more choice and flexibility in their health coverage.
Key Takeaway: ICHRAs can save new employer-freelancers $5,000-15,000 annually compared to group insurance while giving employees more health coverage choices.
Sources
- IRS Notice 2018-88 — Individual Coverage Health Reimbursement Arrangements
- IRS Publication 969 — Health Savings Accounts and Other Tax-Favored Health Plans
Related Questions
Reviewed by Priya Sharma, CPA on February 28, 2026
This content is for educational purposes only and is not a substitute for professional tax advice. Consult a qualified tax professional for advice specific to your situation.