04/10/2026
Business Owners - Want to save money at tax time and have happier employees?
As Tax Day approaches, are you once again in that familiar bind, scrambling to find legitimate ways to reduce tax liability?. If that sounds like you, there’s one tool that deserves a serious look: the Individual Coverage Health Reimbursement Arrangement, or ICHRA.
Unlike traditional group health plans, which have hard to control rising premiums, complex renewal processes, and zero flexibility, an ICHRA function is a much friendlier option. You set the budget, you control the strategy, and you walk away with significant tax advantages. Here’s a deep dive into exactly how it works.
An ICHRA is an employer-funded health benefit that allows businesses of any size to reimburse employees tax-free for individual health insurance premiums and qualifying medical expenses. Introduced in 2020, it replaced the older Qualified Small Employer HRA (QSEHRA) as a more flexible, scalable alternative to traditional group coverage.
Instead of choosing a single group plan for your entire workforce, you set monthly allowance amounts, and employees shop for and purchase their own individual insurance on the marketplace or elsewhere. They submit their premiums for reimbursement, and you pay only what you’ve budgeted, no more, no less.
Need some details? Here are the two most compelling reasons for your business:
100% Tax-Deductible Contributions
Every dollar you contribute to an ICHRA is a qualified business expense. Just like traditional health insurance premiums, ICHRA contributions are fully deductible, directly reducing your company’s taxable income.
For a business contributing $500/month per employee across a team of 20, that’s $120,000 annually in deductible expenses money that would otherwise be subject to federal income taxes. The larger your team, the more powerful this deduction becomes.
Exemption from Payroll Taxes — A Hidden Win
This is where many business owners are pleasantly surprised. Because ICHRA reimbursements are not considered taxable wages, they are exempt from payroll taxes for both the employer and the employee.
Here’s what that means in practice:
Employers save on their share of F**A (Social Security and Medicare) taxes, as well as FUTA (Federal Unemployment) taxes.
Employees receive the reimbursement completely income tax-free, making it a more valuable benefit than an equivalent salary increase. That’s an average tax savings of 30%.
The math is compelling: by using an ICHRA instead of a taxable salary stipend to help employees cover health costs, you save roughly 7.65% in employer payroll taxes on every single dollar contributed. On $120,000 in contributions, that’s over $9,000 in payroll tax savings alone every year.
Come by my office to discuss this and other ways that I can help you be more profitable and happy business owner! I am there every Fri, Sat and Sun from 9-4pm. I'm here for you!
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