When the Individual Coverage Health Reimbursement Arrangement (ICHRA) was introduced, it changed how employees can access premium tax credits (PTCs) on the Health Insurance Marketplace. This article explains how ICHRA and premium tax credits work together, what “affordability” means, and what employers need to know to stay compliant.
What are premium tax credits?
Premium tax credits (PTCs) are discounts from the government that help people pay for health insurance bought through the Health Insurance Marketplace (Exchange).
Whether someone can get a PTC depends on their income and whether they have access to affordable employer-sponsored coverage.
More details: IRS.gov: Questions and answers on the Premium Tax Credit
How ICHRA changed the rules
Before ICHRA:
If an employer offered any health plan, employees were usually not eligible for PTCs even if the plan was expensive.
With ICHRA:
The IRS now looks at whether the ICHRA allowance is affordable.
If the ICHRA is affordable, employees cannot get PTCs.
If the ICHRA is unaffordable, employees may decline it and apply for PTCs.
How to determine affordability
Affordability Formula:
Lowest-cost silver plan premium – ICHRA allowance = Employee’s monthly cost
If the employee’s cost for self-only coverage is less than or equal to 9.96% of their income (2026 rate), the ICHRA is considered affordable.
If it’s more than 9.96%, the ICHRA is unaffordable.
Official IRS guidance on affordability: IRS.gov: Minimum value and affordability
What this means for employees
ICHRA Status vs PTC Eligibility:
Affordable ICHRA → No PTCs allowed
Unaffordable ICHRA → PTCs may be available if the ICHRA is declined
Employer responsibilities
Employers offering ICHRA should:
Calculate affordability before each plan year.
Notify employees whether the ICHRA is affordable or unaffordable.
Explain the impact on PTCs so employees can make informed decisions.
Keep documentation for compliance purposes.
Additional IRS guidance: Downloadable IRS Fact Sheet on Premium Tax Credit