ICHRA compliance

ICHRA Compliance Requirements

An ICHRA is a formal employee benefit plan subject to ERISA, IRS, and DOL requirements. Compliance obligations include a written plan document, required employee notices, substantiation of reimbursements, ACA reporting, and opt-out procedures. Failure to comply can result in loss of tax-favored status and excise tax exposure.

The compliance framework for ICHRA

ICHRA is not a simple reimbursement arrangement — it is a formal employee welfare benefit plan under ERISA. That means it requires a written plan document, a Summary Plan Description (SPD), and compliance with ERISA's reporting and disclosure requirements. Employers who treat ICHRA as an informal reimbursement program are creating significant legal and tax exposure.

The IRS compliance obligations center on three areas: the required employee notice (which must be delivered before the plan year begins), substantiation of reimbursements (which must be documented and verified before payment), and ACA reporting (which requires annual filings with the IRS and disclosures to employees). Each of these has hard deadlines and specific content requirements.

The most common compliance failure is the notice deadline. Employers who decide to implement ICHRA in November for a January 1 plan year often discover that the 90-day notice requirement means they needed to notify employees in October — before they made the decision. Planning the implementation timeline around the notice deadline is essential.

Required employee notice

The ICHRA notice is a hard compliance requirement. Missing the deadline does not just create a technical violation — it may mean affected employees cannot receive tax-free reimbursements for that plan year.

Timing: At least 90 days before the start of the plan year. For new employees, within 90 days of hire (or the first day of the plan year if later). This is a hard deadline — missing it creates legal exposure and may disqualify the ICHRA for affected employees.

Required content: The notice must include: the reimbursement amount, the plan year dates, eligibility requirements, how to substantiate expenses, the opt-out procedure, and a statement that employees who are offered an affordable ICHRA are generally ineligible for ACA premium tax credits.

Delivery method: The notice can be delivered electronically (email or employee portal) if the employee has regular access to electronic communications at work. Paper delivery is required if the employee does not have regular electronic access.

Annual renewal: A new notice is required each plan year, even if the terms of the ICHRA do not change. The annual notice requirement cannot be satisfied by pointing employees to a prior year notice.

Substantiation requirements

The IRS requires that all HRA reimbursements be substantiated before payment. This means the employer (or HRA administrator) must verify that the expense is a qualifying expense and that the employee has qualifying coverage — before the reimbursement is made. Post-payment substantiation is not compliant.

Premium payments: Employees must provide documentation of their individual health insurance premium — typically a premium invoice or payment confirmation from their insurer showing the coverage period and premium amount.

Medical expenses: Employees must provide an Explanation of Benefits (EOB) or itemized receipt showing the date of service, provider, and amount. The expense must be for a qualifying medical expense under IRC Section 213(d).

Coverage verification: The HRA administrator must verify that the employee has qualifying individual coverage before approving reimbursements. Employees must attest to their coverage status — and the administrator must confirm it.

Record retention: Employers must retain substantiation records for at least 6 years (consistent with ERISA record retention requirements). The HRA administration platform typically handles this automatically.

ACA reporting obligations

ICHRA triggers ACA reporting requirements for all employers, with additional obligations for ALEs. The HRA administration platform typically handles these filings — but the employer is ultimately responsible for accuracy and timeliness.

Form 1095-B: Employers offering ICHRA must file Form 1095-B (and furnish copies to employees) to report minimum essential coverage. The HRA administrator typically handles this filing.

Form 1094-B: The transmittal form accompanying Form 1095-B filings to the IRS.

Form 1095-C (ALEs only): Applicable Large Employers must also file Form 1095-C to report the ICHRA offer, reimbursement amount, and affordability status for each full-time employee. This is separate from the 1095-B filing.

Opt-out procedures

Employees must be allowed to opt out of the ICHRA. Employees who opt out of an unaffordable ICHRA may be eligible for ACA premium tax credits on the marketplace. The opt-out procedure must be documented in the plan document and described in the employee notice. Employees who opt out cannot receive ICHRA reimbursements for the plan year — the opt-out is generally irrevocable outside of qualifying life events.