Are S-corp owners eligible for ICHRA?

No S-Corp owners are not eligible for ICHRA. S-Corps can offer tax-free ICHRA reimbursements to non-owner employees and deduct those contributions on the business return. But owners with more than 2% ownership—plus their spouses and dependents who also hold over 2%—are treated as self-employed by the IRS, not as common-law employees. That makes them ineligible for ICHRA.

Even if they could participate, it wouldn't help: owners already qualify for a more tax-advantaged option, the self-employed health insurance deduction. Combining that deduction with a pre-tax ICHRA benefit would amount to double-dipping, which the IRS could flag, potentially triggering back taxes and penalties.

What Owners Should Do Instead

Pay health insurance premiums personally (or have the business pay/reimburse them), and report that amount as taxable income on your W-2. You can then deduct those premiums—for yourself, your spouse, and dependents—on Form 1040, as long as you're not eligible for premium tax credits.

That said, we highly recommend that S-corp owners consult their CPA or tax advisors on this as it’s a part of the business’s broader approach to tax planning. 

Spouses of Owners

A spouse who is a genuine employee (real duties, W-2, no 2% ownership) can participate in the ICHRA. A spouse with over 2% ownership cannot, and follows the same self-employed deduction path above.

Partnerships are also treated differently. The IRS generally doesn't consider partners to be common-law employees, so they typically aren't eligible to participate as employees under an ICHRA.

What this means in practice:

• ICHRA is a great solution for eligible W-2 employees.
• Owners often offer the benefit to staff even if they can't participate in the same way.

• Some family members of owners may also be impacted if they also own more than 2% of the company

  
  

Best next step: Confirm how the business is taxed (S-corp, partnership, LLC, etc.) and review owner participation goals before quoting.

If you're currently not getting this deduction, reach out to your tax specialist for guidance and assistance! For more information on S-corp owner’s compensation and insurance, check out the IRS’ resources here.

Please note that this information should not be treated as legal or tax advice. StretchDollar does not provide guidance on legal or tax issues. Employers and employees should consult with their tax advisors and/or attorney(s) to confirm tax reporting requirements and obligations for their specific situation.