When Should the Employee take the ICHRA or the Subsidy?
It depends — specifically, on whether your StretchDollar ICHRA allowance is considered "affordable" under IRS rules. Here's how it works.
The Basic Rule
When an employer offers an ICHRA, employees can’t receive a Marketplace subsidy (called a Premium Tax Credit, or PTC) at the same time as the ICHRA tax-free allowance. They must choose one or the other — not both. Choosing both is like double-dipping on tax advantages.
There is an important note regarding this: only if the ICHRA allowance is considered “unaffordable”, can the employee opt out of the ICHRA and take the subsidy instead.
What Makes an ICHRA "Affordable"?
Affordability is calculated based on the employee's income, age, and the cost of the lowest-cost silver plan available in their area. For 2026, an ICHRA is considered affordable if the employee's out-of-pocket cost for that silver plan — after subtracting the monthly ICHRA allowance — is no more than 9.96% of their monthly household income.
Affordable ICHRA = employee cannot claim a subsidy.
Unaffordable ICHRA = employee can opt out and claim a subsidy instead.
Why Age Changes Everything
This is where it gets important for small employers. Health insurance premiums vary significantly by age — older employees pay much higher premiums than younger ones. So the same ICHRA allowance can be "affordable" for a 27-year-old and "unaffordable" for a 64-year-old.
Example: $300/month ICHRA allowance
| Employee | Silver Plan Cost | Out-of-Pocket After ICHRA | Result |
| Age 27 — $40,000/yr income | ~$250/month | $0 (allowance covers it) | Affordable — no subsidy eligible |
| Age 64 — $40,000/yr income | ~$900–$1,100/month | $600–$800/month | Likely unaffordable — may be subsidy eligible |
This means two employees at the same company, receiving the same ICHRA allowance, can have different outcomes — one may not qualify for a subsidy, and one may.
Bottom Line
- If the employee believes they could access a subsidy, they should check affordability before their plan start date.
- If unaffordable, they will opt out of the ICHRA and claim a subsidy
- A licensed broker can help employees compare their options
Not sure which option is better for you? A licensed broker can help you compare your ICHRA allowance against available plans and subsidies in your area.