Understanding the Complexities of ACA ICHRA Reporting

An individual coverage health reimbursement arrangement (ICHRA) has become an increasingly popular option for employers seeking flexibility in offering health benefits to employees while keeping down costs. As ICHRAs are considered self-insured plans, all employers must file with the IRS.  “Small Group” employers, generally those employers with less than 50 Full Time Equivalents (FTEs) in the previous calendar year as defined by the IRS are required to file using the type “B” Forms.  The real complexity is for applicable large employers (ALEs).  ALEs are generally those employers with greater than 50 Full Time Equivalents (FTEs) in the previous calendar year as defined by the IRS are required to file using the more complex type “C” Forms.

The Challenge of ICHRA Reporting for ALEs

Unlike traditional employer sponsored coverage, ICHRAs require the use of a different set of codes for the offer of coverage (line 14).   Each employee’s “Employee Required Contribution” (ERC) (line 15) can vary by multiple parameters including age, location, and employee class. Thus, determining which affordability safe harbors (line 16) are applicable can be a challenge as well. Finally,  an applicable zip code (line 17) must be included for employee’s offered an ICHRA.

Breaking Down the Form 1095-C Codes: Lines 14, 15, 16, and 17

Line 14 (Offer of Coverage)

When an ICHRA is offered, the code on Line 14 must reflect the scope of coverage and whether affordability is based on the employee’s primary residence or the employee’s primary work location.

There are 10 specific ICHRA-only codes (1L–1U):

  • Individual coverage HRA offered to employee only with affordability determined by using employee’s primary residence location ZIP code.
  • Individual coverage HRA offered to employee and dependent(s) (not spouse) with affordability determined by using employee’s primary residence location ZIP code.
  • Individual coverage HRA offered to employee, spouse, and dependent(s) with affordability determined by using employee’s primary residence location ZIP code.
  • Individual coverage HRA offered to employees only using the employee’s primary employment site ZIP code affordability safe harbor.
  • Individual coverage HRA offered to employee and dependent(s) (not spouse) using the employee’s primary employment site ZIP code affordability safe harbor.
  • Individual coverage HRA offered to employee, spouse, and dependent(s) using employee’s primary employment site ZIP code affordability safe harbor.
  • Individual coverage HRA that is NOT affordable offered to employee; employee and spouse, or dependent(s); or employee, spouse, and dependents.
  • Individual coverage HRA offered to an individual who was not a full-time employee.
  • Individual coverage HRA offered to employee and spouse (not dependents) with affordability determined using employee’s primary residence location ZIP code.
  • Individual coverage HRA offered to employee and spouse (not dependents) using employee’s primary employment site ZIP code affordability safe harbor.

While the IRS accepts codes 1L–1U, only eight of these are actively used for ICHRAs (1L–1S). Codes 1T and 1U exist in the schema but are rarely applied in real world filings.

Line 15 (Employee Required Contribution)

Line 15 is where the complexity greatly increases for ICHRAs. Employers must enter the employee’s required contribution, which is the monthly cost of the lowest-cost silver plan on the applicable ACA Marketplace, minus the employer’s ICHRA allowance.  Note: The amount calculated per the above is entered regardless of whether the employee enrolled in coverage or not, and regardless of which actual plan is selected.

For large employers with workers across multiple states, this means calculating different values for each employee based on their age, primary residence zip code or primary employment site zip code, employee class and potentially other parameters. Premiums vary by rating area, and silver plan costs change annually so employers must track and update these values regularly.

Example:

  • An employer offers a $400/month ICHRA allowance.
  • The lowest-cost silver plan in the employee’s ZIP code is $550/month.
  • The employee’s required contribution for Line 15 = $550 – $400 = $150.

Multiply this across the number of employees all with potentially different parameters, and the calculation becomes onerous, labor intensive, and error prone.

Line 16 (Applicable Safe Harbor)

Line 16 indicates whether the employer met an affordability safe harbor or other relief provision. For ICHRAs, the challenge is that employers must analyze each employees’ wages or pay rate against the affordability threshold.

If an employee waived the ICHRA offer, then there 4 entries that may apply:

  • 2F – W-2 wages safe harbor applied
  • 2G – Federal poverty line safe harbor applied
  • 2H – Rate of pay safe harbor applied
  • <blank> – This signifies that the offer was not considered affordable under any of the other 3 safe harbors listed above.

Why this is difficult:

  • To apply the W-2 safe harbor (2F), employers must compare the employee’s contribution versus their reported box 1 W-2 wages.
  • For the Rate of Pay safe harbor (2H), the employer must calculate the monthly affordability threshold using the employee’s base hourly rate (multiplied by 130 hours).
  • Both must be measured against the employee required contribution calculated on Line 15.

This means affordability must be determined employee-by-employee, making large group compliance significantly more complex.

Line 17 (ZIP Code for Affordability Testing)

For ICHRA ACA reporting, Line 17 requires the entry of the zip code used to determine affordability.

  • If affordability is based on the employee’s primary residence, the employer must use the employee’s home zip code.
  • If affordability is based on the employee’s primary site of employment, the zip code of the worksite is used.

For applicable large employers with multiple worksites and employees spread nationwide, this requires careful tracking and accurate data mapping.   For offers based upon employee residence, challenges arise when the employee moves home locations.

ACAPrime’s ICHRA Reporting Solution

ACAPrime has completed thousands of 1095 ICHRA forms starting from the inception of the ICHRA back in 2020.

At ACAPrime, our expert team has developed tools and processes to streamline accurate ICHRA reporting:

  • Automated Line 15 calculations that pull correct premium data by zip code and rating area.
  • Full Line 14–17 integration, ensuring the codes, contributions, and zip codes align properly.
  • Safe harbor testing to confirm whether W-2, federal poverty line, or rate of pay safe harbors apply.
  • Large group scalability with checks and reconciliations designed for hundreds or thousands of employees.
  • Audit ready reports so employers are protected against IRS challenges.
  • Quality Assurance Program with both automated and expert human review.

We take away the complex burden of ICHRA ACA reporting and allow our clients to compliantly report to the IRS with maximum confidence.

Get Assistance on ACA ICHRA Reporting

At ACAPrime, we’ve built our reputation on helping companies, TPAs, and HR / Benefits platform providers complete ACA reporting both accurately and strategically to minimize penalty risks.

ICHRAs are an increasingly popular solution for employers seeking employee benefits flexibility, but present more complex ACA reporting challenges than traditional health plan offerings.  ALEs offering ICHRAs especially face significant challenges with accurately reporting offers of coverage, monthly premiums, affordability safe harbors, and zip codes for their workforce.

That’s why ACAPrime is ICHRA Smart. We combine compliance expertise with scalable reporting technology to make sure your ACA reporting is not only accurate but also stress-free. Contact our compliance experts at [email protected] to schedule a consultation.