Part 2: ICHRA vs. ACA Tax Credits — Why You Can’t Use Both

One of the most common questions I hear when an employer offers an ICHRA is:

“Can I still get the ACA tax credit?”

For most employees, the answer is no — and understanding why is critical before enrolling in coverage.

Let’s walk through this in plain language.

A Quick Refresher: What Is the ACA Tax Credit?

The Advance Premium Tax Credit (APTC) is designed to help make individual health insurance more affordable for people who purchase coverage through the ACA Marketplace.

Historically, these tax credits were available to individuals and families within certain income ranges, based on household size and income. The goal was to reduce monthly premiums for people buying coverage on their own.

Many employees are familiar with these credits because they’ve used them in the past — especially before having access to employer-sponsored benefits.

Why ICHRA and ACA Tax Credits Don’t Mix

An ICHRA is considered an offer of employer-sponsored health coverage, even though the employee is buying their own individual plan.

Because of that:

• If an employer offers an affordable ICHRA, the employee is not eligible for ACA premium tax credits.

• The government does not allow someone to receive both employer-sponsored assistance and Marketplace subsidies at the same time.

In simple terms, it’s one or the other.

What Does “Affordable” Mean in This Context?

This is where confusion often starts.

Affordability is not based on:

• The employee’s total premium

• The employee’s household situation

• Whether the ICHRA feels affordable

Instead, affordability is based on a specific calculation that compares:

• The employee’s required contribution

• To a percentage of household income

• Using a benchmark plan

If the ICHRA meets the affordability threshold, tax credits are not available — even if the employee would have qualified for them previously.

What Happens If an Employee Ignores This Rule?

If an employee:

• Enrolls in Marketplace coverage

• Accepts advance tax credits

• While having access to an affordable ICHRA

They may be required to repay those tax credits when taxes are filed.

This is one of the most common and costly mistakes I see — and it’s completely avoidable with the right information upfront.

Can an Employee Decline an ICHRA?

Yes — but declining an ICHRA does not automatically restore eligibility for tax credits.

If the ICHRA is considered affordable:

• Declining it does not make tax credits available

• The employee would pay full price for Marketplace coverage

If the ICHRA is not affordable based on the official calculation, the employee may be able to opt out and qualify for tax credits instead.

Why This Matters So Much for Employees

For employees who previously relied on ACA subsidies, losing access to tax credits can significantly change their monthly costs.

That’s why understanding:

• Income level

• Household size

• ICHRA allowance amount

is essential before making enrollment decisions.

Why This Matters for Employers Too

Employers often assume that offering an ICHRA automatically helps every employee equally. In reality, the impact varies.

Some employees benefit greatly.Others may experience higher net costs — especially those who previously qualified for substantial tax credits.

Clear communication and education are key to avoiding frustration and misunderstandings.

How I Help Navigate This Conversation

I work with both employers and employees to:

• Explain how ICHRAs and ACA tax credits interact

• Help employees understand their options before enrolling

• Identify situations where an ICHRA works well — and where it may not

The goal isn’t to push one solution, but to ensure everyone understands the financial implications before decisions are made.

What’s Coming Next in This Series

In Part 3, we’ll dig deeper into a critical question:

When does an ICHRA actually make sense for employees — and how income level plays a major role in whether it’s truly beneficial?

Final Thought

ICHRAs can be a helpful benefit, but only when employees understand how they affect other forms of assistance.

Knowing that you can’t use an ICHRA and ACA tax credits at the same time can prevent expensive surprises later — and lead to better decisions for both employers and employees.