For an applicable large employer, the allowance affects the employee required contribution used in ICHRA affordability testing.
The affordability calculation uses:
The applicable employee-only lowest-cost Silver plan premium
The self-only ICHRA amount made available to the employee
It does not use the premium for the policy the employee selected.
A family-size allowance may affect the amount available for family coverage, but it does not replace the self-only amount used for applicable affordability and Marketplace calculations.
Changes to the allowance structure can change affordability results, so review the coming plan year before amounts are approved and communicated.
Payroll
The ICHRA is funded entirely by the employer. Employees cannot add their own money to the ICHRA through payroll deductions or salary reduction.
When an employee's premium exceeds the allowance, the remaining employee-paid portion stays separate from the employer-funded amount.
Its payroll treatment depends on the enrollment path, purchase channel, and whether a properly documented cafeteria plan is available.
Do not record an employee-paid amount as part of the ICHRA allowance.