An ICHRA is funded entirely by the employer. Employees cannot contribute to the ICHRA through salary reduction.
If an employee's insurance premium is higher than the available ICHRA allowance, the difference is the employee-paid portion.
For example:
Monthly insurance premium: $650
ICHRA allowance: $500
Employee-paid portion: $150
How the employee-paid portion is treated depends on where the employee purchased coverage:
Outside the Exchange: The remaining premium may be paid pre-tax through an IRC Section 125 cafeteria plan, if that option is offered and properly administered.
Through the Exchange: The remaining premium generally cannot be paid through cafeteria plan salary reduction and is paid with after-tax dollars.
Keep employer-funded ICHRA amounts and employee-paid premiums separate in your records. An employee's premium payment is not an employee contribution to the ICHRA.
Tax treatment may depend on your specific arrangement and payment process. Confirm your configuration with your payroll provider, tax professional, or benefits counsel.
For payroll deductions, see How to Set Up and Manage Payroll Deductions for Employee Premiums.