ICHRA, QSEHRA and tax credits: a guide for Tennessee small businesses

Who this guide is for

Tennessee owners with fewer than 50 full-time-equivalent employees who want to help lower-wage employees get coverage they can actually use. Larger employers face additional federal employer-mandate rules that aren't covered here.

In this guide, "lower-wage employees" is a working term, not a legal category: roughly, workers earning under about $50,000 a year, though what actually decides tax-credit help is household income compared with the federal poverty level (FPL). For 2027 coverage, 100% to 250% of FPL, the range where silver plans add cost-sharing reductions, is $15,960 to $39,900 for one person and $33,000 to $82,500 for a family of four (HHS 2026 poverty guidelines); above that, premium tax credits shrink as income rises, and employers still can't set ICHRA classes by wage; they must use classes the federal rules allow, such as full-time vs. part-time, salaried vs. non-salaried (such as hourly), seasonal workers, employees whose primary worksite is in different rating areas, or employees under a collective bargaining agreement (see the permitted-classes rules).

1. The problem: coverage that's hard to use

Covered workers paid an average of $120 a month ($1,440 a year) toward single coverage. At firms with 10 to 199 workers, the average single deductible was $2,631, and 53% of covered workers had a deductible of $2,000 or more. The average family premium share at those firms was $8,889 a year (KFF 2025). These are national averages; your plan will differ.

The tax-credit block. If you offer an employee job-based coverage that's affordable and meets minimum value, that employee can't get a premium tax credit, even if they turn your plan down. For 2026 plan years, coverage is affordable if the employee's share of the lowest-cost self-only option is no more than 9.96% of household income. For 2027 it's 10.22% (IRS Rev. Proc. 2026-26). Family members are judged on the cost of family coverage.

2. How an ICHRA works

• You set a monthly allowance. There's no federal minimum or maximum.
• Employees buy individual health insurance, on or off the Marketplace, and you reimburse premiums tax-free up to the allowance.
• Employees must be enrolled in individual health insurance (or Medicare). Short-term plans and dental- or vision-only coverage don't count.
• Written notice goes out at least 90 days before each plan year, and employees can decline.
• CMS now also calls an ICHRA a "CHOICE Arrangement." It's the same benefit.

3. Allowance or tax credit, not both

An employee offered an ICHRA can't use the allowance and a premium tax credit at the same time.

• If the ICHRA is affordable for that employee, they can't get a premium tax credit, even if they decline the ICHRA.
• If it isn't affordable, the employee chooses: take the allowance, or opt out and apply for a premium tax credit instead.

An ICHRA is affordable if the lowest-cost self-only silver plan where the employee lives, minus your monthly self-only allowance, costs no more than 9.96% of one-twelfth of household income for 2026 plan years, or 10.22% for 2027 plan years. The test uses self-only amounts even when family members are covered, and the Marketplace makes the official determination from the HRA details the employee enters.

Documentation matters. An employee who opts out of an unaffordable ICHRA to claim a premium tax credit must report the details from your written ICHRA notice on the Marketplace application, may be asked for a copy of that notice to confirm a Special Enrollment Period, and should keep it, along with a record of the opt-out, for their tax return. The free guide (PDF) includes an illustrative worksheet and opt-out record in Appendix A.

Who can get what: permitted employee classes

You can offer different allowances to different classes of employees, but only to the classes federal rules allow. You can't create a class based on pay level. Permitted classes include:

• full-time, part-time and seasonal employees
• salaried and non-salaried (for example, hourly) employees
• employees under a collective bargaining agreement
• employees still in a waiting period
• employees in different work locations (by insurance rating area)
• non-resident aliens with no U.S. income, certain staffing-firm employees, and combinations of these

Same terms. Within a class, everyone is offered the same terms. The allowance can rise with age (up to 3 to 1 from oldest to youngest) and with the number of dependents.

No mixing within a class. You can't let one class choose between your group plan and an ICHRA. If you offer a group plan to some classes and an ICHRA to others, certain classes need a minimum size (at least 10 employees for employers with fewer than 100). If you offer no group plan, the minimums don't apply.

The QSEHRA alternative

A Qualified Small Employer HRA (QSEHRA) is only for employers with fewer than 50 full-time-equivalent employees that offer no group health plan.

• 2026 limits: $6,450 self-only and $13,100 family. 2027 limits hadn't been published as of October 24, 2026. Not confirmed
• It has to be offered on the same terms to all eligible employees. Some groups can be excluded, such as employees with under 90 days of service, employees under 25, and part-time or seasonal workers.
• An opt-out won't unlock a full tax credit. If the QSEHRA is affordable, there's no premium tax credit. If it isn't, the credit is reduced dollar for dollar by the monthly QSEHRA amount.

4. Premium tax credits and cost-sharing reductions

Premium tax credits. For 2027, people with household income between 100% and 400% of the poverty level are expected to pay between 2.15% and 10.22% of income for the benchmark silver plan, with the credit covering the rest (IRS Rev. Proc. 2026-26). The larger temporary credits of 2021 to 2025 expired at the end of 2025, so in general there's no credit above 400% of the poverty level. 2027 coverage uses the 2026 poverty level: $15,960 for one person.

In 2026, 514,288 of 569,310 Tennessee Marketplace enrollees (90%) got an advance tax credit, and they paid an average of $67 a month after it (CMS). That's an average across all enrollees, not a promise for any employee. These historical 2026 figures are not 2027 quotes; use Chuck’s Marketplace agent link for current prices. Not confirmed

Cost-sharing reductions. With household income between 100% and 250% of the poverty level, a silver plan comes with lower deductibles, out-of-pocket maximums and copays. This applies to silver plans only.

Tennessee silver plans, 2026 plan year: 62 plans, medians for one person (CMS QHP Landscape PY2026). For 2027 coverage, 150%, 200% and 250% of the poverty level for one person are $23,940, $31,920 and $39,900. These historical 2026 plan designs are not 2027 quotes; check current plan details before enrolling. Not confirmed

5. Doing it right: the benefits concierge approach

• One-on-one meetings with each employee who wants help.
• Check doctors, pediatricians and prescriptions against each plan.
• Help with the HealthCare.gov application only with the employee's documented consent (45 CFR 155.220(j)).
• Explain why income changes have to be reported. Starting with 2026 coverage, any excess advance tax credit is repaid in full, with no repayment caps.

Administration. As part of the consultation, Chuck connects employers with an ICHRA administration partner that handles plan documents, employee notices, verifying coverage and processing reimbursements. Employers should also involve their tax professional or benefits attorney.

6. Summary

A carefully designed ICHRA or QSEHRA gives you a predictable budget and helps each employee end up with whatever works best for them: your allowance, or a premium tax credit with cost-sharing reductions. The rules are specific, so check the design against real numbers before changing anything.

Written for Tennessee employers with fewer than 50 full-time-equivalent employees. Larger employers face additional federal employer-mandate rules not covered here. General information, not legal or tax advice; check with your tax professional or benefits attorney.