ICHRA and Tax Season: A Guide for Employers and Brokers (2025 Edition)

"This form is incorrect - you may be subject to penalties." No employer wants to hear these words from the IRS about their health benefits. To prevent this, we wrote this comprehensive guide for employers and brokers implementing Individual Coverage Health Reimbursement Arrangements (ICHRAs). We’ll walk you through the essential ICHRA-related tax forms, with special attention to the 1095 series -- the 1095-A, 1095-B, and 1095-C. Whether you're new to ICHRA administration or seeking to refine your reporting processes, understanding these tax requirements is crucial for success.

Form 1095-A: Health Insurance Marketplace Statement

What Is It?

The 1095-A is a statement issued by Healthcare.gov or state-based exchanges that documents your health insurance coverage purchased through the marketplace. Think of it as a W-2 for your employees’  health insurance coverage.

What You Need to Know:

- If an employee purchased a health insurance plan from Healthcare.gov or a State-Based Exchange, they will receive a 1095-A. 

- The form will typically show "$0.00" for premium tax credits since ICHRA participants aren't eligible for these credits

- Employees who file their taxes will be asked whether they received a 1095-A. They should mark “Yes” and fill in information from their 1095-A into their tax filing.

- Employees who buy an “off-exchange” health insurance plan will not receive a 1095-A.

- No action is required from the employer.

Example Scenario

Sarah works for a company offering ICHRA and purchases her insurance through CoveredCA. In January 2025, she receives a 1095-A showing:

- Her monthly premium amounts

- "$0.00" in premium tax credits

- Coverage dates from January through December 2024

- When Sarah files her taxes, she should mark “Yes” -- she received a 1095-A. She’ll be prompted to fill in information from the 1095-A into her tax filing. However, she does not need to submit the 1095-A form as part of her tax filings.

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Form 1095-B: Proof of Coverage

What Is It?

Form 1095-B provides employees with proof that they have minimum essential coverage throughout the year. 

Who Needs to File the 1095-B?

- Small employers with 50 or fewer full-time equivalent employees

Key Deadlines (2025)

- February 28: Paper filing deadline for Form 1094/5-B

- March 31: Digital filing deadline for Form 1094/5-B

What You Need to Know:

• Employers file the 1095-B to the IRS and distribute it to their employees
• Employees keep it for their records. THey do not need to submit it with their tax filing. 
• Form 1095-B provides proof that employees have met the “Individual Mandate.” 

What is the Individual Mandate?

The “Individual Mandate” requires that employees have qualifying health insurance coverage or be subject to fines. 

While the federal individual mandate penalty was zeroed out in 2019, several states have taken matters into their own hands to maintain coverage requirements. California leads with strict enforcement, imposing fines of up to $750 per adult and $375 per child for residents without qualifying health insurance. Massachusetts, New Jersey, Rhode Island, Vermont, and Washington D.C. have also enacted their own mandate requirements, with New Jersey implementing the steepest family penalty at $2,085. For ICHRA participants, the good news is that qualifying individual health insurance coverage satisfies these state mandates, helping employees avoid costly penalties while maintaining comprehensive coverage.

Example Scenario

John lives in New Jersey and has ICHRA through his employer. He must:

1. Keep his 1095-B to prove coverage for NJ's individual mandate
2. Use it to fill in the information in his tax return to avoid penalties
3. Request a copy from his insurer if not automatically provided

For employees living in states without an individual mandate, Form 1095-B serves only as a record of coverage and requires no specific action on their part.

Form 1095-C: Satisfying the ACA Employer Mandate

What Is It?

Form 1095-C documents an employer's compliance with the Affordable Care Act Employer Mandate through their ICHRA offering. It shows:

• The type of coverage offered
• The months coverage was available
• The employee's share of the lowest-cost monthly premium
• Whether the employer met ACA Affordability minimums

Who Needs to File the 1095-C?

- Applicable Large Employers (ALEs) with 50+ full-time equivalent employees

Key Deadlines (2025)

• February 28: Paper filing deadline for Form 1094-C to the IRS
• March 31: Digital filing deadline for Form 1094-C to the IRS
• For tax year 2024, it is optional to provide 1095-Cs to employees

What You Need to Know:

• Use codes "1L" through "1S" for full-time employees based on ICHRA allowance amounts
• Apply code "1G" in Part II, Line 14 when the ICHRA is offered to part-time employees
• Document the monthly ICHRA amount in Part II, Line 15
• Indicate affordability status using code "2F" or "2H" in Part II, Line 16 based on your calculations

Example Scenario:

• Sarah joined Tech Solutions Inc. (200+ employees) in March 2025
• Employer offered her a $400 monthly ICHRA
• In January 2026, she received Form 1095-C showing:
  • Code 1L on Line 14 (ICHRA offer)
  • $350 on Line 15 (required contribution)
  • Code 2C on Line 16 (enrolled in coverage)
• Sarah kept the form with her tax records but didn't attach it to her return
• The form documented her employer's compliance with ACA requirements

General ICHRA Tax Questions

Q: Do I need to report my ICHRA reimbursements as income?

A: No, ICHRA reimbursements are tax-free when used to purchase a Qualified Health Plan or to pay for qualified medical expenses.

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Q: What happens if I receive a 1095-A showing premium tax credits while on ICHRA?

A: Contact your Healthcare.gov immediately to correct this error, as you cannot receive both ICHRA and premium tax credits.

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Q: Do I need all three 1095 forms?

A: Not necessarily. Which forms you need depends on:

• Where you got your insurance (marketplace vs. private)
• Your employer's size (ALE vs. small business)
• Your state's requirements

**Q: What documentation do I need besides 1095 forms?**

A: Keep records of:

• Insurance premium payments
• ICHRA reimbursement requests and receipts
• Any correspondence about coverage or reimbursements
• State-specific health insurance documentation

Remember that ICHRA is ultimately a tax arrangement and proper documentation is crucial for both employers and employees. Consult a qualified tax professional for guidance specific to your situation when in doubt.

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Note: Tax regulations can change. Always verify current requirements with a qualified tax professional or the IRS.