Managing ICHRA for Controlled Groups and Related Employers

TLDR

Managing ICHRA for controlled groups and related employers requires understanding that different ACA rules use different definitions of “employer.” Related companies are generally counted together for Applicable Large Employer status, but ICHRA employee classes are determined by each common-law employer, not the entire controlled group. The correct approach is to aggregate for ACA status, design ICHRA classes by entity, and report by ALE Member and EIN.

Managing ICHRA for controlled groups and related employers is not a single rule. It is a “which rule applies where?” problem. Companies connected through common ownership, parent-subsidiary structures, brother-sister relationships, or affiliated service groups face overlapping but distinct compliance requirements depending on whether the question involves ACA employer size, ICHRA class design, or IRS reporting.

The foundation: related companies with common ownership or certain relationships under section 414 rules are generally combined when determining whether they collectively meet the 50 full-time employee threshold for Applicable Large Employer (ALE) status. But ICHRA class rules use the common-law employer, determined without applying those same section 414 aggregation rules.

That distinction is the most important thing to understand about ICHRA for controlled groups. Everything else follows from it.

If your organization has multiple entities and you’re evaluating how ICHRA fits, request a benefits consultation to map your structure before making plan design decisions.

What “Controlled Group” Means for ICHRA Administration

For ACA purposes, a controlled group typically involves companies connected through parent-subsidiary ownership (section 414(b)), brother-sister common ownership (section 414©), affiliated service groups (section 414(m)), or other arrangements under section 414(o). When these relationships exist, the IRS treats all related entities as a single employer for counting employees toward ALE status.

Here is why that matters. If Entity A has 30 full-time employees and Entity B has 25, neither would be an ALE on its own. But if they are part of a controlled group, their combined 55 employees push the group past the ALE threshold. Each entity then becomes an ALE Member, subject to employer shared responsibility provisions, even the one with only 25 workers. For a full explanation of these thresholds, see the guide on applicable large employer rules.

The IRS is clear that aggregation determines ALE status, but potential employer shared responsibility liability is determined separately for each ALE Member. That distinction carries directly into how ICHRA works for related employers.

The Key Distinction: ALE Aggregation vs. ICHRA Class Design

This is where most generic ICHRA content falls short. Two rules operate in parallel, and confusing them causes compliance problems.

Rule 1: Aggregate for ALE status. Count all employees across related entities to determine whether the group reaches the ALE threshold. The controlled group aggregation rules under section 414 apply here.

Rule 2: Design ICHRA classes by common-law employer. The ICHRA regulation at 26 CFR § 54.9802-4 explicitly states that for ICHRA class purposes, the employer is the common-law employer, determined without applying the section 414 aggregation rules.

In practical terms:

This prevents two common errors. First, assuming every entity in a controlled group must offer identical ICHRA terms. Second, assuming separate EINs automatically avoid ALE obligations.

For a deeper explanation, see the guide on controlled group rules and how they affect ALE testing.

Can Related Employers Offer Different ICHRA Designs?

Generally yes. Because ICHRA classes are determined by common-law employer, one entity can offer ICHRA to all eligible employees while a sister company maintains a traditional group health plan. A single entity can even offer a group plan to one permitted class and ICHRA to another.

The restriction: an employer cannot offer employees in the same class a choice between a traditional group health plan and an ICHRA. If full-time salaried employees at Entity A receive a group plan, those same employees cannot also be offered an ICHRA as an alternative.

The permitted ICHRA classes include:

Class definitions must be set before the plan year begins, and they generally cannot be changed during that plan year. For guidance on structuring these, see the resource on designing eligibility criteria for benefit classes.

The New-Hire Subclass as a Transition Tool

The new-hire subclass is often the cleanest path for related employers moving from group health to ICHRA. An entity can set a prospective date and offer ICHRA to everyone hired on or after that date, while legacy employees remain on the group plan. The minimum class size requirement does not apply to this subclass, making it operationally simpler. The key requirement: the new-hire date must be prospective. Document it before it takes effect.

Minimum Class Size Rules for Controlled Groups

Minimum class size rules apply only in hybrid designs where a plan sponsor offers a traditional group plan to one or more classes and an ICHRA to other classes. They do not apply when an employer offers ICHRA to all classes or offers no coverage to some classes.

When the rules are triggered:

• 10 employees for employers with fewer than 100 employees
• 10% of total employees (rounded down) for employers with 100 to 200 employees
• 20 employees for employers with more than 200 employees

The test looks at employees offered the ICHRA on the first day of the plan year, not employees who enroll. For controlled groups managing ICHRA across related employers, this means keeping a snapshot by common-law employer before each plan year: expected headcount, employees offered ICHRA by class, and which classes receive a traditional group plan.

Practitioners on LinkedIn have raised concerns about hybrid designs being used to move higher-cost employees off group coverage. A controlled group should not design ICHRA classes to push older or less healthy workers into the individual market. Federal regulators designed minimum class size rules partly to address adverse selection and health-factor discrimination. Even if a class label looks permissible, the design should be reviewed for documentation risk and employee relations.

See ICHRA pricing to understand administration costs for multi-entity setups.

How Controlled Groups Affect ACA Affordability

For 2026 plans, an ICHRA is considered affordable if the employee’s monthly cost for the self-only lowest-cost Silver plan in their area, after the ICHRA reimbursement, is less than 9.96% of one-twelfth of the employee’s yearly household income, according to HealthCare.gov.

This matters because ALE Members that fail to offer affordable coverage face potential employer shared responsibility payments under section 4980H. Each ALE Member’s liability is determined separately, but the affordability calculation requires accurate data: the employee’s ICHRA allowance, the lowest-cost Silver plan in the right location, and the employee’s income. Employers can use affordability safe harbors (W-2, rate of pay, or federal poverty line) for this analysis. For a walkthrough of these methods, see the guide on ACA affordability and ICHRA.

Premium Tax Credit Consequences

Employees offered an affordable ICHRA generally cannot claim Marketplace premium tax credits, even if they decline the ICHRA. If the ICHRA is unaffordable, the employee must opt out to preserve possible PTC eligibility. Employees cannot stack an ICHRA and Marketplace subsidies for the same coverage.

A user on Reddit described discovering after the fact that their employer’s ICHRA offer, reported with code 1N on Form 1095-C, had blocked their premium tax credit, resulting in an unexpected tax bill exceeding $1,000. This kind of surprise happens when employers coordinate ICHRA poorly and employees are not warned during enrollment.

For controlled groups with lower-wage employees, affordability communication matters as much as the allowance amount itself.

Reporting ICHRA Across Multiple EINs

ACA reporting is where controlled group ICHRA administration gets operationally complex. Each ALE Member files Forms 1094-C and 1095-C for its own employees. For help understanding these requirements, see audit and reporting standards for ICHRA.

For ICHRA, the 1095-C requires:

• Line 14: ICHRA-specific offer codes (1L through 1U), depending on who was offered coverage and which affordability method was used
• Line 15: The employee’s required contribution, meaning their monthly cost for the lowest-cost Silver plan after the ICHRA reimbursement
• Line 17: The ZIP code used to determine the lowest-cost Silver plan

An ICHRA is generally treated as a self-insured group health plan. ALEs report covered individuals in Part III of Form 1095-C. Non-ALE employers with self-insured HRAs use Forms 1094-B and 1095-B instead.

Controlled group reporting rule of thumb: Aggregate for ALE status, but keep records by ALE Member and EIN. The IRS needs to know which employer made the offer, which employee received it, which ZIP code was used, and which months were covered.

What Happens When Employees Work for Multiple Related Employers

If an employee works for more than one ALE Member in the same controlled group, hours of service across those entities are generally added together for full-time status analysis. But for reporting and employer shared responsibility liability, the employee is treated as the employee of the ALE Member for whom they worked the greatest number of hours that month.

Example: an employee works 90 hours for Entity A and 70 hours for Entity B during a month. Total hours (160) may be aggregated for ACA full-time analysis, but Entity A is generally the reporting employer for that month because it had the greater share of hours.

Related employers should treat employee transfers between entities like a benefits event, not just a payroll update. A transfer may trigger class reassignment, updated ICHRA notices, new affordability calculations, and changes to reimbursement records. In a discussion on Reddit involving a benefits consultant and a 400-employee client, commenters noted that employees often struggle to understand the shift in responsibility when moving between benefit structures, particularly that they own the individual policy under ICHRA rather than the employer.

The Two-Ledger Framework

This is the organizing principle for related employers managing ICHRA. Think in terms of two parallel ledgers.

Ledger 1 (Aggregation) answers questions about ACA status: Are the entities a controlled group? Are they an Aggregated ALE Group? How many full-time employees exist across all entities? Which ALE Member is responsible for a given employee in a given month?

Ledger 2 (ICHRA Design) answers questions about plan administration: Who is the common-law employer? Which permitted class does each employee belong to? What allowance applies? Was the ICHRA notice delivered at least 90 days before the plan year? Was individual coverage or Medicare substantiated? What ZIP code and employee required contribution will be used for reporting?

Most content collapses these two ledgers into one. That is how mistakes happen. The operational principle is simple:

Aggregate to determine ACA employer status. Separate by common-law employer to design ICHRA classes. Coordinate by EIN to report correctly.

Common Mistakes When Managing ICHRA for Controlled Groups

Mistake 1: Counting entities separately for ALE status. Common ownership rules may aggregate employees across entities. Splitting workers into separate companies does not avoid ACA obligations.

Mistake 2: Designing ICHRA classes across the whole controlled group. Classes should be built around each common-law employer, not applied uniformly across all entities.

Mistake 3: Offering the same class a choice between group coverage and ICHRA. Different classes can get different benefit types, but within a class, the offer must be consistent.

Mistake 4: Ignoring minimum class size in hybrid designs. When a group plan and ICHRA are offered to different classes within the same entity, the ICHRA class may need to meet minimum size requirements.

Mistake 5: Failing to explain PTC consequences. An affordable ICHRA offer can block Marketplace premium tax credits. Employees need to understand this before enrollment, not during tax filing.

Mistake 6: Treating ICHRA as “not a group plan.” The IRS classifies an ICHRA as a self-insured group health plan for reporting purposes. That affects COBRA analysis, ERISA positioning, and reporting obligations. A practitioner discussion on LinkedIn emphasized that ICHRA should not be oversold as fully “delinking” health benefits from employment, because the ICHRA itself remains an employer-funded group plan structure.

Mistake 7: Not keeping records by EIN, month, ZIP code, and class. The IRS 1095-C instructions require precise, entity-level, month-by-month data. Spreadsheet tracking across multiple EINs breaks down quickly.

Frequently Asked Questions

Are controlled group employees counted together for ICHRA?

Not for ICHRA class design. Employees across a controlled group may be counted together for ALE status under section 414 aggregation rules. But ICHRA classes are determined by the common-law employer, without applying those aggregation rules. Each entity generally designs its own class structure.

Can one controlled group member offer a group plan while another offers ICHRA?

Often yes. Related entities can offer different benefit structures as long as they coordinate ALE status, follow permitted class rules, and avoid offering the same class a choice between group coverage and ICHRA. With average annual family premiums for employer-sponsored coverage reaching $26,993 in 2025, many multi-entity employers are exploring ICHRA for some entities while maintaining group plans at others.

Do minimum class size rules apply across the full controlled group?

No. The ICHRA class rules look to the common-law employer. Minimum class size rules apply only in specific hybrid situations where an entity offers both a group plan and ICHRA to different classes within that entity.

Does an affordable ICHRA block Marketplace premium tax credits?

Yes. If the ICHRA offer is affordable, the employee and covered household members are generally not eligible for Marketplace premium tax credits, even if the employee does not use the ICHRA. Employees offered an unaffordable ICHRA must opt out to preserve possible PTC eligibility.

Who files 1095-C for a controlled group using ICHRA?

Each ALE Member files Forms 1094-C and 1095-C for its employees. Records should be kept by EIN, month, class, offer code, ZIP code, and employee required contribution.

What happens when an employee transfers between related entities?

Treat it as a benefits event. The transfer may require a new ICHRA class assignment, updated notices, revised affordability calculations, and changes to reimbursement and reporting records. For ACA purposes, hours worked across related ALE Members are generally aggregated, but the reporting employer for a given month is the entity where the employee worked the most hours.

Managing ICHRA for controlled groups and related employers requires clean class design, reliable reimbursement records, and accurate cross-entity reporting. The compliance design is only half the job, as one Health Rosetta webinar discussion on LinkedIn noted. The other half is administration: payroll data, employee classes, notices, substantiation, and support.

Schedule a demo to see how SimplyHRA helps employers create ICHRA plans, manage employee classes, verify coverage, track reimbursements, and maintain audit-ready records across related entities.