Health Allowances and marketplace subsidies

This article covers how a Health Allowance (also known as ICHRA or CHOICE arrangement) interacts with health insurance subsidies.

A health allowance can be a great option to give your employees a predetermined amount of money to use towards health insurance purchased on the individual marketplace. However, there are a few cases in which it may make more sense for employees to get coverage on their own.

Premium tax credit basics

For employees who make between 100% and 400% of the federal poverty level, the government will also offer assistance towards health insurance premiums in the form of a subsidy, or premium tax credit. Subsidy amounts depend on household income, employee home location, and age. It is not a flat dollar amount, and can be different for each of your employees. A subsidy can only be used towards plans purchased on the ACA marketplace (healthcare.gov or a state based exchange website).

How “affordable” is determined

The IRS compares what the ICHRA leaves the employee on the hook for against a share of their household income. Specifically: take the lowest-cost self-only silver plan premium available where the employee lives, subtract the monthly ICHRA amount you're offering, and compare what's left to 9.96% of the employee's household income for the month (the required contribution percentage for plan year 2026). If what's left is more than that share of income, the offer is unaffordable, and the employee keeps their subsidy option.

One thing to flag for your team: the marketplace makes this determination, not you and not Gusto. It depends on the employee's total household income, which you don't have visibility into as the employer. Two employees at your company with the exact same ICHRA amount can land on different answers depending on what else is going on in their household.

Note: this is a different benchmark plan than the one used to size an actual subsidy (below). Affordability is tested against the lowest-cost silver plan, while subsidy amounts are sized off the second-lowest-cost silver plan. Don’t use the table below to check your own offer’s affordability; it answers a different question (“how big could a subsidy be”), not the affordability test itself.

Can my employees still get a subsidy if I offer a Health Allowance?

It depends on two things: whether the employee enrolls in the Health Allowance, and whether the allowance you're offering counts as “affordable” under IRS rules. There are three outcomes:

Situation

Can the employee get a subsidy?

Employee enrolls in the Health Allowance

No. You can't have both an ICHRA and a subsidy at the same time.

Health Allowance is affordable, employee declines it

No. Declining an affordable offer doesn't restore subsidy eligibility, for the employee or their spouse/dependents.

Health Allowance is unaffordable, employee declines it

Yes. They can decline the ICHRA and shop the marketplace with their subsidy intact.

What makes a health allowance “affordable”

Note: Our partner, Thatch, will let you know in your application if your particular setup is unaffordable for any of your employees, this section details the logic behind that determination.

A Health Allowance (or CHOICE arrangement) is considered “affordable” if an employee will pay no more than 9.96% of their household income in health insurance premiums. This is generally calculated off of a “benchmark” plan - specifically the lowest cost silver plan in that employee’s location.

Example:

Employee A makes 60k
Benchmark plan costs $800
Allowance amount of $200

In this case, the cost to the employee is $600/mo, which would be $6,000 per year, or 10% of their household income. This would mean the allowance is “unaffordable” for this employee.

The federal government sets this determination, not Gusto or Thatch. It is primarily based on household income, which you may or may not have full visibility into.

Why this is worth checking before you set your ICHRA amount

Depending on an employee's income, a marketplace subsidy can be worth more per month than what you're planning to contribute through an ICHRA. This is especially true for lower-income employees, where subsidies tend to be largest. If your offer ends up affordable on paper but smaller than what an employee would have received in subsidies, some employees may come out behind compared to not being offered anything at all. It's worth running the numbers for your team's actual income range before you commit to a contribution amount.

Roughly how much could my employees get in subsidies?

There's no single number here. Subsidy amounts vary by income, household size, age, and where an employee lives. The table below gives a rough, state-by-state estimate for a single employee with no dependents at four income levels, using 2026 plan-year figures. Find your state, then read across to your employee's approximate income.

State

$30K income

$40K income

$50K income

$60K income

$303

$171

$43

$637

$520

$387

$248

$397

$265

$137

$54

$362

$230

$102

$19

$341

$209

$81

$282

$150

$22

$435

$303

$175

$92

$266

$134

$346

$214

$86

$301

$169

$41

$253

$121

HI*

$252

$130

$236

$104

$166

$34

$458

$326

$198

$115

$217

$85

$324

$192

$64

$313

$181

$53

$314

$182

$54

$237

$105

$125

$347

$215

$87

$242

$110

$252

$120

$281

$149

$21

$294

$162

$34

$365

$233

$105

$22

$349

$217

$89

$241

$109

$338

$206

$78

$157

$25

$248

$116

$327

$195

$67

$425

$293

$165

$82

$581

$449

$321

$238

$206

$74

$291

$159

$31

$291

$159

$30

$239

$107

$184

$52

$212

$80

$336

$204

$76

$304

$172

$44

$308

$176

$48

$458

$326

$198

$115

$174

$42

$773

$641

$513

$430

$294

$162

$34

$316

$184

$56

$599

$467

$339

$256

$620

$488

$360

$277

*HI employees are not eligible for ICHRA.

This article is general information, not tax, legal, or benefits advice. Subsidy eligibility depends on each employee's full household situation, and the rules and dollar figures above reflect plan year 2026 under 26 U.S.C. § 36B, IRS Rev. Proc. 2025-25, and current Healthcare.gov guidance. These are likely to change for future plan years. State-based marketplaces may also handle some of this differently. We recommend employees confirm their own eligibility on Healthcare.gov or with a tax professional, and that you consult a benefits advisor or tax professional before finalizing your ICHRA/CHOICE contribution strategy.