Picture this: You're a small business owner trying to attract top talent, but every time you mention "no health benefits," you watch potential hires' faces fall faster than a dropped phone. Sound familiar? Indiana threw you a lifeline in 2023 with House Bill 1004—and it’s still one-of-a-kind. This new-ish ICHRA tax credit is shaking up the small business landscape, and it could finally make offering health benefits a whole lot easier on your wallet.
Let’s dig into what Indiana’s ICHRA tax credit means for your business, why it stands out, and why states like Ohio are taking notes.
What Exactly Is ICHRA?
Before we get into how the tax credit works, let’s talk about the main character here: ICHRA—short for Individual Coverage Health Reimbursement Arrangement. Yes, it’s a mouthful (and not winning any “catchiest acronym” contests), but don’t let that scare you off. ICHRA was introduced by federal rule in 2020, and it completely changed the benefits game for small business owners.
For the first time, ICHRA let employers provide pre-tax money to employees, which they can use to pay for the health insurance plan that fits their needs—no more one-size-fits-all group plans if you don’t want them. Even better, there are no minimum participation rates or contribution minimums.
How Does Indiana's ICHRA Tax Credit Work?
Back in 2023, Indiana passed House Bill 1004, rolling out a tax credit made especially for small businesses that offer Individual Coverage Health Reimbursement Arrangements (ICHRAs) to employees. Think of it as the state's way of saying, "Hey, we know healthcare is expensive especially for small businesses, so here’s a little something to help."
Here’s what makes it extra special: This is the only state program of its kind in the country right now. While other states—Ohio, we’re looking at you—are still exploring, Indiana business owners can already tap into this benefit.
Here’s how it works: qualifying businesses can claim $400 per employee in the first year and $200 per employee in the second. That’s real money back in your pocket for doing something that’s good for your team anyway.
But here’s the kicker – this isn’t just another tax perk. It’s a targeted move to help small businesses transition to more flexible, affordable health benefits without breaking the bank.
Who Can Take Advantage of This Credit?
Not every business can hop aboard this bandwagon (though we wish they could). To qualify, your business needs to meet specific criteria:
Employee full-time count <50
You have to have fewer than 50 full-time equivalent employees. That tracks—it’s aimed at the small businesses who typically feel health benefit pain the most. So if you’re hovering near that 50-employee line, check your FTE count carefully before making plans.
ICHRA value matching
Here’s a smart twist: The ICHRA you offer has to meet or beat the value of any health benefits you previously provided. That way, no one’s just downgrading coverage to scoop up the credit—Indiana’s serious about businesses providing real value.
If you’ve never offered benefits before, good news: your previous benefit value was $0, so even a modest ICHRA contribution will qualify and put you ahead of the curve.
New or improved ICHRA implementation
This credit is for businesses either offering ICHRAs for the first time, or making big improvements to existing ICHRA programs. It’s about meaningful upgrades, not just paperwork with a new stamp.
Breaking Down the Financial Benefits
Let’s talk numbers, because budgets are real. The tax credit is pretty straightforward:
- Year 1: $400 per eligible employee
- Year 2: $200 per eligible employee
Picture this in action:
Example: Sarah's Marketing Agency
Sarah runs a digital marketing shop with 10 employees. Traditional group health insurance? Ouch—about $8,000 per employee, per year. But by switching to an ICHRA that provides $6,000 per employee, Sarah can leverage Indiana’s credit to save even more:
Year 1:
- ICHRA contribution: $6,000 × 10 = $60,000
- Indiana tax credit: $400 × 10 = $4,000
- Net ICHRA cost after credit: $56,000
Year 2:
- ICHRA contribution: $6,000 × 10 = $60,000
- Indiana tax credit: $200 × 10 = $2,000
- Net ICHRA cost after credit: $58,000
That’s $15,000 saved in tax credits over two years—just for switching to a smarter system. Plus, employees get more choice and control over their healthcare.
Why ICHRAs Are Smart Beyond the Credit
The credit’s pretty great, but ICHRAs themselves are getting stylish for lots of reasons.
1. Predictable costs
Group health insurance keeps you guessing with its wild premium swings. ICHRAs? You set the budget, and the budget listens.
2. Employee flexibility
Whether it’s your 22-year-old designer or your 45-year-old ops manager, ICHRAs let everyone find a health plan fit for them. That adds up to high satisfaction and better health outcomes.
3. Administrative sanity
Let’s be honest—nobody starts a business because they dream of battling insurance forms. The right ICHRA provider (yes, we think StretchDollar knocks it out of the park) takes the busywork off your plate. That means fewer paperwork headaches and more freedom to focus on what you actually care about: running your business.
4. Talent magnet
You might think people only care about salary, but 88% of employees would consider a job with lower pay for better benefits. ICHRAs help you stand out without breaking the bank.
Common Concerns and How to Address Them
"Will my employees actually like this?"
Honest worry. But when employees know how ICHRAs work and see their options, satisfaction usually goes up. Clear communication is key—help them figure out the ICHRA and where to shop for plans, and you’re golden.
"What about compliance?"
ICHRAs still have rules—but they’re much lighter than group health plans, especially if you rely on experienced administrators who keep you on the straight and narrow.
"Is this just a temporary fix?"
The tax credit currently covers two years, but plenty of businesses stick with ICHRAs after the credit’s gone because they’re just that cost-effective long term. The credit? It’s your springboard for a smarter benefit setup.
Getting Started: Your Next Steps
Thinking about dipping your toes in? Here’s how to get rolling:
Evaluate your current benefits
Take a solid look at what you’re spending now. If benefits are MIA, compare what group insurance might run you to what an ICHRA would look like.
Shop for the right ICHRA provider
Not all ICHRA vendors are equal. Prioritize strong support, easy-to-use tech, and experience working with businesses your size. (Small business needs are a lot different than big business with HR teams to match.)
Crunch the numbers
Do the math. Try different contribution scenarios with the tax credit in play (don’t forget, it’s $400 per head in year one, $200 in year two).
How to claim the credit
Now, you’ve done all the work - here’s how to get your tax credit.
1. Report on your Indiana return (Schedule IN-OCC)
- Use Code 878.
- On Schedule IN-OCC Part A, report the credit amount. If your software requires a PIN or project code, use “1.”
You can view the whole notice from the Indiana Department of Revenue here.
The Long-Term Advantage
Sure, the new-ish ICHRA tax credit is a two-year deal, but ICHRAs pay off well into the future if they’re implemented right. Over time, you can look forward to:
- More predictable healthcare costs
- Happier employees
- Simpler benefits administration
- Stronger recruiting power
- Lower turnover
Here’s the deal: Indiana’s ICHRA tax credit gives you a rare chance to overhaul your benefits, save money, and become an employer of choice—at least before your competitors (or other states) catch up. Ohio and others are watching, but only Indiana’s small businesses get this deal right now.
Getting set up takes some planning—vetting providers, prepping employees, crossing the regulatory t’s. Jump in early for the biggest impact.
Your Employees (and Your Bottom Line) Will Thank You
At the end of the day, this isn’t just about tax credits or dollars saved. It’s about valuing the people who keep your business running. And in a world full of options, meaningful health benefits are the key to hiring and keeping the best team.
So, if you’re ready to see what Indiana’s new-ish ICHRA tax credit can do for your business—and your people—the time to act is now. Don’t let a one-of-a-kind opportunity slip by!
