Every company size can offer at least one type of Health Reimbursement Arrangement. Only one of the four common HRAs carries a hard size cap: the Qualified Small Employer HRA (QSEHRA), which is limited to employers with fewer than 50 full-time equivalent workers. The Individual Coverage HRA (ICHRA), the Excepted Benefit HRA, and the Integrated (Group Coverage) HRA have no employee headcount restrictions in federal law. Which type fits your company depends less on how many people you employ than on whether you already offer group health insurance and how you want the arrangement to work.
Under 50 Employees: The QSEHRA
The QSEHRA is the only HRA with a size limit written into federal law. To qualify, your business must employ fewer than 50 full-time equivalent workers, and it must not offer a group health insurance plan to any employee.1Office of the Law Revision Counsel. 26 U.S.C. 9831 – General Exceptions Both conditions have to hold. A 30-person company with a group plan does not qualify, and neither does a 60-person company without one.
If your workforce crosses the 50-employee threshold during a calendar year, QSEHRA eligibility ends on January 1 of the following year, when the business becomes an applicable large employer under the Affordable Care Act.
Under a QSEHRA, you set a fixed dollar amount to reimburse each employee for medical expenses and individual health insurance premiums. For 2026, the maximum annual contribution is $6,450 for self-only coverage and $13,100 for family coverage.2Internal Revenue Service. Revenue Procedure 2025-32 Those caps apply per employee and adjust annually for inflation. Employer contributions are excluded from employees’ gross income and are deductible for the business.3Internal Revenue Service. Publication 969 (2025), Health Savings Accounts and Other Tax-Favored Health Plans
One condition often trips up employers: reimbursements are only tax-free if the employee maintains minimum essential coverage. If an employee lacks qualifying health coverage during a given month, any reimbursement for expenses incurred that month is added to the employee’s gross income and taxed.4Internal Revenue Service. IRS Notice 2017-67
Any Size: The Three HRAs With No Headcount Limit
The other three HRA types work for a two-person startup and a ten-thousand-person corporation on the same terms. Size is not the qualifying question; each type has a different structural requirement instead.
Individual Coverage HRA
The ICHRA has no employer size restriction and no annual contribution cap. The federal agencies that created it stated in the final rule that “any employer may offer an individual coverage HRA.”5Federal Register. Health Reimbursement Arrangements and Other Account-Based Group Health Plans The employer decides how much to offer.
Employees use their ICHRA funds to buy individual health insurance on the open market or through a government marketplace. The employer must verify that each participant actually has qualifying individual coverage and must follow reasonable procedures to confirm enrollment for anyone covered by the HRA.5Federal Register. Health Reimbursement Arrangements and Other Account-Based Group Health Plans
Size does come back into play for one reason: large employers (50 or more full-time equivalents) using an ICHRA to satisfy the ACA’s employer mandate must ensure their offer is affordable. For 2026, an ICHRA is considered affordable if the employee’s share of the lowest-cost silver plan in their area, after the employer’s ICHRA contribution, does not exceed 9.96 percent of the employee’s household income.6Internal Revenue Service. Revenue Procedure 2025-25 Employers can use safe harbors based on W-2 wages, rate of pay, or the federal poverty level to simplify the calculation.
Excepted Benefit HRA
The Excepted Benefit HRA has no headcount restriction either, but it has its own gating requirement: your company must already offer a traditional group health insurance plan. This HRA covers supplemental expenses such as vision care, dental work, and short-term limited-duration insurance premiums rather than primary medical coverage. Employees can use the funds whether or not they actually enroll in the group plan, as long as the group plan is available to them.
For plan years beginning in 2026, the maximum an employer can make newly available under an Excepted Benefit HRA is $2,200 per year.7Internal Revenue Service. Revenue Procedure 2025-19 The cap adjusts annually for inflation and applies regardless of company size.
Integrated (Group Coverage) HRA
The Integrated HRA also has no federal size cap. It works alongside a traditional group health insurance plan to help employees cover out-of-pocket costs such as deductibles, copayments, and coinsurance. The group plan must meet ACA market reform standards, and the HRA must be properly integrated with that plan so it does not violate rules prohibiting annual limits on essential health benefits.
Federal law sets no employee cap, but the underlying group plan may have participation requirements from the insurance carrier. Insurers typically require a minimum percentage of eligible employees to enroll before issuing a group policy, and smaller companies sometimes find these carrier thresholds harder to meet. Once the group plan is active and compliant, the Integrated HRA can be offered to any number of workers.
How to Count Employees for the 50-FTE Line
Whether your company qualifies as small for QSEHRA purposes, or crosses into applicable large employer territory that shapes ICHRA affordability, depends on your full-time equivalent employee count. The IRS looks at the average number of full-time employees, including full-time equivalents, on business days during the preceding calendar year.8Office of the Law Revision Counsel. 26 U.S.C. 4980H – Shared Responsibility for Employers Regarding Health Coverage
A full-time employee is anyone who averages at least 30 hours per week or 130 hours per month. For part-time workers, you calculate their full-time equivalent contribution each month by adding up their combined hours of service (capping each individual at 120 hours), then dividing the total by 120.9Internal Revenue Service. Determining if an Employer Is an Applicable Large Employer Add that FTE number to your count of actual full-time employees for each month, then average across the year.
Seasonal Worker Exclusion
If your total crosses 50 only because of seasonal hiring, you may still qualify as a small employer. The exclusion applies when your workforce exceeds 50 full-time employees (including equivalents) for 120 days or fewer during the calendar year, and the workers who pushed you past 50 during that period were seasonal.9Internal Revenue Service. Determining if an Employer Is an Applicable Large Employer Seasonal workers generally means employees who perform labor on a seasonal basis, such as retail staff hired exclusively for a holiday rush.
Common Ownership Combines Businesses
If one person or entity owns multiple businesses, those businesses may need to be combined into a single employer for headcount purposes. Under Section 414 of the Internal Revenue Code, corporations in a controlled group, partnerships or sole proprietorships under common control, and members of an affiliated service group are all treated as one employer.10Office of the Law Revision Counsel. 26 U.S.C. 414 – Definitions and Special Rules If one owner runs a 12-person restaurant and a 42-person retail store, the two businesses combine to 54 employees, disqualifying the owner from offering a QSEHRA at either location.
What Happens if You Get Eligibility Wrong
Offering a QSEHRA while employing too many workers, running an Excepted Benefit HRA without a group plan behind it, or otherwise operating an HRA outside its rules can trigger a steep excise tax. The IRS imposes a penalty of $100 per day for each affected individual during any period of noncompliance.11Office of the Law Revision Counsel. 26 U.S.C. 4980D – Failure to Meet Certain Group Health Plan Requirements Even a small workforce accumulates exposure quickly: a company with 10 affected employees would face $1,000 per day until the issue is corrected. Careful tracking of employee hours, ownership structure, and plan compliance is what keeps that tax from ever being on the table.