New ICHRA Tax Credit for Connecticut Small Businesses

More employers nationwide are turning to the individual coverage health reimbursement arrangement (ICHRA) as an affordable and flexible way to offer health coverage. It allows employers to reimburse employees tax-free for individual health insurance premiums and qualified medical expenses.

The federal government recognized the advantages of a stand-alone HRA for employers of all sizes by finalizing its rules in 2019. But now, several state governments are incentivizing employers to make the switch to this personalized health benefit.

In May 2026, Connecticut became the third state to pass a tax credit designed to help eligible small employers offset the cost of offering an ICHRA so they can forgo traditional group coverage.

In this blog post, you’ll learn:

• The details of Connecticut’s new ICHRA tax credit and how eligible employers can apply for the subsidy.
• Why more Connecticut employers are choosing ICHRAs over traditional group health insurance.
• How PeopleKeep by Remodel Health can help small employers administer an ICHRA.

What is the new ICHRA tax credit for Connecticut?

In May 2026, Connecticut passed Public Act 26-68, the state’s fiscal year 2027 budget adjustment bill¹. Along with various changes related to healthcare and the education system in the state, the legislation created a new tax credit for small businesses that offer an ICHRA instead of traditional group health insurance.

Under the new law, eligible Connecticut small businesses can receive a state tax credit for contributing to employees’ ICHRAs. In most cases, employers can claim the credit to reduce several Connecticut taxes, including corporate business taxes, insurance and healthcare center taxes, and state income taxes.

To qualify for the tax credit, business owners must:

• Have 50 or fewer employees in Connecticut.
• Offer an ICHRA rather than a traditional group health plan.

Shareholders or partners of S corporations and partnerships may claim the credit. However, the owner of single-member LLCs may claim the credit directly.

The amount of tax credit a small employer may receive is the lesser of:

• The total amount of qualified ICHRA contributions the employer made during the tax year.
• A “qualified contribution” refers to the amount the employer contributes to an employee’s ICHRA during the tax year.
• $1,000 per covered employee.
• A “covered employee” is an employee who receives a qualified ICHRA contribution from their employer.

The credit is only available for two years: the first taxable year the employer offers the ICHRA and the following taxable year. The new state legislation also caps the amount of total available tax credits at $5 million per year statewide.

Lastly, the tax credit is nonrefundable, and any portion of the credit expires if an employer doesn’t use it by the end of the year for which they qualified for it.

Learn where other states stand on employer tax credits for offering HRAs.

How can Connecticut small businesses apply for the new tax credit?

Eligible small businesses must apply to the Connecticut Commissioner of the Department of Revenue Services before they can claim their credit².

Employers will need to submit a formal application established by the commissioner, with the following information:

1. The amount the employer expects to contribute to employees’ ICHRAs during each year of the two-year credit period.
2. Any future additional information the commissioner requires to administer the program.

Due to the statewide annual cap of $5 million, businesses that want to take advantage of the credit should apply for the tax credit as early as possible, once applications are available.

What is the approval process for employers who applied for the tax credit?

Connecticut’s new law requires the Revenue Services Commissioner to approve applications on a first-come, first-served basis.

After an employer submits their application, the commissioner must provide written notice of approval or denial within 30 days. If approved, the employer will receive a certification letter showing the amount of tax credit they can claim each year for the two-year credit period. Employers can’t claim more than the amount approved in their certification letter.

Do employers have to use a specific healthcare platform to receive the tax credit?

Access Health CT’s BusinessPlus is a new platform that helps Connecticut employers manage their employee health benefits, especially if they’re looking to offer an ICHRA³. While the platform may be a common option for Connecticut employers, the text of Public Act 26-68 doesn’t currently state that employers must use BusinessPlus or any other specific, state-run platform to receive the tax credit.

This has sparked some confusion, as a letter written in March 2026 from the commissioner’s office mentioned the Access Health CT BusinessPlus platform in reference to the then-proposed tax credit program⁴.

As the tax credit program continues to develop, Governor Lamont and other state officials may release more guidance to clarify this issue.

Why should Connecticut employers offer ICHRAs instead of traditional group health plans?

For many small employers, traditional group health insurance has become too difficult to afford and manage, especially if they have a small HR team and a limited budget. An ICHRA gives businesses a more flexible and cost-predictable way to offer their employees a comprehensive, tax-advantaged health benefit that focuses on choice.

In addition to the new tax credit program, here are a few more reasons Connecticut employers should consider offering an ICHRA:

• Better cost control. Employers can decide exactly how much they want to contribute to their employees each month, even varying allowances by job-based classes, so they maintain a predictable health benefits budget.
• Lower overall healthcare costs. In some counties in Connecticut, individual health insurance premiums are more affordable on average than traditional small group plans, saving employers and employees money on health coverage.
• Additionally, Remodel Health and PeopleKeep customers offered an average of $566 per month to single employees in ICHRA contributions in 2025, which is less than the $592 average monthly employer contribution for single group coverage in the state in 2024 (the most recent KFF data available at the time of publication).⁵
• Greater employee choice. Instead of being limited to one group plan, employees can choose the individual health insurance policy that best fits their doctors, prescriptions, and health needs.
• Less administrative burden. ICHRAs can simplify employee benefits administration by removing many of the renewal processes, carrier negotiations, and time-consuming tasks that come with traditional group health plans.
• Scalability for growing businesses. ICHRAs have the flexibility to meet the needs of growing teams, remote work, hybrid employees, and multi-state employers, all while staying compliant with federal, state, and carrier regulations.

How PeopleKeep by Remodel Health can help Connecticut small businesses offer an HRA

Setting up and administering an ICHRA can be challenging if it’s your first time offering the employee health benefit. Luckily, partnering with a quality HRA vendor, like PeopleKeep by Remodel Health, can help you design, set up, and manage a personalized ICHRA without the hassle or the need for costly group health plans.

With PeopleKeep, Connecticut employers can:

• Customize monthly allowance amounts and eligibility based on budget and business goals.
• Simplify onboarding and ongoing benefits administration so employees and employers get the most out of their ICHRA.
• Manage employee tax-free reimbursement requests and claim documentation.
• Meet the federal compliance requirements for ICHRAs and fulfill tax-reporting obligations with the help of our customer support team.
• Provide employees with educational resources and support when selecting individual health insurance plans.
• Get assistance with ACA affordability calculations and the employer mandate requirements if your business grows to the size of an applicable large employer (ALE).

Connecticut employers can combine the state’s new ICHRA tax credit with the federal tax advantages that HRAs already offer. ICHRA reimbursements are income tax-free for participating employees with qualified health plans. Contributions are also tax-deductible and payroll tax-free for employers. This will help keep tax liabilities and benefit spend dollars low for both business owners and employees.

Conclusion

Connecticut’s new ICHRA tax credit is set to make offering health benefits more affordable for small businesses across the state. When combined with tax-free ICHRA reimbursements on eligible medical expenses, the tax credit looks promising to help employers maximize their cost savings while giving employees more choice over their coverage and control over their finances.

If you’re interested in offering a customized ICHRA that will support your entire team, contact the HRA specialists at PeopleKeep to get started!

This article is for informational purposes only and does not constitute legal or tax advice. Consult a licensed CPA or advisor for specific guidance on your business.

References

1. Connecticut Public Act No. 26-68
2. Connecticut State Department of Revenue Services
3. Access Health CT BusinessPlus
4. Department of Revenue Services Commissioner's Office: Testimony for the Human Services Committee on House Bill 5041
5. KFF - Average Annual Single Premium per Enrolled Employee for Employer-Based Health Insurance