Can Owners Participate in a CHOICE Arrangement (Formerly ICHRA)?

Last updated Sep 8, 2026

Naming note: On September 3, 2026, CMS and the SBA renamed ICHRA to CHOICE Arrangement (Custom Health Option and Individual Care Expense).

A CHOICE Arrangement is an employee benefit, so participation requires being an employee in the tax sense.

Entity	Can the owner participate?
C-corp, or LLC taxed as one	Yes, if the owner works as a W-2 employee. Family too
S-corp, shareholder of 2% or less	Yes, as an employee
S-corp, shareholder of more than 2%	No. Family members on payroll are excluded too
Partnership, or multi-member LLC by default	No. Partners are self-employed
Sole proprietorship, or single-member LLC by default	No. A bona fide employee-spouse can participate

The S-corp family trap

More-than-2% S-corp shareholders are treated like partners for benefit purposes. Additionally, attribution rules treat the spouse, children, parents, and grandparents of a more-than-2% shareholder as more-than-2% shareholders themselves. The whole family is excluded.

The sole proprietorship runs the opposite way. The owner is excluded, but a spouse who is a bona fide employee is not, and a CHOICE Arrangement offered to that employee-spouse with family coverage can reimburse a policy that covers the owner too. Two businesses, two spouses on payroll, opposite results. Entity type is doing all the work. [Have your CPA confirm the arrangement fits your facts before relying on it.]

What excluded owners do instead

Being unable to participate does not mean going without a deduction. Self-employed owners, including partners and more-than-2% S-corp shareholders, generally deduct their own health premiums under the self-employed health insurance deduction. For S-corp owners, the standard route is the one the IRS blessed in Notice 2008-1: the company pays or reimburses the premium, adds it to the owner's W-2 wages, and the owner deducts it personally.

The mistakes

1. An S-corp owner enrolling in the company CHOICE Arrangement
2. The S-corp spouse-on-payroll move
3. Skipping the CHOICE Arrangement entirely because the owner cannot join (the math for employees often saves $$$ and the owner has the Notice 2008-1 route)

FAQ

I own 1% of the S-corp I work for. Can I participate? Yes. The exclusion starts above 2%.

Can a C-corp owner's CHOICE Arrangement reimburse family premiums? Yes, if the plan design covers dependents. C-corp owner-employees are ordinary employees for this purpose.

Can my S-corp pay my individual premiums outside the CHOICE Arrangement? Yes, through the W-2 route: the company pays or reimburses, includes it in Box 1 wages, and you take the self-employed health insurance deduction. Talk to your CPA about the mechanics.

Sources

• IRC sections 1372, 318, and 162(l)
• IRS Notice 2008-1
• HHS, Treasury, and DOL final rules on health reimbursement arrangements (June 2019)

This article is for general information only. It is not tax, legal, or accounting advice, and Benepicks does not provide tax or legal advice. Rules change and individual facts matter. Confirm anything you rely on here with your CPA, attorney, or benefits counsel before acting on it.