For Maryland employers comparing an ICHRA vs a health stipend, the core difference is tax treatment.
An individual coverage health reimbursement arrangement (ICHRA) reimburses workers tax-free for individual health insurance, while a health stipend is extra taxable pay. That distinction shapes cost, compliance, and how much value reaches the employee.
What is the difference between an ICHRA and a health stipend?
An ICHRA is a formal employer health benefit that reimburses employees for individual health insurance premiums and qualified medical expenses. A health stipend is a fixed amount of taxable cash an employer adds to an employee's wages to help with health costs.
ICHRA: An individual coverage health reimbursement arrangement lets an employer reimburse employees, on a tax-free basis, for individual market premiums and qualified medical expenses instead of offering one company-wide group plan. ICHRAs were established under federal rules.
Health stipend: A fixed taxable payment added to an employee's paycheck that the employee can use for health insurance or anything else. It is not a formal health plan and carries no requirement that the money go toward coverage.
An ICHRA requires that employees have and substantiate qualifying individual coverage. A stipend has no such requirement, so an employer paying a stipend cannot verify that the money funds health insurance at all.
How are an ICHRA and a health stipend taxed?
A health stipend is taxable wages, so a portion is lost to income and payroll taxes before it reaches an employee's premium, while ICHRA reimbursements are generally excluded from an employee's gross income when the employee has qualifying individual coverage.
For a stipend, the employer generally pays its share of FICA payroll tax (7.65%) on the added wages, and the employee owes income tax plus the employee share of payroll tax. For an ICHRA, reimbursements are generally excluded from the employee's gross income under Internal Revenue Code sections 105 and 106, and employer contributions are generally not subject to payroll tax and are deductible as a business expense.
This is the single biggest reason employers compare the two. The same dollar delivers more usable coverage value through an ICHRA because it is not reduced by payroll and income tax on the way to the employee.
ICHRA vs health stipend: side-by-side comparison
The table below summarizes how the two options differ across the factors Maryland employers most often weigh.
| Factor | ICHRA | Health stipend |
|---|---|---|
What it is | Formal employer health benefit that reimburses individual premiums and qualified medical expenses | Taxable cash added to an employee's pay |
Employee tax | Reimbursements generally excluded from gross income (IRC sections 105 and 106) when the employee has qualifying coverage | Treated as taxable wages, subject to income and payroll tax |
Employer payroll tax | Contributions generally not subject to FICA | Subject to employer FICA, currently 7.65% |
Proof of coverage | Employee must have and substantiate qualifying individual coverage (26 CFR 54.9802-4) | None required; the employee can spend it on anything |
Counts toward ACA employer mandate | Can, when the offer is affordable under the 2026 threshold | No |
Effect on marketplace subsidy | An affordable ICHRA offer makes the employee ineligible for a premium tax credit | Does not bar a subsidy by itself, but the added income can reduce or eliminate a premium tax credit |
Setup and admin effort | Higher: plan documents, class rules, substantiation | Lower: runs through payroll |
Which option does more for Maryland employees as 2026 premiums rise?
Both options put employer money toward coverage, but as Maryland premiums climb, an ICHRA's tax advantage stretches each dollar further for employees buying their own plans. In 2025, the Maryland Insurance Administration approved an average individual market rate increase of 13.4% for plan year 2026, driven partly by the scheduled expiration of enhanced federal premium tax credits and higher medical and drug costs (Maryland Insurance Administration, 2025).
Many Marylanders without a group plan buy coverage through Maryland Health Connection, the state marketplace, where 255,612 people enrolled during the open enrollment period that ended in January 2026, a record for the state and a roughly 3% increase over the prior year (Maryland Health Benefit Exchange, 2026). An ICHRA channels employer dollars directly into that individual market without the tax friction of a stipend, which is one reason employers facing higher premiums look at the model.
A stipend still raises take-home pay and can help, but the employee absorbs the tax and the employer pays payroll tax on top, so less of the contribution reaches the premium.
Does either option affect ACA marketplace subsidies?
Yes, and the two work differently. An employee who is offered an ICHRA that is considered affordable cannot also claim a premium tax credit for a marketplace plan. If the ICHRA offer is not affordable, the employee can decline it and claim a subsidy instead.
A health stipend does not block subsidy eligibility on its own because it is not an offer of health coverage. The stipend does count as taxable income, which can affect the size of any premium tax credit the employee qualifies for. Additionally, premium tax credits are available only to people with household income up to 400% of the federal poverty line, so a stipend that pushes an employee’s income above that line can eliminate their premium tax credit entirely. Employees weighing a marketplace subsidy against an employer offer should confirm their own situation with a tax professional.
Does an ICHRA or a stipend satisfy the employer mandate?
An ICHRA can satisfy the ACA employer mandate for applicable large employers when the offer is affordable; a health stipend cannot, because it is not an offer of health coverage. Employers with 50 or more full-time equivalent employees are generally subject to the mandate.
Under 2026 ACA affordability rules, an employer's coverage offer is generally treated as affordable when the employee's required contribution for the lowest-cost self-only plan does not exceed 9.96% of household income (IRS Revenue Procedure 2025-25). For an ICHRA, affordability turns on what the employee must pay for a benchmark individual plan after the ICHRA amount is applied. A stipend offers no path to mandate compliance, so an applicable large employer relying on a stipend alone could face a shared-responsibility penalty.
When does a health stipend still make sense?
A stipend can be a reasonable fit when an employer wants the lowest possible administrative load and is not subject to the employer mandate. Common situations include:
Very small teams where the employer has fewer than 50 full-time equivalent employees and is not subject to the mandate.
A short-term bridge while an employer sets up a formal benefit such as an ICHRA.
Mixed or international workforces where some workers cannot use a U.S. individual-coverage reimbursement, and a flat cash payment is simpler.
The tradeoff is consistent: a stipend is easier to run, but it is taxed, it does not verify coverage, and it does not count toward the employer mandate.
Frequently asked questions
Is a health stipend taxable in Maryland?
Yes. A health stipend is treated as taxable wages for federal purposes and is subject to income and payroll tax, and it is also subject to Maryland state income tax as ordinary wages. ICHRA reimbursements are generally tax-free to employees who have qualifying individual coverage.
Can a Maryland employer offer both an ICHRA and a stipend?
An employer can offer different benefits to different employee classes, but an employer generally cannot offer the same employees a choice between an ICHRA and a group health plan. Stipend and ICHRA structures should be reviewed with a benefits advisor to avoid conflicts with ICHRA class rules.
Does an ICHRA work with Maryland Health Connection plans?
Yes. Employees can use ICHRA funds to pay for qualifying individual plans purchased through Maryland Health Connection or the individual market, as long as the coverage meets ICHRA requirements.
Which is cheaper for the employer?
It depends on the contribution amount and workforce. A stipend adds employer payroll tax to every dollar, while ICHRA contributions are generally not subject to payroll tax, so the same budget can deliver more coverage value through an ICHRA. Employers can model both against their own numbers.
Where this leaves Maryland employers
For Maryland employers, the choice is simplicity versus value.
A stipend is quick to set up and runs through payroll, but it gets taxed and does not meet the employer mandate.
An ICHRA takes more work to set up and asks for proof of coverage, and in return, it pays out tax-free and can meet the mandate when the offer is affordable. With 2026 premiums climbing across the state, that tax difference carries more weight than it did last year.
If you are weighing an ICHRA for your Maryland team, Thatch can help you model contributions and set up a compliant arrangement.
