Short answer: a health insurance stipend for a contractor is just more 1099 pay: deductible to the business as a payment for services, taxable to the contractor, and with no special health-insurance treatment on either side. The tax-favored routes, a group plan or an individual coverage HRA, exist for employees. So the clean way to help a contractor with coverage is a higher rate, stated plainly, and the contractor buys their own plan and deducts the premiums on Form 7206.
- 1099 paywhat a contractor stipend is, whatever it is called
- Employeeswho group plans and individual coverage HRAs are for
- 1 employeeHealthCare.gov’s line: beyond yourself, a spouse or family, the small-business options open
- Form 7206where the contractor deducts the premiums the stipend helps pay
Three Ways to Help, Compared
| Route | Who it is for | Tax side |
|---|---|---|
| Higher rate or stipend | Contractors (1099) | Deductible to the business; taxable income to the contractor; the contractor deducts premiums on Form 7206 |
| Individual coverage HRA | Employees (W-2) | Reimburses employees for individual coverage; tax-free to the employee within the rules |
| Group health plan | Employees (W-2) | Employer share deductible; employee share pre-tax through payroll |
What Not to Do
- Do not put a contractor on the group plan. Group coverage is for employees; covering a contractor as an employee contradicts the 1099.
- Do not run a contractor through the HRA. An individual coverage HRA is an employer arrangement for employees.
- Do not promise a tax-free benefit. A stipend to a contractor is income to them; say so, and set the amount with that in mind.
What the Contractor Does With It
They buy their own plan, on the marketplace or a private plan on a national network, and the stipend simply raises the income the marketplace uses to set their premium tax credit. Then the premiums come back off their income on Form 7206, up to the profit of their business. Point them to health insurance for 1099 employees and the self-employment health insurance deduction.
When the Contractor Should Be an Employee
That is a question for your tax professional, not this page. If the answer is yes, an individual coverage HRA or a group plan is the route, and health insurance for small business owners covers both.
Common Questions
Can I give my 1099 contractors a health insurance stipend?
Yes, as pay: it is deductible to your business as a payment for services and taxable income to the contractor. It is not a tax-free benefit, and it does not put them on your plan.
Can a contractor use my company’s ICHRA?
No. An individual coverage HRA is an employer arrangement that reimburses employees for individual coverage. Contractors buy their own plan and deduct the premiums on Form 7206.
At what point do the small-business options apply?
HealthCare.gov’s line is one employee other than yourself, a spouse or a family member. With an employee, a group plan or an individual coverage HRA becomes available.