The scenario you're probably in
You're a small business with a handful of W-2 employees. A traditional group health plan is either too expensive, too complicated to administer, or just not the right fit for your team's actual situation. ICHRA (Individual Coverage Health Reimbursement Arrangement) lets you reimburse employees tax-free for health insurance they buy on their own, without administering a group plan.
You've heard ICHRA is the modern path for small employers. You want to know whether the Gusto + Thatch integration is the path of least resistance and what setting it up actually looks like.
Why ICHRA gets tricky
ICHRA is conceptually simple (the employer reimburses an employee's individual-market health insurance premium tax-free, up to a defined dollar amount per month) but operationally has three moving parts:
- The plan document. The IRS requires a written ICHRA plan. You can write your own using a template, or use a platform that generates and maintains it for you. Most small employers go with a platform.
- Class-based reimbursement rules. ICHRA lets you set different reimbursement amounts for different employee "classes" (full-time vs part-time, salaried vs hourly, by location, etc.), but the rules are strict and have to be defensible. You can't just give one employee more because you like them more.
- Substantiation and payroll integration. Each month, the employee has to substantiate they have valid coverage and the reimbursement has to flow through payroll as a tax-free addition to their paycheck. If the substantiation breaks, the reimbursement becomes taxable.
The platforms (Thatch, Take Command, Pebble) handle the plan document, class rules, and substantiation. Gusto's Thatch integration handles the payroll side. You don't have to set up the rest manually.
How the Gusto + Thatch integration works
The two-part flow:
Thatch handles the benefits side. You set up your ICHRA plan in Thatch, define classes and reimbursement amounts, and invite your employees. Each employee enrolls, picks a marketplace plan, and submits proof of coverage to Thatch. Thatch substantiates the coverage every month.
Gusto pulls the reimbursement amount into payroll. Once Thatch is connected to your Gusto account, Thatch reports the substantiated reimbursement amount to Gusto each pay cycle. Gusto adds it to the employee's paycheck as a non-taxable reimbursement. The IRS-compliant tax treatment is automatic.
For the employee, the experience is: pick a plan on Healthcare.gov or a state marketplace, submit the policy info to Thatch, get reimbursed every paycheck. For the employer, the experience is: define the plan once in Thatch, then forget about it.
What I did for my employee
Recent setup for one employee. The actual steps and timing:
- Friday: I opened a Thatch account, picked an ICHRA plan template, and defined a single class (full-time employees) with a monthly reimbursement amount. Wrote a Loom for my employee explaining what was happening and what to do.
- Following Wednesday: Employee enrolled in Thatch, picked a marketplace plan that fit her situation, and submitted her policy info. Thatch confirmed coverage substantiation.
- First following pay cycle: Reimbursement appeared on her paycheck as a non-taxable addition. I verified the amount on the pay stub and the deduction line on my Gusto payroll register.
Total active time on my side: about 30 minutes for the Thatch plan setup, plus the Loom recording. The employee spent about an hour picking and enrolling in a plan, mostly the picking part. Ongoing time per pay cycle: zero. Thatch substantiates monthly; Gusto runs payroll as usual.
What it cost me: Thatch's fee per active employee (modest), plus the actual ICHRA reimbursement (set by my plan design). Compared to a traditional small-group plan with broker fees and renewal headaches, this was dramatically simpler.
Step-by-step setup
Talk to your accountant and decide on a reimbursement design
Estimated time: Before you sign anything
Decide which employee classes you'll reimburse and how much per class. Document your reasoning. Defensible class definitions matter for ICHRA compliance.
Watch out: ICHRA classes have to be objective and consistent. 'Full-time employees in California' is fine. 'Employees we like more' is not. Look up the IRS class rules before you decide.
Sign up for Gusto if you haven't already
Estimated time: 60 to 90 minutes (see Setup Guide)
Use the referral link below for the $100 or $200 bonus. Get to the point where you're successfully running payroll, then come back for ICHRA.
Open a Thatch account and define the ICHRA plan
Estimated time: 30 minutes
thatch.ai > sign up. Pick the ICHRA template that fits. Define your classes and reimbursement amounts. Set the plan effective date.
Watch out: ICHRA plan effective dates align with the marketplace plan year for new employees. Mid-year start is possible but constrains employees' marketplace plan options.
Connect Thatch to Gusto
Estimated time: 5 minutes
In Thatch, navigate to Integrations > Gusto and authenticate your Gusto account. The connection passes monthly substantiated reimbursement amounts from Thatch to Gusto.
Watch out: Make sure the employees you want covered exist in both Thatch and Gusto, with matching email addresses. Mismatches break the substantiation flow.
Invite employees to enroll
Estimated time: 10 minutes per employee on the employer side
Send the Thatch invite. Send a short loom or email explaining what ICHRA is and that they pick their own plan. Set a deadline for marketplace enrollment.
Watch out: Employees often don't know what ICHRA is. A 5-minute video explaining 'we'll reimburse you tax-free for health insurance you pick yourself' converts much better than a forwarded email.
Verify the first reimbursed paycheck
Estimated time: 5 minutes
On the first pay cycle after enrollment, pull the employee's Gusto pay stub. Confirm the ICHRA reimbursement appears as a non-taxable line item. Cross-reference the amount against Thatch's substantiation report for that month.
Watch out: If the reimbursement didn't flow through, the most common cause is an email mismatch between Thatch and Gusto. Check that first.
FAQ
- What does ICHRA cost the employer?
- Two costs: the platform fee (Thatch and competitors charge a per-employee monthly fee, typically modest for small teams) and the actual reimbursement (whatever you set as your monthly per-class amount). There's no broker commission or group plan administration fee, which is the savings vs traditional small group.
- Can I offer ICHRA and a traditional group plan at the same time?
- Not to the same class of employees. You can offer different benefits to different classes (e.g., ICHRA for part-time, group plan for full-time), but the rules are strict. Talk to your benefits advisor.
- What if an employee doesn't enroll in marketplace coverage?
- No coverage means no reimbursement. The ICHRA only reimburses substantiated coverage. The employee's salary is unaffected; they just don't get the additional tax-free reimbursement.
- Can I use a different ICHRA platform with Gusto?
- Other platforms exist (Take Command, Pebble) and most integrate with Gusto. Thatch is the one I have first-hand experience with. Functionally similar; the differences are in pricing and the user experience for employees picking plans.
- Does ICHRA work for an S-Corp owner-operator?
- S-Corp shareholders >2% can't be reimbursed tax-free through ICHRA the same way regular employees can. The S-Corp shareholder health insurance rules apply instead. See the S-Corp guide.
- Does the Gusto referral bonus apply if I'm setting up ICHRA?
- Yes. The bonus is for the Gusto signup, not for the ICHRA setup. Use the link below before you create the Gusto account.
I run r/gustoreferral, a small subreddit for people signing up for Gusto and asking real questions before they commit.
r/gustoreferral community →Affiliate disclosure: I earn a commission if you sign up through the link on this page, at no extra cost to you. Not tax or benefits advice; talk to your accountant and benefits broker.
Sign up with my referral
$100 or $200 Gusto bonus after your first payroll. ICHRA setup in Thatch comes after.
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