On Aug. 23, 2023, the IRS announced the inflation-adjusted affordability percentage for 2024, which is used to determine if employer-sponsored coverage is considered affordable under the Affordable Care Act (ACA). The ACA requires applicable large employers (ALEs) to offer affordable, minimum-value health coverage to their full-time employees or pay a penalty.
For plan years beginning in 2024, coverage will be considered affordable if the employee’s required contribution for self-only coverage does not exceed 8.39% of their household income for the year. This is a significant decrease from the 2023 plan-year level of 9.12%.
The affordability test applies only to the portion of the annual premiums for self-only coverage and does not include any additional cost for family coverage. Also, if an employer offers multiple health coverage options, the affordability test applies to the lowest-cost option that provides minimum value.
Because you generally won’t know an employee’s household income, the IRS has provided three optional affordability safe harbors you may use to determine affordability based on information that is available to you: the Form W-2 safe harbor, the rate of pay safe harbor, and the federal poverty level safe harbor.
Next Steps
This is a substantial decrease in this percentage and is the lowest percentage that has ever been set (at more than 1% below the statutory affordability percentage of 9.5%). As a result, you may have to significantly lower the amount you require employees to contribute for 2024 to meet the adjusted percentage and avoid penalties.
PHOTO CREDIT: Michael Havens