The Affordable Care Act (ACA) requires employers with more than 50 full-time employees (or equivalent, including part-time employees) to offer their workforce health insurance deemed “affordable” which meets the minimum value requirements. If an employer fails to provide adequate and affordable health care, they must pay an ACA penalty.
To meet the affordability criteria, the employee portion of the premium for self-only coverage must not exceed a percentage of household income. For 2023, coverage is generally considered “affordable” if the employee’s premium for self-only coverage was at or below 9.12% of the employee’s household income. To determine household income, employers may rely on three safe harbor methods, Rate of Pay, W-2 wages, or the Federal Poverty Line (FPL).
Recently, the Internal Revenue Service (IRS) decreased the affordability percentage to 8.39% for plan years beginning on or after January 1, 2024, in Revenue Procedure 2023-29. For calendar year plan years, the decreased affordability percentage will be applicable on January 1, 2024. Non-calendar-year plans may have more time to comply. For example, a plan year that begins in September has until September 2024 to apply the new 8.39% rate.
| 2015 | 9.56% |
| 2016 | 9.66% |
| 2017 | 9.69% |
| 2018 | 9.56% |
| 2019 | 9.86% |
| 2020 | 9.78% |
| 2021 | 9.83% |
| 2022 | 9.61% |
| 2023 | 9.12% |
| 2024 | 8.39% |
The affordability percentage affects employees’ eligibility for federally subsidized coverage from a public exchange under the ACA. The employers’ potential liability for penalties is determined under §4980H(b). For 2024, the penalties apply to all Applicable Large Employers (ALEs). For 2024, the subsection “B” penalty is $4,460 ($371.67/month). The employer must pay this penalty for each employee who has coverage under a public exchange and receives an ACA subsidy because the employer failed to provide affordable coverage or coverage does not meet the minimum value requirements.
Employers who qualify under the ACA as “large employers” (see above) will need to recalculate and adjust their coverage rates for 2024. The decrease to 8.39% may require employers to decrease their employee premium for self-only coverage in order to avoid ACA penalties.
TRI-AD can help employers manage their ACA compliance with our flexible suite of compliance tools included with our Eligibility and Enrollment product offering.
For more information, contact your TRI-AD Client Service Manager.
TRI-AD and our Associates’ suggestions or recommendations shall not constitute legal advice. No content on our website can be construed as tax or legal advice, and TRI-AD may not be considered your legal counsel or tax advisor. Clients are encouraged to consult with their tax advisor and/or attorney to determine their legal rights, responsibilities, and liabilities. This includes the interpretation of any statute or regulation, federal, state, or local; and/or its application to the clients’ business activities.