On August 23, 2023, the Internal Revenue Service (IRS) issued revenue ruling 2023-29 which indexes the contribution percentages for 2024 for purposes of determining affordability of an employer’s plan under the Affordable Care Act (ACA). For plan years beginning in 2024, employer-sponsored coverage will be considered affordable if the employee’s required contribution for self-only coverage does not exceed 8.39 percent of the employee’s household income for the year for purposes of the employer shared responsibility rules. This is a historic low for tax year 2024 and is a significant reduction from 2023’s percentage of 9.12%. The 2024 decrease in the affordability percentage for employer shared responsibility purposes means that employers will have to charge employees a lower price for their health benefits to meet the “affordability” test.
Since an employer would not know an employee’s household income, IRS Notice 2015-87 confirmed that ALEs using an affordability safe harbor may rely on the adjusted affordability contribution percentages if they use one of three affordability safe harbor methods. The three safe harbors to measure affordability are Form W-2 wages from that employer, the employee’s rate of pay or the federal poverty line (FPL) for a single individual. 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 also satisfies the minimum value requirement.
Below is an example of how the percentage change impacts an employer’s monthly affordable amount using the three safe harbor tests. The example assumes an employee earns $15/hour when using the W-2 and rate of pay safe harbors.
|$15 / hour
|Rate of Pay
|Federal Poverty Line*
*Based on 2023 look back Federal Poverty Line of $14,580