While ACA remains the law of the land, applicable large employers must offer affordable, minimum value coverage to their full-time employees. Whether coverage is “affordable” will impact if an employer will be subject to the employer shared responsibility penalty and if an employee can get a tax credit to purchase coverage on the Exchange.
Coverage is deemed “affordable” if the employee’s required contribution for the lowest-cost, single-only coverage does not exceed a specified percentage of the employee’s household income. The IRS has approved 3 safe-harbors for the affordability calculation: W-2, Rate of Pay, and Federal Poverty Line.
The IRS issued Revenue Procedure 2017-36 which identifies indexing adjustments for the required contribution percentage for determining affordability. It started at a 9.5% baseline, was increased to 9.69% for 2017, and will decrease to 9.56% for 2018. Employers should use the new percentage threshold for determining affordability starting next year.