The IRS released the affordability threshold for employer-provided health coverage for 2021. Under the Affordable Care Act, an applicable large employer must provide affordable, minimum value coverage to its full-time employees and their dependents or pay a tax penalty. A plan is affordable if the premium for self-only coverage does not exceed a certain percentage of the employee’s household income. The IRS sets the percentage each year.
In 2021, the affordability percentage will be 9.83% which is an increase from the 2020 affordability percentage of 9.78%. A plan will be considered affordable if its premium costs does not exceed 9.83% of an employee’s household income.
Since household income is not readily available, employers may use one of the ACA affordability safe harbors to determine if their plans are affordable.
- W-2 Safe Harbor. An employer’s offer of coverage will be considered affordable if the employee’s required contribution for the employer’s lowest cost single-only coverage that provides minimum value does not exceed 9.83% of the employee’s Form W-2 wages.
- Rate of Pay Safe Harbor. An employer’s offer of coverage will be considered affordable if the employee’s required contribution for the employer’s lowest cost single-only coverage that provides minimum value does not exceed 9.83% of the employee’s monthly salary (for hourly employee- hourly pay x 130 hours).
- Federal Poverty Line Safe Harbor. An employer’s offer of coverage will be considered affordable if the employee’s required contribution for the employer’s lowest cost single-only coverage that provides minimum value does not exceed 9.83% of the monthly Federal Poverty Line for a single individual. The annual FPL for the United States mainland in 2021 is $12,760 which means the monthly cost for single-only coverage cannot exceed $104.52 to satisfy the federal poverty line safe harbor.
Employers should review their cost structure to make sure the change to the affordability percentage does not impact their employees.
