ACA Affordability Percentage for Plan Years Starting in 2023
In IRS Revenue Procedure 2022-34, the Internal Revenue Service announced the percentage for determining affordability of employer-sponsored health coverage under the Affordable Care Act (ACA). For plan years starting in 2023, the affordability percentage is 9.12%, which is down from the 2022 affordability percentage of 9.61%.
Under ACA provisions, employers with at least 50 full-time (equivalent) employees must offer health coverage that is affordable and provides minimum value. In order to meet this standard, an employee’s required contribution for the lowest-cost, employee-only coverage (for Plan Year 2023) cannot exceed 9.12% of the employee’s household income.
The IRS created three safe harbor calculations as alternatives to determine affordability:
- Form W-2 wages
- Rate of pay for the employee, based on employee’s hourly or monthly rate of pay
- The federal poverty line, or FPL
Employers can use any one of these safe harbor alternatives to ensure they are in compliance with the ACA, as long as an employee does not pay premiums higher than 9.12% for the lowest-cost employee-only health coverage option.
Employers that fail to offer an affordable, minimum value coverage option to full-time employees could incur penalties under employer shared responsibility rules. Please check with your insurance professional or qualified tax advisor to see if this penalty may apply to you.