The IRS released a new (and reduced!) ACA Affordability Rate for 2024.
Employer sponsored health coverage for a 2024 calendar plan year will be deemed “affordable” when the employee required contribution for self-only coverage does not exceed 8.39% of the employee’s household income for the taxable year. Employers using the exact safe harbor dollar amount will have a smaller employee contribution for the lowest-cost, self-only option for the 2024 plan year than for the 2023 plan year. This in turn means employers will make a larger contribution to meet the affordability threshold.
Pro Tip: In this context, safe harbor means a method for proving ACA affordability to avoid penalties.
An applicable large employer (“ALE”) may use one or more of the safe harbors, but only if the ALE offers 95% of its full-time employees (“FTE”) and their dependents the opportunity to enroll in coverage that provides minimum value for the employer’s lowest cost self-only coverage offered to the employee. Employers may use one or more of the three affordability safe harbors (provided it does so on a uniform and consistent basis for all employees in the same category):
To meet the Form W-2, Box 1 wages safe harbor, the employee contribution cannot exceed 8.39% of the employee’s wage for the months of coverage offered. Often, the lowest paid employee’s W-2, Box 1 wages are used for this type of affordability analysis, depending on the organization and its constraints.
Let’s do the math!
(0.0839 x $35,000 (example of annual Box 1, Wage) /12 months = $244.71 per month
To meet the FPL safe harbor, the employee contribution cannot exceed 8.39% of the FPL for an individual for mainland U.S. ($14,580 for 2024). Employers should note again this is a decrease from the 2023 plan year.
Let’s do the math!
(0.0839 x $14,580) / 12 months = $101.94 per month
