Overview
The IRS recently announced the 2026 indexing adjustments under the Affordable Care Act (ACA). The affordability percentage threshold was changed as follows:
2025: 9.02%
2026: 9.96%
Adjustments (both up and down) are made annually from the baseline percentage provided in the ACA of 9.5%.
What's the Impact?
The affordability percentage defines the maximum self-only premium contribution that certain employees are required to pay for the plan to be considered “affordable.” This matters because Applicable Large Employers must offer affordable, minimum value coverage to full-time employees or they may be liable for ACA shared responsibility penalties.
The newly increased affordability threshold creates a higher allowable maximum premium contribution. Note that the 2026 threshold of 9.96% is the highest threshold since the inception of the Affordable Care Act. When the Federal Poverty Level safe harbor is used, the threshold equates to a maximum employee contribution of $129.89 per month.
Employers will need to carefully review health plan offerings and contributions to ensure that affordability thresholds are met for all employees based on the updated affordability threshold.
Affordability Safe Harbor Options
There are three safe harbor options available to employers in calculating premium affordability. All are based on the required contribution for the employer’s lowest cost, minimum value, self-only coverage.
- W-2 Safe Harbor. The W-2 safe harbor bases affordability on whether the employee’s required contribution does not exceed 9.96% of that employee’s W-2 wages from the employer for that calendar year.
- Rate of Pay Safe Harbor. The rate of pay safe harbor is split in two parts, depending on whether the employee is paid on an hourly or salaried basis.
- Hourly Employees - Affordability is based on whether the employee’s required contribution for the month does not exceed 9.96% of the employee’s hourly rate of pay multiplied by130 hours.
- Salaried Employees - Affordability is based on whether the employee’s required monthly contribution does not exceed 9.96% of the employee’s monthly salary.
- Federal Poverty Line (FPL) Safe Harbor. The FPL safe harbor bases affordability on whether the employee’s required contribution does not exceed 9.96% of the monthly FPL for a single person. This equates to $129.89 per month.
Employers using the FPL method must offer at least one minimum value health plan with an employee only contribution of $129.89 or less. (That is calculated as the 2026 Single Person FPL of $15,650 ¸ 12 x 9.96%.) Employers using other methods must evaluate plan offerings to confirm that premium contributions meet the 9.96% threshold.
Employer Action Item
Employers must carefully review their health plan offerings and contributions to ensure that 2026 plans meet the updated affordability threshold.
Reference
- IRS Rev. Proc. 2025-25: Link
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