2024 ACA Affordability Rate Impact on Large Employers

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.

What does this mean for employers?

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):

1. Form W-2, Box 1 wages,
2. Rate of pay safe harbor, and
3. Federal poverty line (“FPL”) safe harbor

Form W-2, Box 1 Wages

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

FPL Safe Harbor for 2024 Calendar Year Plans

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

Here’s an Example:

1. Toby is employed by Dunder Mufflin from January 1 through September 30 and his W-2 wages are $18,000.
   • The employee contribution for self-only coverage is $100 per calendar month, or $900 for Toby’s period of employment.
   • Because the employee contribution for 2024 is less than 8.39% of the Form W–2 wages, the coverage offered is treated as affordable with respect to Toby ($900 is 5 percent of $18,000).