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ACA Affordability Threshold Decreases for 2023

On July 25, 2022, the IRS announced (IRS Rev. Proc. 2022-34) that the Affordable Care Act’s (ACA) affordability threshold will be 9.12 percent, reduced from 9.61 in 2022, for plan years beginning in calendar year 2023 (after December 31, 2022). Under the ACA’s Employer Shared Responsibility provision (Play or Pay), large employers (those with an average of 50 full-time employees, including full-time equivalent employees during the prior year) must either:

  • Offer most full-time employees, and their children, minimum essential, minimum value coverage that is affordable at the employee-only level of coverage; or
  • Make an employer shared responsibility payment to the IRS if at least one of their full-time employees purchases coverage on a Health Insurance Marketplace and receives a premium tax credit because their employer did not offer qualifying coverage.

Under the new threshold, to be affordable for 2023, the employee’s required contribution to the plan cannot be more than 9.12 percent of the employee’s income. 

As a safe harbor, employers may use the federal poverty level (FPL) to automatically meet the ACA affordability standard. In addition to the FPL safe harbor, there are also two other safe harbor calculations which may be used to determine affordability, but unlike the use of the FPL, these calculations are not automatically deemed affordable. Employers may use the following alternative methods to determine affordability:

  • Form W-2 Safe Harbor: Employees’ W-2 wages, as reported in Box 1, generally as of the first day of the plan year.
  • Rate of Pay Safe Harbor: Employees’ rate of pay, which is the hourly wage rate multiplied by 130 hours per month as of the first day of the plan year or, for salaried employees, 9.12 percent of the monthly salary as of the first day of the 2023 coverage period.

Next Steps from Employers

Given that employers are unlikely to know an employee’s household income, they may use a number of safe harbors to determine affordability, including reliance on Form W-2 wages. Employers may also learn more about affordability and minimum value on the IRS’s Questions and Answers on Employer Shared Responsibility Provisions Under the Affordable Care Act page.

HR Works, Inc., headquartered at 200 WillowBrook Office Park in Fairport (Rochester), New York, with an office in East Syracuse, is a human resource management outsourcing and consulting firm serving clients throughout the United States. HR Works provides scalable strategic human resource management and consulting services, including: affirmative action programs; benefits administration outsourcing; HRIS self-service technology; full-time, part-time and interim on-site HR managers; HR audits; legally reviewed employee handbooks and supervisor manuals; talent management and recruiting services; and training of managers and HR professionals.