Summary At a Glance
- The IRS announced that the ACA affordability threshold will increase to 10.22% for plan years beginning in 2027.
- Applicable large employers must still offer minimum essential coverage to at least 95% of full-time employees and dependent children.
- Employers may still use ACA affordability safe harbors to determine whether employee contributions meet affordability requirements.
- Employers should review 2027 contribution amounts, confirm ALE status, coordinate with benefits advisors, and document affordability calculations before open enrollment.
On July 21, 2026, the Internal Revenue Service (IRS) announced that the Affordable Care Act (ACA) affordability threshold will increase from 9.96% in 2026 to 10.22% for plan years beginning in 2027.
The higher threshold provides applicable large employers (ALEs) with slightly more flexibility when determining the amount employees may be required to contribute toward employer-sponsored health coverage.
Background on ACA Affordability Requirements
Under the ACA’s employer shared responsibility provisions, ALEs, (applicable large employers: employers typically averaging at least 50 full-time employees, including full-time equivalent employees, during the preceding calendar year) must offer qualifying health coverage to their full-time employees or potentially be subject to employer shared responsibility penalties.
To avoid potential penalties, ALEs in general must offer minimum essential coverage to at least 95% of full-time employees and their dependent children (note that spouses are not considered dependents for this purpose). The coverage offered to full-time employees must also be affordable and provide minimum value.
What Employers Need to Know
- Affordability Threshold Increases. For plan years beginning in 2027, coverage will usually be considered affordable when the employee’s required contribution for the lowest-cost employee-only coverage option that provides minimum value does not exceed 10.22% of the applicable affordability measure.
- The Percentage Applies by Plan Year. The 10.22% threshold applies to plan years beginning in calendar year 2027. A non-calendar-year plan that begins in 2026 will continue using the 2026 affordability percentage until the plan’s 2027 plan year begins.
- Employers May Use Affordability Safe Harbors. Because employers frequently do not know an employee’s household income, the ACA permits ALEs to use one of three affordability safe harbors:
- Form W-2 wages;
- Rate of pay; or
- The federal poverty line.
An employer may use one or more safe harbors, provided they are applied consistently and in accordance with ACA requirements.
- Minimum Value Requirements Still Apply. An employer-sponsored plan generally provides minimum value when it covers at least 60% of the total allowed cost of benefits expected to be incurred under the plan. Increasing the affordability percentage does not change the minimum value requirement.
- Penalties May Still Apply. Even when an ALE offers coverage to at least 95% of its full-time employees and their dependents, it may be subject to an employer shared responsibility payment if a full-time employee receives a premium tax credit because the coverage was unaffordable, did not provide minimum value, or was not offered to that employee.
Next Steps for Employers
- Review 2027 Employee Contributions. Evaluate the employee cost for the lowest-priced employee-only plan option that provides minimum value.
- Select an Affordability Safe Harbor. Determine which safe harbor the organization will use and confirm that it is applied consistently to the applicable employee population.
- Coordinate With Benefits Advisors. Work with benefits brokers, third-party administrators, payroll providers, and legal or tax advisors when establishing 2027 contribution amounts.
- Confirm ALE Status. Review the organization’s average number of full-time and full-time equivalent employees during 2026 to determine whether the employer will be an ALE for 2027.
- Review Coverage Offers. Confirm that qualifying coverage will be offered to at least 95% of full-time employees and their dependent children.
- Document Affordability Calculations. Retain records supporting the affordability safe harbor selected and the calculation used to determine employee contributions. Employers should begin reviewing their 2027 health plan contributions before open enrollment to allow sufficient time for any necessary plan design, payroll, or employee communication changes.
HR Works will continue to monitor ACA guidance and provide updated information as it becomes available.
