IRS Increases Affordability Percentage for 2025

Under the Patient Protection and Affordable Care Act (ACA) Employer Mandate, ALEs must offer affordable health coverage that meets minimum value requirements to fulltime employees or face potential penalties.  The affordability percentage, which is adjusted annually, is used to determine the threshold at or below which the cost of coverage will be considered affordable.  Generally, coverage offered to a full-time employee will be considered affordable if the employee’s contribution for self-only coverage does not exceed 9.02% for 2025 (8.39% for 2024) of the employee’s household income for the taxable year.  Because employers have no actual knowledge of their employees’ household incomes, the rules provide for three affordability safe harbors: (1) employee’s Form W-2 wages; (2) employee’s rate of pay; and (3) the federal poverty guidelines for a single individual.  An employer may use one or more of these safe harbors for all employees or any reasonable category of employees, as long as it is done on a uniform and consistent basis.

If you have questions about the increased affordability percentage for 2025, call ASR Health Benefits at (616) 957-1751 or (800) 968-2449.