Determining Employee Affordability

One of the main provisions of the Affordable Care Act is that it requires the health insurance taxpayers have to be affordable. It should go without saying, then, that the health insurance you provide as an employer must be affordable to your employees.

But, as always, the IRS is going to spell it out for us anyways.

In order to be considered “affordable” under the employer shared responsibility provisions, the employee’s share should cost no more than 9.5% of their annual household income.

Since you’re not likely to know the entire household income of all of your employees, the IRS has come up with three safe harbor techniques to determine whether or not the coverage you offer is affordable.

Keep in mind that you can choose to use one or more of the safe harbors for all of your employees, but you must do so on a consistent basis for all of your employees.

The Form W-2 Wages Safe Harbor
This form of safe harbor bases affordability on whether or not the employee’s cost of the lowest-cost, self-only coverage exceeds 9.5% of the calendar year wages reported in Box 1 on Form W-2.

The Rate of Pay Safe Harbor
The rate of pay safe harbor involves a bit more math: coverage for an hourly employee is affordable if the employee’s contribution for the calendar month does not exceed 9.5% of an amount equal to 130 hours times the lower of

• The employee’s hourly rate of pay on the first day of the coverage OR
• The employee’s lowest hourly rate of pay during the calendar month.

The Federal Poverty Line Safe Harbor
With the FPL safe harbor, for coverage to be considered affordable, the employee’s contribution cannot exceed 9.5% of the Federal Poverty Line for the calendar year divided by 12.



Once you’ve determined your employee affordability, it’s important to have a plan put in place to report that coverage to the IRS! And one of the easiest, most secure ways to do that is with ExpressACAForms! We’re a full-service, IRS-authorized e-file provider, which means we handle creating your forms and e-filing them once you’ve approved them. Give us a call today or sign up on our website to get started.