On Aug. 23, 2023, the IRS released the affordability percentage threshold for 2024 plan years under the Affordable Care Act’s (ACA) pay or play rules. For plan years beginning in 2024, employer-sponsored coverage will be considered affordable under the ACA’s pay or play rules if the employee’s required contribution for self-only coverage does not exceed 8.39% of their household income for the year.
This is a significant decrease from the affordability percentage for 2023 plan years (9.12%) and the lowest this percentage has ever been set since the pay or play rules became effective. Applicable large employers (ALEs) will need to consider this affordability percentage in developing their health plan contribution strategies for the 2024 plan year. ALEs may have to reduce the amount they require employees to contribute in 2024 to meet the lower percentage.
The ACA’s pay or play rules require ALEs to offer affordable, minimum-value health coverage to their full-time employees (and dependents) or pay a penalty. For 2024 plan years, an ALE’s health coverage will be considered affordable if the employee’s required contribution for self-only coverage under the employer’s lowest-cost plan does not exceed 8.39% of the employee’s household income.
Because an employer generally will not know an employee’s household income, the IRS has provided three optional safe harbors that ALEs may use to determine affordability based on information that is available to them: the Form W-2 safe harbor, the rate of pay safe harbor and the federal poverty level safe harbor.
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