1 minute read
On September 6, 2024, the IRS unveiled Revenue Procedure 2024-35, which updates the contribution percentage for 2025 to determine the affordability of an employer’s health plan under the Affordable Care Act (ACA). Starting in 2025, employer-sponsored health coverage will be deemed affordable under the ACA’s "pay-or-play" mandate if the employee’s share for self-only coverage does not exceed 9.02% of their household income for the year.
Affordability Test
The ACA’s pay-or-play rules mandate that large employers offer affordable, minimum-value health coverage to full-time employees and their dependents. If the employee’s contribution does not exceed 9.5% of their household income, adjusted annually, the coverage is deemed affordable. Failure to meet this requirement may result in penalties.
In recent years, the affordability percentage has been updated to:
- 9.12% for 2023;
- 8.39% for 2024; and
- 9.02% for 2025.
The affordability test applies only to self-only coverage premiums and excludes family coverage costs. For multiple health coverage options, it applies to the lowest-cost option meeting minimum value. Because employers may not know an employee’s household income, the IRS offers three affordability safe harbors: Form W-2, rate of pay, and federal poverty level.
Affordability Percentage for 2025
For 2025, the affordability percentage rises to 9.02%, allowing more flexibility for employers in setting contributions, as coverage is deemed affordable if an employee's self-only contribution does not exceed 9.02% of their income. Download the bulletin for more details.
National Insurance Services is not a law firm and no opinion, suggestion, or recommendation of the firm or its employees shall constitute legal advice. Readers are advised to consult with their own attorney for a determination of their legal rights, responsibilities and liabilities, including the interpretation of any statute or regulation, or its application to the readers’ business activities.
