Changes to ACA Affordability Contribution Percentages

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The IRS recently announced that the contribution percentages used to determine affordability for an employer’s health plan under the Affordable Care Act will increase. For plan years starting in 2021, employer-sponsored coverage will be considered affordable if the employee’s required contribution for self-only coverage does not exceed:

• 83% of the employee’s annual household income, for purposes of both the pay or play rules and premium tax credit eligibility; and
• 27% of the employee’s annual household income, for purposes of an individual mandate exemption. Although the penalty was reduced in 2019 to $0, some people may need to claim an exemption for other purposes.

The percentages are effective for taxable years and plan years beginning on January 1, 2021. Note that this is a slight increase from the affordability percentages for 2020. Some public sector employers may have additional flexibility in setting their employees contributions for 2021 to meet the adjusted percentage. Download the bulletin for more information.