Pay or Play Affordability Percentage Decreased

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The IRS issued Revenue Procedure 2022-34 to update the contribution percentage in 2023 for determining the affordability of an employer’s plan under the Affordable Care Act.

For plan years beginning in 2023, employer-sponsored coverage will be considered affordable if the employee’s required contribution for self-only coverage does not exceed:

• 9.12% under the pay or play rules
• 9.12% under the premium tax credit eligibility rules
• 8.17% under an exemption from the individual mandate

The updated affordability percentage for the pay or play rules and premium tax credit is the most significant decrease since the rules were implemented. The affordability percentage for the individual mandate exemption increased slightly from 2022.

The updated percentages are effective for plan years beginning January 1, 2023. Employers may need to substantially lower their employee contributions for 2023 to meet the adjusted percentage.

Download the bulletin for more details.