The Affordable Care Act affordability rate for employer-sponsored health coverage will increase from 8.39% to 9.02% of an employee’s household income for the 2025 calendar plan year.
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At A Glance
The Affordable Care Act (ACA) affordability rate for employer-sponsored health coverage will increase from 8.39% to 9.02% of an employee’s household income for the 2025 calendar plan year.
What is the Affordability Rate?
Under the ACA, employer-sponsored health coverage will be considered affordable for a 2025 calendar year plan if an employee's required contribution for self-only coverage doesn't exceed 9.02% of the their household income for the taxable year. This is an increase from the 2024 calendar plan year rate of 8.39%. According to IRS Revenue Procedure 2024-35, employer-sponsored health coverage under the ACA will be considered
Calculating Affordability
Because employers generally don't know an employee’s household income, the IRS provides three affordability safe harbors that applicable large employers (ALEs) may use to determine affordability. The safe harbors permit an ALE to measure affordability based on one of the following:
- Form W-2 Wages
- Rate of Pay
- Federal Poverty Level (FPL)
Calculating Affordability Using the FPL Safe Harbor
For most employers, the FPL safe harbor is the easiest to calculate. For 2025 calendar year plans, the FPL safe harbor is satisfied if an employee's required monthly contribution for self-only coverage doesn't exceed 9.02% of the federal poverty line divided by 12.
2025 poverty level guidelines won't be available until the end of January 2025 or later, so IRS guidance allows employers to use the guidelines in effect within six months before the first day of the employer’s plan year. This means an employer with a plan year start date of January 1, 2025, may use the 2024 federal poverty guideline amount to determine their 2025 FPL safe harbor monthly threshold amount.
2024 Annual Poverty Level Guideline (Individual) | 2025 Safe Harbor 9.02% Monthly Threshold |
$15,060 | $113.20 |
Additional information about the other safe harbors is available on the IRS website:
Thank you for choosing Paylocity as your payroll tax and HCM partner. This information is provided as a courtesy, may change, and is not intended as legal or tax guidance. Employers with questions or concerns outside the scope of a Payroll Service Provider are encouraged to seek the advice of a qualified CPA, Tax Attorney, or Advisor.
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