IRS Releases 2021 ACA Affordability Rate

Introduction

Employer sponsored health coverage for a 2021 calendar plan year will be considered affordable if the employee required contribution for self-only coverage does not exceed 9.83% of the employee’s household income for the taxable year. This is a slight increase from the 2020 rate of 9.78%. The rate was published in IRS Revenue Procedure 2020-36.

Calculating Affordability

Since employers generally do not 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:

1. Form W-2 Wages,
2. Rate of Pay, or
3. Federal Poverty Level. (FPL).

Calculating Affordability Using the FPL Safe Harbor

The FPL Safe Harbor is the easiest to calculate. For 2021 calendar year plans, the FPL Safe Harbor is satisfied, if the required monthly employee contribution for self-only coverage does not exceed 9.83% of the federal poverty line divided by 12. The 2021 poverty level guidelines will not be available until the end of January or later, therefore IRS guidance allows employers to use the poverty guidelines in effect within six months prior to the first day of the employer’s plan year. This means an employer with a January 1, 2021 plan year start may use the 2020 federal poverty guideline amount to determine the 2021 ACA Federal Poverty Level (FPL) Safe Harbor monthly threshold amount.

Additional information about the other safe harbors can be accessed on the IRS website:

Minimum Value and Affordability

Minimum Value and Affordability FAQs

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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.