The Ultra Low 2024 ACA Affordability Percentage

By Brian Gilmore | Published August 30, 2023

Executive Summary

2024 ACA Affordability Percentage Drops to 8.39%: The IRS has announced that the ACA affordability percentage used to determine compliance with the employer mandate will significantly decrease from 9.12% (2023) to 8.39% (2024) of the employee's household income.
2024 Lowest-Cost Plan is No More Than $101.93/Month: Employers offering a medical plan option in 2024 that costs employees no more than $101.93 per month for employee-only coverage will automatically meet the ACA affordability standard under the federal poverty line (FPL) affordability safe harbor.
2024 Lowest-Cost Plan Exceeds $101.93/Month: Employers should generally utilize the rate of pay affordability safe harbor if the lowest-cost plan option exceeds $101.93/month.
2024 Contribution Strategy Considerations: Employers should consider the ACA affordability safe harbor requirements when designing employee contribution levels to avoid potential employer mandate “B Penalty” liability.

2024 Affordability Percentage Set at 8.39%

The IRS has issued Revenue Procedure 2023-29, which significantly decreases the affordability threshold for ACA employer mandate purposes to 8.39% for plan years beginning in 2024.

2015 Percentage: 9.56%
2016 Percentage: 9.66%
2017 Percentage: 9.69%
2018 Percentage: 9.56%
2019 Percentage: 9.86%
2020 Percentage: 9.78%
2021 Percentage: 9.83%
2022 Percentage: 9.61%
2023 Percentage: 9.12%
2024 Percentage: 8.39%

Which Employers Need to Worry About ACA Affordability?

The ACA employer mandate rules apply to employers that are "Applicable Large Employers," or "ALEs." An employer is an ALE if it employed an average of at least 50 full-time employees in the preceding calendar year.

For more details:

Why Does it Matter if an ALE Offers "Affordable" Coverage?

ALEs are receiving IRS Letters 226J informing them of proposed ACA employer mandate penalty assessments. These assessments can be very large.

For more details: Responding to IRS Letter 226J

The ACA Employer Mandate Penalties

IRC §4980H(a)—The "A Penalty:" This penalty applies where the ALE fails to offer minimum essential coverage to at least 95% of its full-time employees in any given calendar month. The 2024 A Penalty is $247.50/month ($2,970 annualized) multiplied by all full-time employees (reduced by the first 30).
IRC §4980H(b)—The "B Penalty:" This penalty applies where the ALE is not subject to the A Penalty and applies for each full-time employee who was not offered minimum essential coverage, offered unaffordable coverage, or offered coverage that did not provide minimum value. The 2024 B Penalty is $371.67/month ($4,460 annualized) per full-time employee receiving subsidized coverage on the Exchange.

How Does the ACA Affordability Test Work?

The ACA affordability test is based on the employee-share of the premium for employee-only coverage under the ALE’s lowest-cost plan option. Employers that offer different medical plan options to different groups of employees must determine affordability based on the lowest-cost plan option available to each employee group.

Three safe harbors for determining affordability:

Federal Poverty Line Affordability Safe Harbor
Rate of Pay Affordability Safe Harbor
Form W-2 Affordability Safe Harbor

The 2024 Federal Poverty Line Affordability Safe Harbor

Employers can use this safe harbor if the employee-share of the premium for the ALE’s lowest-cost plan option does not exceed 8.39% of the federal poverty line for a single individual, divided by 12. The 2023 federal poverty line for a single individual is $14,580, making the 2024 federal poverty line limit $101.93/month.

The 2024 Rate of Pay Affordability Safe Harbor

Employers not qualifying under the federal poverty line should use the rate of pay affordability safe harbor, which applies a percentage based on hourly or monthly salary.

Hourly Test: 8.39% of the employee’s hourly rate of pay multiplied by 130 hours.
Salaried Test: 8.39% of the employee’s monthly salary.

The 2024 Form W-2 Affordability Safe Harbor

This approach determines affordability based on the employee's Box 1 wages on the Form W-2, but is not recommended due to lack of predictability and potential complications.

Summary

If the employee-share of the premium for the lowest-cost major medical plan option at the employee-only tier does not exceed $101.93/month, use the Federal Poverty Line Affordability Safe Harbor.
If it exceeds $101.93/month, use the Rate of Pay Affordability Safe Harbor.

Disclaimer

The intent of this analysis is to provide general information regarding the recipient’s employee benefits issues. This message does not establish an attorney-client relationship and should not be construed as legal advice.