ACA’s Affordability Contribution Percentage Increases for 2017

On April 12, 2016, the Internal Revenue Service (IRS) released new guidance on the percentages used to determine what is considered “affordable” health coverage.

Under the Affordable Care Act (ACA), the affordability of an employer’s plan may be assessed for the employer shared responsibility penalty, the individual mandate and the premium tax credit. The affordability test varies for each provision.

For plan years beginning in 2017, the ACA’s affordability contribution percentages will be adjusted to the following percentages:

  • 9.69 percent under the employer shared responsibility rules (up from 9.66 percent in 2016). The shared responsibility rules, or pay or play rules, require applicable large employers (those that employ 50 full-time employees or full-time equivalents) to offer coverage that does not exceed 9.69 percent of an employee’s household income for the year.
  • 9.69 percent under the premium tax credit eligibility rules (up from 9.66 percent in 2016). If employees’ required contributions exceed 9.69 percent, those employees could be eligible for a premium tax credit through the Marketplace.
  • 8.16 percent under an exemption from the individual mandate (up from 8.13 percent in 2016). Individuals that lack access to affordable, minimum value coverage are exempt from the individual mandate.

Failing to meet any of these requirements could trigger significant financial penalties for your business. Remember that these percentages only apply to self-only coverage, and do not include any additional costs for family coverage.

If you offer multiple health coverage options, the affordability test applies to the lowest-cost option that also satisfies the minimum value requirement set by the ACA.

These new percentages are effective for taxable years and plan years beginning after Dec. 31, 2016.

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The information provided is for informational purposes only and does not constitute legal advice. The information above contains only a summary of the applicable legal provisions and does not purport to cover every aspect of any particular law, regulation or requirement. Depending on the specific facts of any situation, there may be additional or different requirements. This is to be used only as a guide and not as a definitive description of your compliance obligations.