Affordability Percentages Will Decrease for 2018

On May 5, 2017, the Internal Revenue Service (IRS) issued Revenue Procedure 2017-36 to index the contribution percentages in 2018 for purposes of determining affordability of an employer’s plan under the Affordable Care Act (ACA). For plan years beginning in 2018, employer-sponsored coverage will be considered affordable if the employee’s required contribution for self-only coverage does not exceed:

  • 9.56 percent of the employee’s household income for the year, for purposes of both the pay or play rules and premium tax credit eligibility; and
  • 8.05 percent of the employee’s household income for the year, for purposes of an individual mandate exemption (adjusted under separate guidance).

These updated affordability percentages are effective for taxable years and plan years beginning Jan. 1, 2018. This is the first time since these rules were implemented that the affordability contribution percentages have been reduced. As a result, some employers may need to reduce their employee contributions for 2018 to meet the adjusted percentage.

Overview of the Affordability Requirement

Under the ACA, the affordability of an employer’s plan may be assessed in the following three contexts:

The employer shared responsibility penalty for applicable large employers (also known as the pay or play rules or employer mandate);
An exemption from the individual mandate tax penalty for individuals who fail to obtain health coverage; and
The premium tax credit for low-income individuals to purchase health coverage through an Exchange.
Although all of these provisions involve an affordability determination, the test for determining a plan’s affordability varies for each provision.

The IRS previously adjusted the affordability contribution percentage for 2015 in Rev. Proc. 14-37, for 2016 in Rev. Proc. 14-62, and for 2017 in Rev. Proc. 16-24.


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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.