An Effective ACA Affordability Calculator for 2024
Employers need to keep a close eye on employee contributions (or the relative share of plan cost reflected in employee contributions) to maintain “affordable” coverage under the Affordable Care Act (ACA) and avoid IRS penalties.
This ACA Affordability Calculator can help.
Under the ACA, ALEs (Applicable Large Employers) must offer quality health insurance coverage to at least 95% of their eligible full-time employees. This coverage must also be affordable for the employee.
In the ACA, a plan is considered affordable in 2024 if the employee’s required contribution for the lowest cost self-only health insurance option offered by the employer does not exceed 8.39% of the employee’s household income (the IRS adjusts this amount annually based on the federal poverty line). The affordability applies even if the employee selects a different health insurance coverage option. This is a significant decline from 9.12% in 2023.
Since employers often don’t know their workers’ household incomes, the IRS allows the employer to use one or all three of these tests for affordability, any of which can be used in place of household income:
Just one safe harbor per plan. Employers with multiple plans can apply different safe harbors to different plans – they need not be identical. Read more about the ACA affordability safe harbors.
If an employee’s share of the premium for the lowest cost self-only option offered by the employer is more than 8.39% (2024) of his or her household income, the coverage is not considered affordable for that employee and the ALE member may be liable for an employer-shared responsibility penalty under Section 4980(b) if that employee obtains a premium tax credit for health coverage purchased through the marketplace.
The 2025 penalty amount is $4,350 per employee per year.
Note: this is the penalty for not offering affordable coverage and that this penalty applies to all employees, not just the one that was not offered affordable coverage!
In just a few seconds, the ACA affordability calculator can tell you if your plan is affordable.