Affordability Alert | Indexed Contribution Percentage for an Employer’s Plan Under the ACA

Employee Benefits

Affordability Alert | Indexed Contribution Percentage for an Employer’s Plan Under the ACA

On August 2, 2022, the IRS issued Revenue Procedure 2022-34, which announces the indexed contribution percentage applicable in 2023 for determining the affordability of an employer’s plan under the Affordable Care Act (ACA).

For plan years beginning in 2023, employer-sponsored coverage will be considered affordable for purposes of the employer shared responsibility penalties if the employee’s required contribution for self-only coverage under the lowest cost option that provides minimum value does not exceed:

  • 9.12% of the employee’s household income for the year—this is a significant decrease from 9.61% in 2022.

The updated affordability percentages are effective for taxable and plan years beginning January 1, 2023.

Because employers will not know each employee’s household income to determine whether the offer of coverage is affordable, optional safe harbors may be adopted. The applicable safe harbors include:

  • The W-2 safe harbor: Under this safe harbor, the offer is affordable if the employee’s contribution for the lowest-cost employee-only coverage option does not exceed the applicable percentage of the employee’s Box 1 W-2 earnings.
  • The rate of pay safe harbor: This applies the percentage to the employee’s base hourly rate of pay at 130 hours in a month.
  • The federal poverty level (FPL) safe harbor: This applies the percentage to the applicable federal poverty line.
    • For plan years beginning between July 1, 2022, and December 31, 2022, an employer-sponsored medical plan is considered affordable under the FPL safe harbor if an employee residing within the contiguous U.S. contributes no more than $108.83 per month ($13,590 ÷ 12 X 9.61% = $108.83) towards the lowest cost medical plan option.
      Note: A different calculation applies with respect to employees residing in Alaska or Hawaii.
    • For plan years beginning on or after January 1, 2023, an employer-sponsored medical plan is considered affordable under the FPL safe harbor if an employee residing within the contiguous U.S. contributes no more than $103.28 per month ($13,590 ÷ 12 X 9.12% = $103.28) towards the lowest cost medical plan option.
      Note: A different calculation applies with respect to employees residing in Alaska or Hawaii.
Regulatory and Legislative Strategy Group

DISCLAIMER: Brown & Brown, Inc. and all its affiliates, do not provide legal, regulatory or tax guidance, or advice. If legal advice counsel or representation is needed, the services of a legal professional should be sought. The information in this document is intended to provide a general overview of the topics and services contained herein. Brown & Brown, Inc. and all its affiliates, make no representation or warranty as to the accuracy or completeness of the document and undertakes no obligation to update or revise the document based upon new information or future changes.