On July 18, 2025, the IRS issued Revenue Procedure 2025-25, announcing the indexed contribution percentage applicable in 2026 for determining the affordability of an employer’s plan under the Affordable Care Act (ACA).

For plan years beginning in 2026, employer-sponsored coverage will be considered affordable for purposes of the employer shared responsibility penalties (ESRP) if the employee’s required contribution for self-only coverage under the lowest-cost medical plan option that provides minimum value (MV) does not exceed:

• 9.96% of the employee’s household income for the year (an increase from the affordability contribution percentage of 9.02% in 2025).

The updated affordability percentages are effective for taxable and plan years beginning January 1, 2026.

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 Box 1 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 a month or the monthly salary of a salaried employee.
• The Federal Poverty Level (FPL) Safe Harbor: This applies the affordability percentage to the mainland (or Hawaii/Alaska, if applicable) federal poverty line that is in effect within six (6) months before the start of the plan year.
  • The 2025 federal poverty line amount was $15,650. Accordingly, for plan years beginning on January 1, 2026, an Applicable Large Employer would be considered as offering affordable coverage under the federal poverty line safe harbor if it offers full-time employees self-only coverage in its lowest cost, MV plan with an employee contribution of no greater than $129.90 per month ($15,650 ÷ 12 X 9.96% = $129.90).¹
  • For 2026 plan years beginning on or after January 15, 2026, an Applicable Large Employer may utilize the higher 2026 federal poverty line amount of $15,960. Accordingly, an Applicable Large Employer in this situation would be considered to be offering affordable coverage under the federal poverty line safe harbor if it offers full-time employees self-only coverage in its lowest cost, MV plan with an employee contribution of no greater than $132.47 a month ($15,960 ÷ 12 X 9.96% = $132.47).²

¹ A different calculation applies with respect to employees residing in Alaska or Hawaii.
² A different calculation applies with respect to employees residing in Alaska or Hawaii.

Regulatory & Legislative Strategy Group