The IRS recently announced the ACA affordability threshold for
2021 at 9.83%, a small increase from the 2020 level of 9.78%.
In order to avoid triggering a penalty under Section 4980H(b) of
the Internal Revenue Code (the “Code”), an applicable
large employer must offer full-time employees health plan coverage
that provides minimum value and is affordable. The affordability
test is based on the cost of employee-only coverage for the lowest
cost medical plan option. An employee is deemed to have received an
offer of affordable coverage even if he/she enrolls in a higher
cost option.
The test is based on whether the employee contribution for the
lowest cost medical plan option exceeds 9.83% of household income.
As employers do not know an employee's household income, for
purpose of Code Section 4980H(b) an employer is permitted to set
its contribution rate using one of three safe harbors, where the
employee contribution for single coverage does not exceed:
