2025 ACA Affordability Percentage: Important Information for Employers

The IRS recently announced the 2025 ACA affordability percentage, increasing from 8.39% of an employee's household income in 2024 to 9.02% in 2025*. The affordability percentage is used to determine whether or not an employee is being offered affordable coverage through their employer, and therefore, whether or not they are eligible for a premium tax credit when purchasing coverage through the exchange. This change is important for employers to be aware of as it directly impacts the affordability of employer-sponsored health coverage and has implications for both employees and employers.

Why the Timing Matters

This announcement comes at a crucial time for employers as many are in the midst of their open enrollment and cost-sharing strategy exercises for the upcoming calendar year. It's imperative that employers understand the new affordability percentage and adjust their health plan offerings and cost-sharing accordingly to help meet regulatory requirements with the ACA and help avoid potential penalties.

Decoding Affordability Safe Harbors

To determine affordability, employers can utilize one of three safe harbors:

1. Federal Poverty Line (FPL) Safe Harbor: This safe harbor is typically the simplest to implement. Employers must offer at least one health plan option where the employee's contribution for self-only coverage doesn't exceed 9.02% of the FPL for the applicable area. For 2025, the FPL for the 48 contiguous states and D.C. will continue to be $15,060, resulting in a maximum employee contribution of $113.20 per month. Once the Department of Health and Human Services updates the FPL in early 2025, employers may adopt the 2025 rate or continue using the 2024 FPL until 6 months after the 2025 rate is announced*. 
2. W-2 Safe Harbor: Under this safe harbor, the employee's contribution for self-only coverage cannot exceed 9.02% of the employee's W-2, Box 1 wages*. 
3. Rate of Pay Safe Harbor: This safe harbor bases affordability on 9.02% of an employee's hourly rate of pay multiplied by 130 hours per month*. 

Choosing the Right Safe Harbor: Some of the Pros and Cons

Each safe harbor has its advantages and disadvantages:

• FPL: Simpler and easier to implement. However, it can result in a lower cap than typically calculated when using W2 or Rate of Pay. Employers who use FPL must offer a plan that meets minimum essential coverage and minimum value, and charge employees a low monthly premium (for 2024, equal to or less than $105.29). Higher income earners could pay significantly more of the cost share than FPL allows, and coverage could still be considered affordable.  
• W-2: More accurately reflects affordability based on employee income and may be beneficial for employers with employees who have consistent salaries or work schedules. This safe harbor requires access to W-2 data and may be more risky for some employers, because employers usually don’t know W2, Box 1 wages until the end of the year. When the workforce includes part-time, variable-hour employees or employees who may have unexpected leaves of absence in the calendar year which reduces their anticipated W2, Box 1 earnings, coverage may end up unexpectedly being unaffordable.
• Rate of Pay: Typically, suitable for hourly employees but may not be appropriate for salaried or commissioned employees. It can be advantageous for employers with employees whose hours fluctuate frequently, where W2 wages would be difficult to plan for. This method could also result in setting cost sharing rates lower than allowed if the general employee population is expected to work more than 130 hours per month. 

Example Calculation: FPL Safe Harbor

An employee in the 48 contiguous states and D.C. is offered a health plan with a total monthly premium of $500 for self-only coverage. To meet the FPL safe harbor, the employer's contribution must be at least $386.80 per month ($500 - $113.20).

Key Reminder: 2025 FPL Rate

The official 2025 FPL rate won't be published until early 2025. Employers can use the 2024 FPL rate through July 2025*. However, it's advisable to plan for the potential increase in the FPL and adjust employee contributions accordingly to help you better ensure your ongoing ACA requirements are met.

Staying Ahead

Understanding and navigating the complexities of ACA requirements can be challenging. It's essential to stay informed about regulatory changes and proactively adjust your health plan offerings to better protect both your employees and your business.

How Equifax Workforce Solutions Can Help

Equifax Workforce Solutions offers a more comprehensive ACA solution, including affordability calculations, reporting, and consulting services. We can help you navigate the intricacies of ACA and help ensure you're better prepared for the 2025 plan year.

Contact us today to learn more.

*Source: Internal Revenue Service

The information provided is intended as general guidance and is not intended to convey any tax, benefits, or legal advice. For information pertaining to your company and its specific facts and needs, please consult your own tax advisor or legal counsel.  Equifax Workforce Solutions provides services that can help employers reduce their compliance risks. Details on our provision of these services and related support will be contained in your services agreement. Links to sources may be to third party sites. We have no control over and assume no responsibility for the content, privacy policies or practices of any third party sites or services.