By Christy Abend
The IRS recently announced the 2026 ACA affordability percentage, increasing from 9.02% of an employee's household income in 2025 to 9.96% in 2026*. The affordability percentage is used to determine if an employee is being offered affordable coverage through their employer, and therefore, whether 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.
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 reduce or avoid potential penalties.
The penalties for non-compliance have also been updated for 2026. The A penalty is now $3,340, and the B penalty is now $5,010.*
To help determine affordability, employers can utilize one of three safe harbors:
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 9.96% of the FPL for the applicable area. For 2026, employers can use the 2025 FPL of $15,650**, which results in a maximum employee contribution of approximately $129.89 per month. Once the Department of Health and Human Services updates the FPL in early 2026, employers may adopt the 2026 rate or continue using the 2025 FPL until six months after the 2026 rate is announced*.
W-2 Safe Harbor: Under this safe harbor, the employee's contribution for self-only coverage cannot exceed 9.96% of the employee's W-2, Box 1 wages*.
Rate of Pay Safe Harbor: This safe harbor bases affordability on 9.96% of an employee's hourly rate of pay multiplied by 130 hours per month*.
** The FPL for employers in Alaska and Hawaii is $19,550 and $17,990, respectively.
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 W-2 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.
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 riskier for some employers, because employers usually don’t know W-2, 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 W-2, 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 W-2 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.
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.
Equifax Workforce Solutions offers a more comprehensive ACA solution, including affordability calculations, reporting, and dedicated ACA subject matter experts. We can help you navigate the intricacies of ACA and help ensure you're better prepared for the 2026 plan year.
Contact us today to learn more. You can also help calculate your ACA potential penalty risk by using our ACA Potential Penalty Calculator.
*Source: Internal Revenue Service, https://www.irs.gov/pub/irs-drop/rp-25-26.pdf
About the Author
Job Title: Director, Product Management
Christy Abend has more than two decades working in the human resources and product management space, with a concentration in health and welfare benefits and a focus on employer regulatory alignment. Her background and interests facilitate her work on the ACA products offered by Equifax Workforce Solutions. She has a Bachelor of Science degree with a concentration in Human Resource Management from the State University of New York, Empire State College and also holds a SHRM-SCP certification as well as a Group Benefits Associate designation awarded by the International Foundation of Employee Benefit Plans and the Wharton School of the University of Pennsylvania.