By Christy Abend
Part of the requirements under the Affordable Care Act (ACA) is ensuring that employers offer affordable health care options to their benefits eligible employees. On August 30, 2021, the Internal Revenue Service (IRS) issued Revenue Procedure 2021-36, decreasing the affordability percentage index from 9.83% in 2021 to 9.61% for plan years beginning in calendar year 2022. This percentage is important when setting employer contributions for self-only coverage for plans beginning on or after January 1, 2022. Coverage will be considered affordable if the employee’s required contribution for self-only coverage does not exceed 9.61% percent of the employee’s household income.
To determine the self-only contribution premium for hourly employees, multiply the hourly rate of pay at the beginning of the coverage period for each employee by 130 hours. That result, multiplied by the 2022 affordability percentage of 9.61%, will provide you with the self-only contribution maximum for the employee under the Rate of Pay affordability safe harbor.
Maximum monthly contributions for John Smith earning $10 per hour, plan year beginning January 1, 2021 and January 1, 2022:
2021: $10 an hour x 130 hours = $1300 X 9.83% = $127.79 maximum monthly contribution, effective for the plan year that begins between January 1, 2021 – December 31, 2021
2022: $10 an hour x 130 hours = $1300 X 9.61% = $124.93 maximum monthly contribution, effective for the plan year that begins between January 1, 2022 – December 31, 2022
Under the Federal Poverty Line (FPL) affordability safe harbor in 2022, an employee’s premium payment can’t exceed $103.15 per month, down from $104.53 per month in 2021 or $105.51 for non-calendar plan years using the increased FPL of $12,880.
For example: A calendar year plan in 2021 meets the FPL safe harbor* with a premium of $104.53, which is 9.83% of the applicable FPL of $12,760. For calendar year plans to satisfy the FPL safe harbor in 2022, monthly premiums cannot exceed $103.15, which is 9.61% of the applicable FPL of $12,880.
The W2 safe harbor can be the trickiest safe harbor to use because it cannot be determined until the end of the year. The reason for this is because you need the amount in W2 Box 1 for the affordability calculation. In order to claim the W2 safe harbor, the following formula is generally used: W2 Box 1 Wages multiplied by 9.61% with an adjustment for partial year coverage.
For example: An employee’s Box 1 wages are $45,000 for nine months of employment. While the employee worked for nine months, they had a three-month waiting period for benefits so were only offered coverage for the last six months of the year. To determine affordability for a plan year that begins in 2022, an employer would need to take $45,000 and multiply it by 9.61% ($4,324.50). Then multiply the result by 6/9 (total months offered/total months wages were earned). The maximum annual amount that you can require your employee to pay for self-only coverage is $2,883 in order to meet the W2 safe harbor for the six months the employee has been covered during his nine months of employment.
Keeping up-to-date with changing requirements around the Affordable Care Act can be challenging. Equifax Workforce Solutions has subject matter experts who can help you better manage your ACA efforts, including calculating affordability, employee eligibility, and tracking offers of coverage. For more information, visit our ACA Management page. And if you are considering a premium surcharge for unvaccinated employees, read our Perspective: COVID-19 Vaccine Mandates - Considering Monetary Premiums for Unvaccinated Employees to understand how that may affect the affordability of your plan.
*For states other than Alaska and Hawaii due to their higher FPL thresholds. The information provided is intended as general guidance and is not intended to convey any tax, benefits, compliance or legal advice. For information pertaining to your company and its specific facts and needs, please consult your own tax advisor or legal counsel. 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.
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.