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IRS announces 2023 ACA affordability percentage

By Maureen Gammon and Benjamin Lupin | August 16, 2022

Employers should adjust their calculations for setting employee contributions for the 2023 plan year to avoid penalties for not offering affordable health coverage under the Affordable Care Act.
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In Revenue Procedure 2022-34, the IRS announced that the percentage for determining the affordability of employer-sponsored health coverage under the Affordable Care Act (ACA) will be 9.12% for plan years starting in 2023 — a decrease from 9.61% for plan years starting in 2022.

An employer with 50 or more full-time and full-time equivalent employees (i.e., an applicable large employer or ALE) must offer minimum essential health coverage that is both affordable and provides minimum value to those employees and their eligible dependents or face potential penalties. To meet this requirement, the employee contribution for the lowest cost health benefit option offered by the employer must be no greater than 9.12% (for plan years beginning in 2023) of the full-time employee’s household income.

Because employers typically don’t have access to the information needed to calculate each employee’s household income, the IRS created three affordability safe harbors as alternatives: (1) the Form W-2 safe harbor, based on an employee’s Form W-2, Box 1 compensation reported for the year; (2) the rate of pay safe harbor, based on an employee’s hourly or monthly rate of pay; and (3) the federal poverty level (FPL) safe harbor.

For the 2023 plan year, employers using the FPL safe harbor must ensure that each employee does not pay premiums higher than 9.12% of the FPL, which is $13,590 for 2022 (for employees working in the continental U.S.).1 This calculates to be $103.28 per month (up from $103.15 per month for the 2022 plan year).

Employers should adjust their calculations for setting employee contribution rates for the 2023 plan year to avoid penalties for not offering affordable health coverage.

Footnote

1 See “HHS announces 2022 federal poverty guidelines,” Insider, February 2022.

Authors

Senior Regulatory Advisor, Health and Benefits

Senior Regulatory Advisor, Health and Benefits

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