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IRS announces 2024 ACA affordability percentage

By Maureen Gammon and Benjamin Lupin | September 1, 2023

The IRS lowers the threshold for determining the affordability of employer-sponsored health coverage to 8.39% for 2024.
Health and Benefits

In Revenue Procedure 2023-29, the IRS announced that the percentage for determining the affordability of employer-sponsored health coverage under the Affordable Care Act (ACA) will decrease for plan years starting in 2024 to 8.39% (down from 9.12% for plan years starting in 2023).

An employer with 50 or more full-time employees and full-time employee equivalents (i.e., an applicable large employer or ALE) must offer minimum essential health coverage that is both affordable and provides minimum value to its full-time employees and their eligible dependents. In order to meet the affordability requirement, the employee contribution for the lowest cost health benefit option offered by the employer must be no greater than 8.39% (for plan years beginning in 2024) of the full-time employee’s household income.

In lieu of requiring employers to calculate each full-time employee’s household income for the year for purposes of determining affordability, the IRS allows the use of three affordability safe harbors as alternatives to employee household income:

  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)
  3. The federal poverty level (FPL) safe harbor

The FPL safe harbor is determined by multiplying the affordability percentage by the applicable FPL threshold and dividing that product by 12. For the 2024 plan year, employers using the FPL affordability safe harbor must ensure that an employee’s contribution is no more than 8.39% of $14,580 (the FPL for the 48 contiguous states and D.C.) — or $101.94 per month (down from $103.28 per month for the 2023 plan year).

Please note that employers may use the FPL guidelines in effect within six months before the first day of the plan year. So, for certain non-calendar-year plans in 2024 (for example, a plan with a September 1 plan year), the FPL safe harbor would be determined by multiplying 8.39% by the applicable FPL threshold within six months and dividing that product by 12. For example, in 2023, the amount for a September 1, 2023 plan year would have been $110.81 per month for the contiguous U.S. (9.12% of $14,580 divided by 12).

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


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