ACA Affordability Threshold

The ACA affordability threshold is the largest share of income an employee can be asked to pay for employer health coverage before that coverage counts as unaffordable. For plan years that begin in 2026, the IRS sets that share at 9.96 percent.

Affordability measures what the employee pays, not how good the plan is. Whether a plan pays enough of the cost of care is a separate question, covered under minimum essential coverage and minimum value.

How Does the Affordability Test Work?

Under the tax code, employer coverage is not affordable when the employee's required contribution exceeds a set percentage of household income. The statute starts at 9.5 percent and tells the IRS to adjust it each year. For plan years beginning in 2026, Rev. Proc. 2025-25 sets the figure at 9.96 percent.

The test compares the employee's cost for self-only coverage under the lowest-cost plan that provides minimum value. A plan provides minimum value when it covers at least 60 percent of total allowed costs. The premium an employee pays to add dependents is not part of the employer-side test.

What Are the Three Affordability Safe Harbors?

Employers rarely know an employee's household income, so the regulations offer three safe harbors. Each one swaps in a number the employer already has. Use is optional, and an employer may apply different safe harbors to reasonable categories of employees if it applies them uniformly.

The W-2 test uses a full year of wages, so it can only be confirmed after the year ends. The rate of pay test is set at the start of each coverage period. The poverty line test uses one number for every employee in a given state.

Who Is Affected When Coverage Is Unaffordable?

Employees feel it first. Coverage that is unaffordable, or that lacks minimum value, does not count as an offer for premium tax credit purposes, so the employee may qualify for the credit. The IRS notes that the safe harbors do not change whether coverage is affordable for the employee's own credit.

Employers feel it next. If a full-time employee receives the credit, an employer that offered coverage broadly may owe the second employer shared responsibility payment under section 4980H(b). Using a safe harbor correctly with minimum value coverage protects the employer from that payment, even when the employee still gets the credit.

Family members are tested differently for the credit. For tax years after 2022, a related individual is measured against the cost of family coverage, not self-only coverage. That rule affects the household's credit, not the employer-side test above.

How Is the Percentage Updated Each Year?

The IRS publishes the adjusted percentage in a revenue procedure. The 2026 figure appears in Rev. Proc. 2025-25, which applies to plan years beginning in calendar year 2026. A plan year that starts in 2026 therefore uses the 2026 percentage.

Because the figure moves, a contribution rate that passed last year can fail this year. Recheck the current IRS percentage whenever you set employee contributions for a new plan year. Rerun the test when pay rates or premiums change, not only at open enrollment.

How Does HR Cloud Fit Into the ACA Affordability Threshold?

HR Cloud's People HRIS page describes one employee record holding job, pay, and performance data, plus advanced reporting. HR can use that record as a source for pay rates when running a rate of pay or W-2 check.

The pages do not describe affordability calculators, safe harbor testing, contribution modeling, or benefits enrollment. HR Cloud is not a benefits administration or legal compliance product. HR still chooses the safe harbor, sets contributions, confirms minimum value with the carrier, and checks the current IRS percentage.

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Frequently Asked Questions

Q: What is the ACA affordability percentage for 2026?

A: It is 9.96 percent of household income for plan years beginning in 2026, per Rev. Proc. 2025-25. Employers usually test it against a safe harbor instead of actual household income.

Q: Which safe harbor should an employer use?

A: The rules do not rank them, and an employer may use different ones for different reasonable categories of employees if applied uniformly. Run the numbers on your own pay data and choose the one that gives the most room.

Q: Does affordability include the cost of covering a spouse or children?

A: For the employer-side test, no. It looks at the employee's cost for self-only coverage. The cost of family coverage matters only when a family member's own premium tax credit is tested.

Q: Is a plan acceptable if it passes affordability but pays little of the cost of care?

A: No. A plan must also provide minimum value, meaning it covers at least 60 percent of total allowed costs. Affordability and minimum value are separate tests.

Q: What happens if our coverage fails the test?

A: Employees may qualify for a premium tax credit. If a full-time employee receives one, the employer may owe a payment under section 4980H(b), unless a safe harbor applies.

Q: Does the test apply to part-time employees?

A: The employer payment depends on full-time employees, who average at least 30 hours of service per week or 130 hours in a month. An employer may still choose to offer affordable coverage to other staff.