IRS 2021 Affordable Care Act Affordability Indexed Amount

The IRS recently announced that the Affordable Care Act (“ACA”) affordability indexed amount under the Employer Shared Responsibility provision will be 9.83% for plan years that begin in 2021.  This is an increase from the 2020 percentage amount of 9.78%.

Determining Affordability for 2021

Employers will not be subject to a penalty with respect to an ACA full-time employee (“FTE”) if the employee’s required contribution for 2021 for the employer’s lowest cost self-only health coverage complies with one of the following safe harbors.

W-2 Safe Harbor
The employee’s monthly contribution amount for the self-only premium of the employer’s lowest cost coverage that provides minimum value is affordable if it is equal to or less than 9.83% of the employee’s W-2 wages (as reported in Box 1 of IRS Form W-2).  Box 1 contains compensation subject to federal income taxes and excludes amounts such as employee contributions towards retirement plans and Section 125 Plans.

Federal Poverty Level (FPL) Safe Harbor
Employee health coverage is considered affordable if it does not exceed 9.83% of FPL for 2021. The employee’s monthly cost for self-only health coverage, in the lowest cost health plan that  provides minimum value, cannot exceed $104.53 (for the 48 contiguous states), $130.66 (Alaska) or $120.25 (Hawaii).

Employee Rate of Pay Safe Harbor
The monthly employee contribution for self only health coverage, in the employer’s lowest cost that provides minimum value, is considered to be affordable if it is equal to or less than 9.83% of the employee’s monthly wage. 

Please review the updated 2021 affordability calculation and consider same for analysis for 2021 employee contribution amounts.

Any questions, please contact your Sentinel Benefits Client Manager.