02 October 2024

Employers should confirm their Affordable Care Act affordability safe harbors for 2024

Employers that are planning to use the Federal Poverty Line (FPL) safe harbor should review their 2024 data to make sure their lowest-cost monthly premium is less than the 2024 FPL limit. In particular, companies that kept the same employee premium for 2023 and 2024 may want to double check that the selected safe harbor still applies.

For plans beginning in 2024, for the lower 48 states and Washington, D.C., employers that use the FPL safe harbor will need their premium for employee-only coverage to be $101.94 or less per month.

Background

Under IRC Section 4980H(b), employers can be responsible for an employer shared responsibility payment (ESRP) for any given month when:

  • At least one full-time employee enrolls in coverage through a state or federal health care marketplace and qualifies for a premium tax credit (PTC) under IRC Section 36B
  • The coverage the employer offered an employee is not considered affordable under ACA regulations (i.e., their monthly healthcare premium exceeds one of the affordability safe harbors)

Applicable Large Employers (ALEs) can use one of three "affordability safe harbors" to show their coverage is "affordable": (1) rate of pay (based on hourly rate or monthly salaried rate); (2) W-2 (as reported in Box 1 on the Form W-2); or (3) federal poverty line — "FPL." If the amount an ALE charges an employee for self-only coverage satisfies an affordability safe harbor, the ALE will not be liable for an ESRP based on an unaffordable offer of coverage even if its employee qualifies for a PTC.

FPL safe harbor

Many employers use the FPL safe harbor because it is a straightforward way to determine compliance. Since 2021, however, the ACA affordability percentages have decreased, which in turn lowers the level at which a premium is considered affordable.

For plan year 2024, the FPL affordability percentage is 8.39%, which is the lowest affordability percentage since the ACA's inception (see Tax Alert 2023-1444). This means employers using the FPL safe harbor will need their premium for employee-only coverage to be $101.94 or less per month (for plans beginning in 2024 for the lower 48 states and Washington, DC). The premium limits applicable to employers located in Alaska and Hawaii are $127.32 and $117.25, respectively. Employers that offer employees self-only coverage above this rate will need to use one of the other affordability safe harbors if applicable.

For 2025 employer health care plans, the FPL affordability percentage as well as the FPL income limit will increase, giving employers more flexibility in setting employee premiums that still qualify under the FPL affordability safe harbor (see Tax Alert 2024-1657).

Implications

Employers that use an incorrect affordability safe harbor code on Line 16 based on the premium they report on Line 15 could be subject to an ESRP. In the near term, employers should consider reviewing their 2024 ACA data to make sure they are using the appropriate affordability safe harbor. This will help alleviate last minute stresses when employers are producing their forms due on March 3, 2025.

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Contact Information

For additional information concerning this Alert, please contact:

Workforce Tax Services — Affordable Care Act Compliance

Published by NTD’s Tax Technical Knowledge Services group; Andrea Ben-Yosef, legal editor

Document ID: 2024-1807