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2025 ACA Affordability Percentage Set at 9.02%

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For 2025, the ACA affordability percentage has been set at 9.02% of an employee’s household income, as stated in IRS Notice Rev Proc. 2024-35. This is an increase from the 2024 percentage, which was 8.39%. Applicable Large Employers (ALEs) may face penalties if they do not offer affordable employer-sponsored minimum essential coverage.

 

What Does the ACA Affordability Percentage Mean?

The ACA affordability percentage is a metric used to determine whether an employer’s health coverage is considered affordable under the Affordable Care Act. If the cost of an employee’s share of the premium for the employer-provided health coverage exceeds this percentage of their household income, the coverage is deemed unaffordable. This can have significant implications for both employers and employees:

  • For Employers: Ensuring that health coverage meets the affordability criteria is essential to avoid potential penalties under the ACA. Employers need to review their health plans and make necessary adjustments to comply with the new percentage.
  • For Employees: Understanding this percentage helps employees assess whether their employer’s health coverage is affordable based on their household income. If the coverage is unaffordable, employees may be eligible for premium tax credits to purchase insurance through the Health Insurance Marketplace.

 

Safe Harbor Amounts

To simplify the process of determining affordability, the IRS provides three safe harbor methods that employers can use:

  • Federal Poverty Line (FPL) Safe Harbor: For 2025, the FPL safe harbor amount is set at $113.20 per month for employee-only coverage. This means that if an employer offers a health plan where the employee’s contribution does not exceed this amount, the coverage is considered affordable under the ACA.
  • W-2 Safe Harbor: This method bases affordability on 9.02% of the employee’s W-2 wages.
  • Rate of Pay Safe Harbor: This method uses 9.02% of the employee’s hourly rate of pay multiplied by 130 hours per month.

 

Penalties for Non-Compliance

If employers offer health coverage that is not considered affordable under the ACA, they may face significant penalties.

  • Section 4980H(a): If an employer does not offer coverage to at least 95% of its full-time employees and their dependents, and at least one full-time employee receives a premium tax credit for purchasing coverage through the ACA Marketplace, the employer may face a penalty.
  • Section 4980H(b): If an employer offers coverage, but it is not affordable or does not provide minimum value, and at least one full-time employee receives a premium tax credit, the employer may face a penalty.

 

More information on this requirement can be found on the IRS website:

 

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