How do I determine if my health coverage plan is affordable to my employees?
794 views | Last modified 2/5/2023 11:50:10 PM EST | Added by ACAwise Team

Under the ACA employer mandate, every ALE (Employers with 50 or more full-time or FTE employees) must offer affordable health insurance coverage that provides minimum value to at least 95%  of their full-time employees and dependents.

Employers who fail to offer affordable coverage to at least 95% of full-time employees and dependents may be subject to a penalty under Section 4980H(b).

To assess if you’re an ALE, required to comply with the ACA employer mandate, check out your ALE status with our ALE status calculator.

Affordable Coverage
If you are an ALE, the coverage you offer is deemed  “affordable” if employee contributions for employee-only coverage do not exceed a certain percentage of an employee’s household income ( 9.61% for the 2022 plan year and 9.12% for the 2023 plan year).  

Safe Harbors
Since you don’t know your employee’s exact household incomes, the IRS offers three safe harbors for employers to use in place of household income to determine your coverage affordability.


W-2 wages (salaried employees)
Rate of Pay (Hourly employees) FPL (Federal poverty level)
The assumption is that their household income is the value in Box 1 of their W-2 form for salaried employees. For hourly employees, multiply the hourly rate by 130 hours to estimate a monthly income.

Assume an employee’s income to be equal to the federal poverty level. 


Based on the IRS safe harbors, if the employee’s share of the premium for the lowest cost self-only option offered by you is more than 9.12% (2023) of his or her household income, the coverage is “not affordable” for that employee. Then, you may be liable for an employer shared responsibility penalty under Section 4980H(b) if that employee obtains a PTC for health coverage purchased through the marketplace.

The 2023 penalty is $4,320 per full-time employee.

To help you avoid the risk of IRS penalties, in just a few seconds, our ACA affordability calculator helps you to determine whether the health insurance coverage that you (ALE) offered to your employees meets the affordability standards under the ACA.

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