How to use ACAwise's ACA Affordability Calculator to determine whether the coverage offered is affordable
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Last modified 1/28/2021 7:50:17 AM EST |
Added by ACAwise Team
Under the ACA, ALEs (Applicable Large Employers) must offer Minimum Essential coverage to at least 95% of their eligible full-time equivalent employees. The coverage offered should also be affordable to the employees.
So, the employers must keep a close eye on the employee’s monthly contribution for the lowest cost self-only plan that is affordable (less than 9.78% of the employee’s household income for the tax year 2020) for them under the ACA and avoid penalties from the IRS.
To avoid penalties for not offering affordable coverage, determine that the coverage you offered is affordable! Use our ACA affordability calculator, it instantly tells you if your plan is affordable or not for the employee and the threshold for affordability for the specific tax year.
Here’s how you can use ACAwise's ACA Affordability Calculator to determine if the coverage offered is affordable or not for the employee.
Information to use
- Reporting year
This is the tax year that you want to calculate the affordability for.
- Employee pay type
You must know whether the specific employee is paid hourly (variable) or fixed salary type.
- Employee’s household Income
You must know what your employee’s earning.
- Annual salary if the employee is paid a fixed salary
- Hourly rate, if the employee is paid hourly
Reminder: You don’t have access to your employee’s household income, that is why the IRS allows you to use one or all three of these tests for affordability. All three tests can be used in place of household income:
| W-2 wages (salaried employees) | Rate of Pay (Hourly employees) | FPL (Federal poverty level) |
|---|---|---|
|
For salaried employees, the assumption is that their household income is the value in Box 1 of their W-2 form. |
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.
|
- Employee’s contribution to the health plan
You must know your employee’s monthly share of the premium for the lowest cost self-only option.
Determine ACA Affordability
Once you have gathered all the above information to use in the ACAwise’s ACA affordability calculator, here’s what you need to do:
Step 1: Select the Tax year you want to calculate the affordability for
Step 2: Select the pay type of the employee
2. (a). If selected paid hourly, enter the employee’s hourly rate.
2. (b). If selected Paid a fixed salary, you must enter the employee’s annual salary amount.
Step 3: Finally, enter the employee’s contribution to the health plan and click Show Result.
Interpretation of Result
You will get affordability results based on the information you provided.
Please note: If the coverage is not affordable for the employee, you will be liable for an ESRP under Section 4980(b) if that employee obtains a PTC for health coverage purchased through the marketplace.
For the tax year 2018
- If the Employee’s monthly contribution to health plan < 9.56 of his/her household income, then the coverage offered is affordable.
- If the Employee’s monthly contribution to health plan > 9.56 of his/her household income, then the coverage offered is not affordable
For the tax year 2019
- If the Employee’s monthly contribution < 9.86% of his/her household income, then the coverage offered is affordable.
- If the Employee’s monthly contribution > 9.86% of his/her household income, then the coverage offered is not affordable.
For the tax year 2020
- If the Employee’s monthly contribution < 9.78% of his/her household income, then the coverage offered is affordable.
- If the Employee’s monthly contribution > 9.78% of his/her household income, then the coverage offered is not affordable.
Get the Affordability Report
If you’d like the ACA affordability report sent to your email for future reference. Enter your information in the provided box that allows us to send your results via email instantly.
If you are unsure if the health insurance coverage that you (ALE) offered to your employees meets the affordability standards under the ACA. No worries, you can use our ACA affordability calculator. This instantly calculates if your plan is affordable or not.
At the same time, our calculator also helps you to determine your employee’s monthly contribution for the lowest cost self-only plan from his/her household income to confirm that your coverage is affordable too.