How is ACA affordability calculated in 2024?
Asked by: Prof. Lera Ritchie II | Last update: January 19, 2026Score: 4.6/5 (74 votes)
How is affordability calculated in 2024?
The IRS announced that the 2024 health plan affordability threshold—which is used to determine if an employer's lowest-premium health plan meets the Affordable Care Act's (ACA's) affordability requirement—will be 8.39 percent of an employee's household income.
How to calculate ACA affordability 2024 pdf?
For a 2024 plan year, coverage is “affordable” for the employee if the employee's cost for self-only coverage does not exceed $109.07/month (($10 x 130 hours) x . 0839). This is measured based on the cost for self-only coverage in the lowest cost plan option that provides a minimum value offered to the employee.
How is the ACA affordability percentage calculated?
Take the employee's lowest hourly rate for the month and multiply the number by 130, the minimum total of hours a worker must provide to be classified as a full-time employee under the ACA. Take the product of that calculation and multiply it by 9.02% for 2025.
What is the affordability for 2024?
In 2024, a job-based health plan is considered "affordable" if your share of the monthly premium in the lowest-cost plan offered by the employer is less than 8.39% of your household income. In 2025, it is considered "affordable" if the premium is less than 9.02% of your household income.
2024 ACA Affordability Percentage
What is the affordability calculation for ACA 2025?
The IRS recently announced the 2025 ACA affordability percentage, increasing from 8.39% of an employee's household income in 2024 to 9.02% in 2025*.
What is the current ACA affordability?
The IRS updated its affordability threshold for the 2025 tax year to 9.02%. This is an increase from 8.39% in 2024, and employers should prepare accordingly.
How to calculate affordability?
Using a percentage of your income can help determine how much house you can afford. For example, the 28/36 rule suggests your housing costs should be limited to 28 percent of your total monthly gross income and 36 percent of your total debt.
What is the affordability Act 2024?
The Health Care Affordability Act of 2024 includes technical edits to ensure that no household pays above 8.5% of their incomes towards their health care premiums.
What is the safe harbor for the ACA affordability test?
Safe harbors are ways for employers to demonstrate that their healthcare plans are affordable under the standards of the Affordable Care Act (ACA). There are three safe harbors: W2 Box 1 Wages, Rate of Pay, and Federal Poverty Line (FPL). Each has advantages and disadvantages for different employers.
What is the affordability formula?
While you may have heard of using the 28/36 rule to calculate affordability, the correct DTI ratio that lenders will use to assess how much house you can afford is 36/43.
What is the ACA affordability for 2024 FPL?
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).
What is the penalty for ACA affordability?
The penalty for each month is $4,460 divided by 12, for each full-time employee receiving a premium tax credit that month (up to a maximum of $2,970 divided by 12, times the number of full-time employees (minus up to 30).
What is the affordability test for 2025?
The IRS adjusts the affordability percentage each year and for 2025 the cost of single coverage must be less than 9.02% of an employee's household income in order to be affordable.
What is the formula for ACA affordability?
The W-2 Safe Harbor is a method for proving ACA affordability that involves using an employee's W-2 Box 1, gross income. To calculate ACA affordability using the W-2 Safe Harbor, use the following formula: W-2 Box 1 Wages multiplied by 8.39% with an adjustment for partial-year coverage.
What is the 28% affordability rule?
The rule says you should spend no more than 28% of your gross monthly income on housing (your monthly mortgage payment) and a maximum of 36% on all your debts. This would include your mortgage payment, student loan payment, car payment, credit card minimums, and any other debt you pay off monthly.
How is affordability determined?
The affordability test technically looks to whether that lowest possible employee contribution is within 9.02% (2025) of the employee's household income. However, the IRS recognizes that employers generally do not know the employee's household income.
How is ACA affordability calculated for 2024?
What is the 2024 ACA Affordability Rate? Employer sponsored health coverage for a 2024 calendar plan year will be considered affordable if the employee required contribution for self-only coverage does not exceed 8.39% of the employee's household income for the taxable year.
Is ACA affordability based on household income?
Affordable coverage under the Affordable Care Act (ACA)opens in a new tab is a standard for measuring the relative cost of an employer-provided healthcare plan. It's based on the maximum percentage of household income an employee would have to spend on the least expensive plan.
How to calculate the ACA affordability for 2025?
Calculating Affordability Using the FPL Safe Harbor
For most employers, the FPL safe harbor is the easiest to calculate. For 2025 calendar year plans, the FPL safe harbor is satisfied if an employee's required monthly contribution for self-only coverage doesn't exceed 9.02% of the federal poverty line divided by 12.
What is the income limit for ACA subsidies in 2024?
In 2024, an individual in a one-person household is eligible for some degree of Covered California subsidies if they earn up to $33,975 Meanwhile, that limit rises to $69,375 for a household size of 4. These numbers refer to your Adjusted Gross Income (AGI) as found on line 11 of your Form 1040.
What is the safe harbor threshold for 2024?
For a calendar year plan that uses the 2023 federal poverty line, the safe harbor for 2024 will be $14,580 x 8.39% = $1,223.26 ($101.94 per month). Employees can't be required to pay an employee contribution of more than $101.94 for coverage to be considered affordable.
What is the ACA maximum out of pocket for 2024?
For the 2024 plan year: The out-of-pocket limit for a Marketplace plan can't be more than $9,450 for an individual and $18,900 for a family.