2027 ACA Affordability Threshold Increases to 10.22%

What Is the ACA Affordability Percentage?

The ACA affordability percentage helps determine whether employer-sponsored health coverage is considered affordable for an employee. The original percentage was 9.5%, but the IRS adjusts it periodically to reflect changes in premiums and income.

For affordability purposes, employers generally look at the amount an employee must pay for the lowest-cost self-only coverage option that provides minimum value. The affordability test is not based on the employee’s cost for family coverage.

Because employers generally do not know an employee’s total household income, applicable large employers may use one or more IRS affordability safe harbors when evaluating their offers of coverage.

ACA Affordability Percentages From 2018 Through 2027

Which Employers Must Comply With the ACA Employer Mandate?

The employer shared responsibility provisions apply to applicable large employers, commonly called ALEs. An employer is generally considered an ALE when it averaged at least 50 full-time employees, including full-time equivalent employees, during the preceding calendar year.

Related businesses may need to combine their employees when determining ALE status under the ACA’s controlled-group and common-ownership rules.

To reduce potential exposure under §4980H, an ALE generally must:

• Offer minimum essential coverage to at least 95% of its full-time employees and their eligible dependents.
• Ensure the coverage offered to full-time employees provides minimum value.
• Ensure the employee contribution for the lowest-cost self-only minimum-value option meets an applicable affordability test.
• Properly report offers of coverage using Forms 1094-C and 1095-C.

For employer shared responsibility purposes, eligible dependents generally include an employee’s children through the month in which they turn 26. Employers are not required to offer coverage to employees’ spouses to satisfy this particular ACA requirement.

What About Employers With Fewer Than 50 FTEs?

Employers that are not ALEs are not subject to the federal ACA employer shared responsibility penalties and generally are not required by the ACA to offer health coverage. If a smaller employer voluntarily offers coverage, the federal employer mandate does not require that coverage to satisfy the ALE affordability test.

Other insurance, tax, reporting, carrier participation, and state requirements may still apply. Employers near the 50-FTE threshold should calculate their workforce carefully instead of relying only on their current headcount.

What Does Minimum Value Mean?

An employer-sponsored health plan generally provides minimum value when it is designed to cover at least 60% of the total allowed cost of benefits expected to be incurred under the plan. Minimum value and affordability are separate tests. A plan may satisfy one requirement without satisfying the other.

How Employers Can Measure ACA Affordability

The ACA’s general affordability standard is based on household income. Since employers usually do not know each employee’s household income, the regulations provide three optional safe harbors:

1. Federal Poverty Line Safe Harbor

This method generally limits the employee’s monthly contribution for the lowest-cost self-only minimum-value coverage to the annual affordability percentage multiplied by the applicable federal poverty guideline, divided by 12.

The applicable federal poverty guideline and the safe harbor calculation should be confirmed when the employer establishes contribution rates for the plan year.

2. Rate of Pay Safe Harbor

For an hourly employee, this safe harbor generally uses the employee’s hourly rate multiplied by 130 hours per month. For a salaried employee, it generally uses the employee’s monthly salary. The resulting amount is multiplied by the applicable affordability percentage.

3. Form W-2 Safe Harbor

This safe harbor generally compares the employee’s required contribution with the employee’s Box 1 Form W-2 wages from the employer. Because the final Box 1 amount may not be known until after the year ends, employers using this method should plan carefully and account for partial-year employment and other permitted adjustments.

2027 ACA Employer Shared Responsibility Penalties

IRS Revenue Procedure 2026-22 confirms the adjusted §4980H penalty amounts for calendar year 2027. These amounts are sometimes called the ACA employer mandate penalties or employer shared responsibility payments.

How the §4980H(a) Payment Generally Works

If an ALE fails to offer minimum essential coverage to at least 95% of its full-time employees and their eligible dependents, and at least one full-time employee receives a Marketplace premium tax credit, the potential annual §4980H(a) payment is generally calculated using:

Special allocation rules apply when an employer is part of an aggregated ALE group.

How the §4980H(b) Payment Generally Works

The §4980H(b) payment may apply when an ALE offers coverage to at least 95% of full-time employees and their eligible dependents, but a particular full-time employee receives a Marketplace premium tax credit because the employee was not offered qualifying coverage or the available coverage was unaffordable or did not provide minimum value.

The potential 2027 payment is $5,670 annually, or $472.50 for each applicable month, for each affected full-time employee. The total §4980H(b) payment is generally capped at the amount the employer would have owed under §4980H(a).

Calendar-Year and Non-Calendar-Year Plans

The 10.22% affordability percentage applies to plan years beginning in 2027. It does not automatically apply to every month occurring during calendar year 2027.

The §4980H penalty amounts, by comparison, are indexed on a calendar-year basis. Employers with non-calendar-year plans should pay close attention to the distinction between the plan-year affordability percentage and calendar-year penalty amounts.

Frequently Asked Questions

Official IRS Sources

• IRS Revenue Procedure 2026-26: 2027 affordability percentage
• IRS Revenue Procedure 2026-22: 2027 §4980H amounts
• IRS employer shared responsibility provisions
• IRS minimum value and affordability guidance