ACA Affordability Percentage Increases to 9.02% for 2025

The IRS released its annual inflation adjustment to the percentage of household income used to determine whether an employer’s offer of health care coverage under the Affordable Care Act (ACA) is affordable [Rev. Proc. 2024-35, 9-6-24].

For plan years beginning in 2025, the percentage of household income increases to 9.02%. The household income percentage for plans beginning in 2024 was 8.39%.

Household Income and Affordability

The ACA’s employer mandate requires applicable large employers to offer minimum essential coverage (MEC) that provides minimum value and is affordable to all of its full-time employees. Affordability is determined as a certain percentage of an employee’s household income. Using the adjusted percentage for 2025, if the required employee premium contribution does not exceed 9.02% of the employee’s household income, then the coverage is affordable under the ACA.

Safe Harbors

Because employers do not necessarily know an employee’s actual household income, there are three safe harbors that may be used instead. The safe harbors are based on: (1) an employee’s Form W-2 wages; (2) an employee’s rate of pay; and (3) the federal poverty line. If the required employee premium contribution does not exceed 9.02% of one of the safe harbors, it will be deemed affordable.

To learn more about federal and state laws, regulations, and information to keep your company's payroll operations in compliance, check out Payroll Source Plus!

Jyme Mariani, Esq., is Managing Editor of Payroll Currently and Senior Manager of Payroll Information Resources for PayrollOrg.