Mastering ACA Affordability Calculations: Your Complete Guide for 2024, 2025, and 2026

The Affordable Care Act (ACA) requires companies with 50 or more full-time employees to offer affordable health insurance coverage to their workforce. But what exactly does "affordable" mean, and how do you calculate it? This comprehensive guide will walk you through how to calculate affordability for ACA compliance, provide you with the tools you need including an ACA calculator, and ensure you're prepared for the current year and beyond.

In this article:

• What is ACA Affordability?
• Critical Affordability Percentages by Year
• How to Calculate Affordability for ACA
• Using an ACA Affordability Calculator
• Penalties for Non-Compliance
• 5 Strategic Planning Tips for Analyzing ACA Affordability
• Take Action Now and Stay Compliant
  
• Frequently Asked Questions

What is ACA Affordability?

Under the ACA, employer-sponsored health coverage is considered affordable if the employee's required contribution for the lowest-cost, self-only coverage doesn't exceed a certain percentage of their household income. This percentage, known as the affordability threshold, is adjusted annually by the IRS.

Critical Affordability Percentages by Year

Each year, the IRS adjusts the affordability percentage based on inflation and premium growth rates. These percentages determine the maximum amount employees can be required to contribute toward their health insurance premiums. Understanding these thresholds is essential for maintaining ACA compliance and avoiding costly penalties.

The IRS has set the following affordability thresholds:

• 2024: 8.39% of household income
• 2025: 9.02% of household income
• 2026: 9.96% of household income

Note: The significant increase for 2026 reflects a new premium growth measure provided for in the 2026 HHS Marketplace Integrity and Affordability Rule. 

How to Calculate Affordability for ACA

Calculating ACA affordability doesn't have to be complicated. By breaking down the process into manageable steps and using the right safe harbor method for your organization, you can ensure compliance while managing your benefits budget effectively. Let's walk through each step you'll need to take.

1. Determine the Employee's Household Income:

   • For regulatory purposes, use the amount reported in Box 1 of the employee's W-2 form (or a similar measure, if using the rate-of-pay safe harbor).

   • For the rate-of-pay safe harbor, multiply the employee's hourly rate by 130 hours to find a monthly income, then multiply that by 12 for the annual income. 

     
     
     

2. Calculate the Affordability Threshold:

   • Multiply the employee's estimated household income by the 2025 affordability percentage, which is 9.02%.
   • Example: For an employee with an annual income of $50,000 x 0.0902 = $4,510
     
     
     

3. Determine the Cost of the Lowest-Cost Self-Only Coverage:

   • Identify the lowest-cost self-only silver plan available to the employee based on their primary residence. 

   • This amount will be used to see if the coverage is affordable. 

    

4. Compare the Costs:

   • The ICHRA offer is affordable if the employee's cost for the lowest-cost self-only silver plan is less than or equal to the affordability threshold.
   • Example: If the employee's contribution to the lowest-cost self-only plan is $4,000 and the affordability threshold is $4,510, then the plan is affordable.

Using an ACA Affordability Calculator

Calculating ACA affordability can be a complex process, especially for businesses with a large number of employees. To simplify this process, you can use our ACA affordability calculator.

Our ACA affordability calculator streamlines compliance by allowing you to:

• Select your employee's location (state and country)
• Input the employee's age at the start of the ICHRA plan year
• Choose whether the employee is paid hourly or salary
• Instantly determine if your contribution meets ACA affordability requirements

Penalties for Non-Compliance

Understanding the stakes is crucial. The IRS enforces ACA compliance through two types of penalties, often referred to as the 'A Penalty' and 'B Penalty.' These penalties can add up quickly, with amounts increasing annually for inflation. Missing the affordability mark doesn't just risk a slap on the wrist; it can result in thousands of dollars in penalties per employee. Here's what you're facing if your coverage doesn't meet ACA requirements:

The "A Penalty" (Section 4980H(a))

Triggered when an applicable large employer (ALE) fails to offer coverage to at least 95% of full-time employees:

• 2024: $2,970 per full-time employee (minus first 30)
• 2025: $3,190 per full-time employee (minus first 30)
• 2026: $3,340 per full-time employee (excluding the first 30 employees)

The "B Penalty" (Section 4980H(b))

Applied when coverage is unaffordable, not offered to specific employees, or lacks minimum value:

• 2024: $4,460 per affected employee receiving marketplace subsidies
• 2025: $4,790 per affected employee
• 2026: $5,010 per affected employee receiving a subsidy on the exchange

5 Strategic Planning Tips for Employers Analyzing ACA Affordability

1. Plan Ahead for Rate Changes

With affordability percentages changing annually, build flexibility into your benefits budget. The jump from 9.02% in 2025 to 9.96% in 2026 provides more room for employee contributions, but consider the impact on employee satisfaction and retention.

2. Consider the FPL Safe Harbor First

The most straightforward compliance strategy involves structuring at least one health plan so that employee costs stay under the FPL safe harbor limit, ensuring all full-time workers nationwide have access to affordable, minimum value coverage.

3. Document Your Method

Whatever safe harbor you choose, document your methodology and maintain records showing how you determined affordability. This documentation is crucial if the IRS questions your compliance.

4. Review Non-Calendar Year Plans Carefully

If you have a non-calendar year plan, pay special attention to which affordability percentage applies. Plan years beginning July through December 2026 are required to use the 2026 federal poverty amount to calculate affordability.

5. Consider Employee Communications

While meeting the technical requirements is essential, remember that employees need to understand their coverage options. Clear communication about contribution amounts and available plans helps ensure employees make informed decisions.

Special Considerations for 2026

The 2026 affordability threshold represents a significant change. The ACA affordability percentage rate for 2026 was calculated using a different methodology than was used in 2025 and a number of years prior to 2025. This new calculation method may result in continued volatility in future years.

Employers should:

• Model the impact of the 9.96% threshold on their benefits budget
• Consider whether to pass the full increase to employees or absorb some of the cost
• Review their current safe harbor method to ensure it remains optimal
• Update payroll systems and benefits administration platforms

Take Action Now

Don't wait until the last minute to ensure ACA compliance. Here's your action plan:

1. Calculate your current affordability using our ACA affordability calculator
2. Review your safe harbor method to ensure it's still the 
   best choice
3. Model different contribution scenarios for upcoming plan years
4. Document your compliance strategy for IRS reporting
5. Communicate changes to employees well before open enrollment

Stay Compliant with Confidence

Mastering ACA affordability calculations doesn't have to be overwhelming. With the right tools, including a reliable ACA calculator, and a clear understanding of how to calculate affordability for ACA compliance, you can navigate these requirements successfully.

Visit our ACA affordability calculator or chat with us directly on our site for personalized assistance.

Frequently Asked Questions

Q: When do I need to use which year's affordability percentage?

A: Use the percentage in effect at the start of your plan year. Calendar year plans starting January 1, 2026, use 9.96%. Non-calendar plans starting before January 1, 2026, continue using the prior year's percentage until their new plan year begins.

Q: Can I use different safe harbors for different employee groups?

A: Yes, you can apply different safe harbors to different categories of employees, as long as the categories are reasonable and consistently applied.

Q: What if my lowest-cost plan changes mid-year?

A: The affordability determination is generally made at the beginning of the plan year. However, if you add a lower-cost option mid-year, you should evaluate whether this affects your compliance position.