29 Jul ACA’s affordability threshold increasing by nearly 1 percent in 2026

Anita Byer

The Internal Revenue Service recently announced that the Affordable Care Act’s affordability threshold for employer-sponsored group health plans will be 9.96 percent for plan years beginning in 2026. The affordability threshold (currently 9.02 percent) affects an employer’s potential liability for shared responsibility assessments (the pay-or-play penalty) under the ACA. This increase of nearly 1 percent provides more flexibility to employers with 50 or more full-time or full-time equivalent employees (Applicable Large Employers or ALEs) in establishing employee premium contributions because employees may be asked to contribute more for their health insurance coverage for plan years beginning in 2026.

Applicable Large Employers are generally required to offer full-time employees “affordable” minimum essential health care coverage to avoid a potential ACA penalty. Affordability is calculated as a percentage of household income. To be affordable in 2026, an employee’s required contribution for the lowest-cost, self-only coverage option offered by their employer (regardless of which coverage option is selected) cannot exceed 9.96 percent of that employee’s household income.

However, since employers typically do not know their employees’ household incomes, ALEs can use one of the ACA’s affordability safe harbors to determine the maximum amount an employee can be required to contribute without exceeding the affordability threshold. For example, if Sam works 40 hours per week for 52 weeks, earning $15 per hour, the most Sam can be required to pay for the lowest-cost, self-only coverage option offered by Sam’s employer during the 2026 plan year is:

• $258.96 per month using the W-2 Safe Harbor Method.
• $194.22 per month using the Rate of Pay Safe Harbor Method (hourly rate x 130 x .0996).
• $129.90 per month using the Federal Poverty Line Safe Harbor Method (FPL x .0996 divided by 12). The 2025 FPL for a single person household in the 48 contiguous states is $15,650.

Note that the basis on which the ACA’s affordability threshold is applied is plan-year, not calendar-year. In other words, the 2026 affordability threshold (9.96 percent) will apply on the first day of the new plan year in 2026, which could be January 1, July 1, or any other day in 2026. For non-calendar-year plans, the current affordability threshold (9.02 percent) will continue to apply until the new plan year begins in 2026.

The importance of planning ahead cannot be understated because the potential penalty for failing to satisfy the ACA’s affordability requirements will be higher in 2026. The “A” (sledgehammer) penalty for ALEs that fail to offer minimum essential coverage to 95% of full-time employees (and their children up to age 26) for plan years beginning in 2026 will be $3,340 per year ($278.33/month) multiplied by the total number of full-time employees minus 30. The current “A” penalty is $2,900 per year ($241.67/month).

The “B” (tack hammer) penalty for failing to offer affordable, minimum value coverage to a full-time employee who receives subsidized health coverage through an Exchange will be $5,010 per year ($417.50/month) multiplied by each such full-time employee. The current “B” penalty is $4,350 per year ($362.50/month). Although the amount of the tack hammer penalty is higher than the sledgehammer penalty, it is only multiplied by the number of full-time employees who receive subsidized Exchange coverage, whereas the sledgehammer penalty is multiplied by the total number of full-time employees minus 30.

To take advantage of the greater flexibility provided by the higher affordability threshold for plan years beginning in 2026, and to avoid the increased penalties for failures to comply, ALEs should begin planning for the upcoming plan year sooner rather than later. Please contact us to learn more about affordable group health plan options for 2026.