ACA Pay-or-Play Affordability Rises for 2025

On Sept. 6, 2024, the IRS released the affordability percentage threshold for 2025 plan years under the Affordable Care Act’s (ACA) pay-or-play rules. These rules require ALEs to offer affordable, minimum-value health coverage to their full-time employees (and dependents) or risk paying a penalty.

For plan years beginning in 2025, employer-sponsored coverage will be considered affordable under the ACA’s pay-or-play rules if the employee’s required contribution for self-only coverage does not exceed 9.02% of their household income for the year. This is an increase from the affordability percentage for 2024 plan years (8.39%). Due to this increase, applicable large employers (ALEs) may have more flexibility when setting employee contribution levels for the 2025 plan year.

The ACA’s affordability test applies only to the portion of the annual premiums for self-only coverage and does not include any additional cost for family coverage. Also, if an employer offers multiple health coverage options, the affordability test applies to the lowest-cost option that provides minimum value.

Because an employer generally will not know an employee’s household income, the IRS has provided three optional safe harbors that ALEs may use to determine affordability based on available information: the Form W-2 safe harbor, the rate of pay safe harbor, and the federal poverty level safe harbor.