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. For plan years beginning in 2019, the percentage of household income increases to 9.86%. The household income percentage for plans beginning in 2017 was 9.69% and for plans beginning in 2018 it is 9.56% [Rev. Proc. 2018-34, 5-22-18].
Household Income and Affordability
The ACA’s employer mandate requires applicable large employers to offer minimum essential coverage that provides minimum value and is affordable. Affordability is determined as a certain percentage of an employee’s household income. Using the adjusted percentage for 2019, if the required employee premium contribution does not exceed 9.86% 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, three safe harbors may be used instead. For plan years beginning in 2019, if an employee’s required contribution for the lowest-cost employee-only coverage does not exceed 9.86% of his or her: (1) Form W-2 wages; (2) monthly salary (hourly rate multiplied by 130 for hourly employees); or (3) the federal poverty line for a single person, then the coverage is affordable.
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