For the 2022 tax year, the ACA affordability threshold will decrease to 9.61%.
According to IRS Revenue Procedure 2021-36 all health plans offered by employers beginning January 1, 2022, will need to be no more than 9.61% of an employee’s household income for employer-sponsored self-only coverage to be ACA affordable.
This percentage is down from 2021’s 9.83% and means employers will need to contribute more towards their employees’ health coverage plans.
Earlier this year the Biden administration passed the American Rescue Plan (ARP), which temporarily reduces the affordability cap to 8.5% of an individual’s household income for both the 2021 and 2022 tax years. The new IRS affordability percentage for the 2022 tax year may drop as a result of the ARP, but it is uncertain at this time. For now, and for the indefinite future, the ACA affordability percentage for the 2022 tax year will be 9.61%.
The IRS affordability percentage helps employers establish health insurance contribution costs for their employees. If you offer health insurance to your ACA full-time employees and the contribution amount for self-only coverage is greater than 9.61% of their household income, you could be subject to Section 4980H(b) penalties from the IRS under the healthcare law’s Employer Mandate.Â
Under the ACA’s Employer Mandate, employers with 50 or more full-time employees and full-time equivalent employees, known as Applicable Large Employers (ALEs) must:
- Offer Minimum Essential Coverage (MEC) to at least 95% of their full-time employees (and their dependents) whereby such coverage meets Minimum Value (MV); andÂ
- Ensure that the coverage for the full-time employee is affordable based on one of the IRS-approved methods for calculating affordability.
Employers can be subject to these ACA penalties if at least one of their full-time employees receives a Premium Tax Credit from a state or federal health exchange.
For the 2022 tax year, the penalty per employee offered unaffordable coverage is $343.33 a month, $4,120 annualized.
In preparation for the 2022 tax year, we recommend downloading the Safe Harbor Playbook for Calculating ACA Affordability to ensure you’re leveraging the right resources for establishing your employee contributions.Â
The IRS is ramping up its enforcement efforts and the Biden administration is strengthening the ACA. Now is the time to revisit your ACA compliance processes to ensure you’re in full compliance with the healthcare law.Â
The tax agency is currently issuing penalties to employers that failed to offer affordable/sufficient coverage to their full-time employees for the 2018 tax year via Letter 226J and is expected to begin issuing them for 2019 any day.
If you’ve received an ACA penalty, need assistance preparing for the 2021 ACA reporting, or require help establishing your employee contributions for the 2022 tax year, contact us to learn about our full-service compliance and reporting solution, ACA Complete.
