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IRS Increases Employer Health Plan Affordability Threshold for 2021

On Jul 28, 2020

The IRS has announced that the affordability percentage for the upcoming year will be increasing to 9.83 percent. Employer-sponsored health coverage will satisfy the Affordable Care Act (ACA) affordability requirement if next year’s lowest-cost coverage option an employer offers does not exceed this new percentage of an employee’s household income for employee-only (single) coverage.

The announcement made via Revenue Procedure 2020-36 on July 21, and is an increase from the 2020 rate of 9.78 but lower than the 2019 rate of 9.86.

The affordability threshold, sometimes known as shared-responsibility percentage or cost sharing limit, is the highest percentage of household income an employee can be required to pay for monthly health insurance plan premiums, based on the least expensive employer-sponsored plan offered that meets the ACA's minimum essential coverage requirements.

Who Does the Affordability Threshold Apply to?

The Affordable Care Act’s “shared responsibility” provisions (also referred to as the “employer mandate” or “play or pay”) generally require that “applicable large employers” or ALEs (those with 50 or more full-time employees working at least 30 hours per week or their equivalents when adding together part-time hours) offer insurance to full-time employees that meets the ACA's specifications. If the mandate is not followed, employers may face extensive penalties from the IRS. As such, applicable large employers should exercise diligence when planning and selecting health coverage plans for the upcoming year to ensure that the affordability threshold is met.

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