The affordability percentage is the figure that decides whether the coverage an applicable large employer offers counts as affordable under the ACA employer mandate.
Key Takeaways
Affordability is tested on the employee-only tier; see what EE, ES and EC mean on a rate sheet.
The statute nominally measures affordability against the employee’s household income, which no employer can know.
Compares the employee’s contribution to Box 1 wages for the same year.
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The Affordability Percentage for 2026 and 2027
It is adjusted annually, and it has moved sharply in the last two cycles.
Affordability is tested on the employee-only tier; see what EE, ES and EC mean on a rate sheet.
| Plan Year | Affordability Percentage | 4980H(a) Penalty | 4980H(b) Penalty |
|---|---|---|---|
| 2026 | 9.96% | $278.33 per month ($3,340 annualized) | $417.50 per month ($5,010 annualized) |
| 2027 | 10.22% | $315.00 per month ($3,780 annualized) | $472.50 per month ($5,670 annualized) |
The 2027 percentage and penalty amounts come from IRS Rev. Proc. 2026-26. Because the percentage rose, an employer can charge marginally more for self-only coverage in 2027 than in 2026 and still clear the affordability test — but the penalty for getting it wrong rose as well.
Employers looking beyond the next quote can start with our health and cost strategy for fully insured plans.
What the Percentage Is Measured Against
The statute nominally measures affordability against the employee’s household income, which no employer can know. The regulations therefore let you substitute one of three safe harbors. Whichever you use, the number you compare it to is the same: the employee’s required contribution for the lowest-cost self-only option that provides minimum value.
Two details in that sentence cause most of the errors we see. It is the self-only cost, even for an employee enrolling a whole family — the family rate is irrelevant to the test. And it is the lowest-cost option that meets minimum value, not the plan the employee actually chose. An employer offering a cheap bronze-equivalent plan alongside a richer one is tested on the cheap one.
A third detail catches employers who pay cash to employees who waive coverage. An opt-out payment made to anyone who declines, with no proof of other coverage required, is added to the employee’s cost for this test and can turn an affordable plan into an unaffordable one. We explain the rules in cash in lieu of benefits: is it still allowed?
The Three Safe Harbors
W-2 Safe Harbor
Compares the employee’s contribution to Box 1 wages for the same year. It is accurate, but Box 1 is only known with certainty once the year has closed, which makes it awkward to set contribution rates against prospectively.
Rate of Pay Safe Harbor
For hourly employees, the hourly rate multiplied by 130 hours per month. For salaried employees, monthly salary. It suits workforces with stable hours and lets you test affordability before the plan year starts.
Federal Poverty Line Safe Harbor
Uses the federal poverty guideline rather than actual pay, which produces a single dollar figure that is affordable for every employee regardless of what they earn. It is the simplest to administer and the easiest to defend, and usually the most expensive.
What the Two Penalties Actually Cost
These are frequently conflated, and the difference in exposure is large. The 4980H(a) penalty applies when an employer fails to offer minimum essential coverage to at least 95% of its full-time employees and at least one of them receives a premium tax credit. It is then assessed on every full-time employee, not only the one who got the credit.
The 4980H(b) penalty applies when coverage was offered but was unaffordable or failed minimum value. It is assessed only on the employees who actually received a credit. For most employers 4980H(a) is the far larger risk, which is why the 95% offer test deserves more attention than the affordability calculation itself.
What to Check Before Your Renewal
- Identify the lowest-cost self-only option that meets minimum value — not your most popular plan.
- Run the affordability test against the safe harbor you intend to use, at the percentage for the plan year that is starting.
- Confirm you are offering coverage to at least 95% of full-time employees, since that test carries the larger penalty.
- Check that your ACA reporting codes on Form 1095-C match the safe harbor you actually applied.
- Re-run the test if you change contribution rates mid-year, add a class of employees, or move plan years.
Two tools on this site do the arithmetic for you: the ACA affordability calculator tests a contribution against the percentage for the plan year, and the applicable large employer calculator works out whether the mandate applies to you at all.
None of this is difficult once the right plan is identified, but it has to be redone every year, because the percentage moves and your contribution rates move with it. If you would like it checked against your own rates, our compliance support covers exactly this.
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Send us your renewal and we will tell you whether the increase is competitive. We review it at no cost, and you only need four documents.
Send Us Your RenewalQuestions We Get
What is the ACA affordability percentage for 2026?
For plan years beginning in 2026 the affordability percentage is 9.96%. An offer of coverage is affordable if the employee’s required contribution for the lowest-cost self-only option that provides minimum value does not exceed 9.96% of the measure you are using under a safe harbor.
What is the ACA affordability percentage for 2027?
10.22%, set by IRS Rev. Proc. 2026-26. That is an increase from 9.96% for 2026, which means an employer can charge slightly more for self-only coverage in 2027 and still be affordable.
What is affordability measured against?
The employee’s required contribution for the lowest-cost self-only option that meets minimum value — not the plan the employee actually enrolled in, and not the family rate. This catches employers out more than any other part of the rule.
Which affordability safe harbor should an employer use?
The federal poverty line safe harbor is the simplest because it produces one dollar figure that works for everyone, but it is usually the most expensive. Rate of pay suits hourly workforces with stable hours. W-2 is accurate but only known with certainty after the year ends, which makes it awkward to set contributions against.
What is the ACA penalty if coverage is not affordable in 2027?
Under section 4980H(b) the assessment is $472.50 per month, or $5,670 annualized, for each full-time employee who received a premium tax credit because your offer was unaffordable or did not provide minimum value.
Does the ACA employer mandate apply to our company?
It applies at 50 full-time equivalent employees. Below that you do not owe the mandate, but you may still owe COBRA at 20 employees, a Form 5500 at 100 participants, and a Summary Plan Description from your first covered employee.
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Also from CFH: Group health insurance in Elk Rapids, MI · Employee Benefits and Group Health for Commerce Township Employers · Implementing a Narrow Network Health Insurance: Pros and Cons for Michigan · IRS Rules for Employer Health Plans
Related Guides
ACA Reporting for Employers
Who must file Forms 1094-C and 1095-C, what they report, and the deadlines employers face.
Employer Shared Responsibility for Employers
The 50-employee test, the pay-or-play rules and how employers avoid ACA penalties.
Employer Benefits Guides: Eligibility, Plan Design, Life Events and Rules
Our library of plain-English guides on eligibility, plan design and compliance.
ACA Affordability Safe Harbors Explained
Employers use three IRS safe harbors to show that coverage was affordable without knowing each employee’s household income.
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CFH Insurance Consultants is an independent employee benefits consulting firm. We help employers manage cost, compliance and renewals, and we work in teams for proper coverage of every account.
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- Step One — We start from your actual caregiver wage tiers, including the ones that sit near the line.
- Step Two — We choose the safe harbor that fits your payroll and document why.
