For plan years beginning in 2025, the ACA Pay or Play Affordability Percentage is 9.02%.
According to IRS Revenue Procedure 2024-35, employer-sponsored health coverage will be considered affordable under the Affordable Care Act (ACA) if an employee’s required contribution for self-only coverage does not exceed 9.02% of their household income.
What Is the Affordability Test?
Under the ACA’s pay-or-play rules, applicable large employers (ALEs) must offer affordable, minimum-value health insurance to their full-time employees (and their dependents). If they fail to do so, they may face penalties.
The affordability test is a critical factor in determining whether an ALE might be subject to a penalty. Employer-sponsored health coverage is considered affordable if the employee’s cost for self-only coverage does not exceed the affordability percentage. (The affordability percentage is adjusted annually based on the growth of health plan premiums relative to income growth.)
Recent adjustments to the affordability percentage include:
- 9.02% for plan years beginning in 2025
- 8.39% for plan years beginning in 2024
- 9.12% for plan years beginning in 2023
The affordability test only applies to the cost of self-only coverage, excluding the cost of family coverage. If an employer offers multiple health coverage options, the test is applied to the lowest-cost plan that still provides minimum coverage.
Safe Harbors for Determining Affordability
Since employers typically do not have access to an employee’s exact household income, the IRS has created three safe harbor methods to help employers determine affordability:
- Form W-2 Safe Harbor – Affordability is based on the employee’s wages from their Form W-2.
- Rate of Pay Safe Harbor – Uses the employee’s hourly rate or monthly salary to determine affordability.
- Federal Poverty Level (FPL) Safe Harbor – Looks at the federal poverty level to assess affordability.
These optional safe harbors allow employers to use accessible and verifiable information to confirm compliance.
By staying informed about these changes, employers and HR professionals can better prepare for the 2025 plan year, mitigate potential penalties, and ensure they continue to meet ACA requirements.
Need help navigating ACA guidelines? Contact CBIZ to learn more about our ACA services and how we can assist your organization.