Affordability Safe Harbors

Benefit Comply can review your reporting to help identify where there a risk of penalty under §4980H (the “employer mandate”). More Info >

An employer is unlikely to know the employee’s household income, so the IRS provided three employer affordability safe harbors. When setting employer contribution rates, employers have the option to use one of three affordability safe harbors to provide more predictability when determining whether the coverage will be considered affordable. So long as minimum value coverage is affordable under one of the three recognized safe harbors, the employer will be considered in compliance for purposes of avoiding a potential penalty under §4980H(b). Note that the use of an affordability safe harbor does not change an individual’s possible eligibility for subsidies toward Marketplace coverage, which is tied to household income).

Employers may use any of the three affordability safe harbors for any reasonable category of employees, provided the same safe harbor is used on a uniform and consistent basis for all employees in a category. The regulations provide that reasonable categories for this purpose generally include specified job categories, nature of compensation (hourly or salary), geographic location, and similar bona fide business criteria. The following are the three available affordability safe harbors:

  • FPL – Employee contribution does not exceed 9.12% (in 2023) of FPL for a single individual.
  • Rate of Pay – Employee contribution does not exceed 9.12% (in 2023) of hourly rate x 130 (or monthly salary).
  • Form W-2 – Employee contribution does not exceed 9.12% (in 2023) of 2022 Box 1 wages.

TIP: When determining which affordability safe harbor to use, employers should first consider the FPL safe harbor because it is the simplest and guarantees affordability for all employees. If the monthly employee contribution for single coverage does not meet the FPL safe harbor, then the employer should consider the rate of pay or Form W-2 safe harbor.