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Change in Affordability Safe Harbor Percentage

IRS Notice 2015-87 provided further guidance concerning the interaction between the Affordable Care Act and employer-provided health coverage. The 2015 household income threshold percentage for Marketplace coverage is 9.56%. In 2016 the household income threshold is 9.66%. (This percentage was 9.5% prior to the Notice.) 

Applicable Large Employers (ALEs) are subject to a penalty if the lowest cost single health plan they offer is unaffordable, and an employee/employees purchase subsidized Marketplace coverage. 

How is a plan's affordability determined? Employers do not necessarily have knowledge of their employees' household incomes. Therefore, to calculate, the Marketplace affordability percentage is applied to the employee's share of single plan coverage, even if the employee enrolls in coverage other than single plan (or does not enroll at all. ) The ALE is allowed to apply the household income threshold to any of three "safe harbors:" 

  • W-2 wages 
  • Rate of pay 
  • Federal poverty level 

Therefore, an ALE can apply 9.56% to any of the safe harbors, rather than the original 9.5%, when calculating affordability for the coverage offered in 2015 when completing the Form 1095-C report to each full time employee. 

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