Skip to main content
  • Solutions for Employers

    Enhance your benefits program with a custom strategy that not only engages your employees and helps retain your talent—but also lightens the load on HR.

    How We Help
    • Strategic Partner
    • Professional Enrollment
    • Benefits Education
    • Total Benefits Solution
    • Benefits and Services
    Who We Serve
    • Education
    • Public Sector
    • Automotive
    • Manufacturing
    • Healthcare
  • Resource Library

    Explore our catalog of blog articles, educational videos, customer stories, and more.

    View All Resources

    Resource Types
    • Blog Articles
    • Videos
    • Customer Stories
    • Tools
    • Help Center
    • All Resources

    An Employer's Guide to a Successful Enrollment

    Download the free how-to guide to get your enrollment strategy on the right path. 

    Download Now
  • Help Center
  • Login
  • Strategy
  • Reimbursement Accounts
  • Supplemental Benefits
  • Customer Stories
  • Compliance
American Fidelity Logo

Understanding the ACA Affordability Calculation

July 25, 2019

4 minute read

Category: Compliance Updates

Person typing on laptop

Despite recent changes to the ACA,* employers remain responsible for complying with the act’s mandate to offer adequate, affordable health care coverage to their eligible employees, or potentially pay a tax to the IRS**. And while “affordability” is subjective in common parlance, the law considers a plan affordable when the employee-paid premiums for the lowest-cost employee-only plan available are no more than 9.5% of an employee’s household income. This percentage is updated every year to account for inflation – the rate for plan years beginning in 2020 is 9.78%.

Safe Harbors

Because employers do not typically know their employees’ household income, the law offers three alternative methods for calculating a plan’s affordability, called safe harbors.

Form W-2 Safe Harbor

To use this safe harbor, multiply the annual affordability percentage by the wages listed in Box 1 of the employee’s Form W-2. If the annual employee-paid premium of the lowest-cost employee-only plan is lower than the calculated amount, the coverage is considered affordable. Employers should note that because this method uses the current year’s wages, they may not know if the coverage they offered was affordable until the end of the year.

Federal Poverty Line (FPL) Safe Harbor

Using the FPL safe harbor can simplify affordability calculations; this is the easiest safe harbor to administer because it does not have to be calculated employee by employee. The current year’s affordability percentage is multiplied by the FPL for a single individual and this total is compared, again, to the employee-paid premium for the lowest-cost employee-only plan. If the annual employee contribution is lower than the FPL calculation, the plan is considered affordable.

Rate of Pay Safe Harbor

For salaried employees, calculate Rate of Pay safe harbor by multiplying annual salary at the start of the plan year by applicable affordability percentage. Compare that to the employee-only annual required contribution for the lowest cost plan available. Rate of Pay safe harbor cannot be used for a salaried employee whose salary is reduced during the plan year.

For hourly employees, calculate Rate of Pay safe harbor month by month by using the lower of 1) the hourly rate of pay on the first day of the plan year, multiplied by 130, multiplied by the applicable affordability percentage or 2) the lowest hourly rate of pay during the calendar month multiplied by 130, multiplied by the applicable affordability percentage. A short cut with the rate of pay safe harbor is to start with the lowest-paid employee and run the calculation for that person – if it is affordable for the lowest paid employee, it will be affordable for all those making more money and you will know that you can use the safe harbor for all employees.

Different safe harbors can be used for different employees, but only for IRS allowed categories, which are:

  • Salaried versus hourly employees;
  • Employees who work in different states;
  • Collectively bargained versus non-bargained employees; or
  • Each group of collectively bargained employees covered by a different agreement.

We’re Here to Help

For more information about calculating affordability or other benefits compliance topics, contact American Fidelity Administrative Services. AFAS is staffed with professionals who have extensive expertise in providing benefit plan consulting and compliance review. We empower our clients to make smart benefits decisions and deliver tools that save them time, energy, and money.

 

This blog is up to date as of July 2019 and has not been updated for changes in the law, administration or current events.

  • Tags:
  • ACA
  • Compliance

Share:

Related ACA Articles

ACA won’t go away: Are you at risk for being fined?

November 29, 2022

9 minute read

ACA is here to stay. With more and more organizations being fined for missteps in their reporting, being in compliance is more important than ever.

  • Tags:
  • ACA
  • Compliance

Newly released: IRS changed affordability rules for families

October 28, 2022

5 minute read

The eligibility standards for the ACA premium tax credit have changed. Here’s what it means for employers and employees.

  • Tags:
  • ACA
  • Compliance

New ACA affordability may increase financial burden

August 17, 2022

2 minute read

The IRS has announced a significant decrease in the ACA affordability percentage. Does your 2023 medical plan meet the new requirement?

  • Tags:
  • ACA
  • Compliance

Our logo
  • Strategic Partner
  • For Education
  • For the Public Sector
  • For Automotive
  • For Manufacturing
  • For Healthcare
  • Professional Enrollment
  • AFenroll®
  • Benefits Education
  • Total Benefits Solution
  • Culture and Engagement
  • Benefits and Services
  • Resource Library
  • Blog
  • Customer Stories
  • Tools
  • Help Center
  • Forms
  • AFmobile® App

Contact Us

Careers

  • About Us
  • Annual Report
  • Community Giving
  • News Center
  • facebook
  • Youtube
  • linked-in

© 2025 American Fidelity Assurance Company

  • Privacy Notices |
  • Report Fraud |
  • Terms of Service |
  • Licensing |
  • Special Notices |
  • Accessibility |
  • Cameron Enterprises

*Patient Protection and Affordable Care Act

**Internal Revenue Service

ESB-7388-0719