The IRS released Rev. Proc. 2023-29 on August 23, 2023, announcing a decrease in the ACA Affordability Contribution Rate from 9.12% in 2022 to 8.39% for the 2024 plan year. This is an even greater decrease from what was announced for the 2023 tax year, which was formerly the most significant decrease since the ACA’s commencement. Under the ACA, Applicable Large Employers (ALEs), employers with 50 or more full time and/or full-time equivalent employees, are required to offer affordable minimum value coverage to all full-time employees and their dependents. The contribution percentage is used to determine whether the employer-sponsored health coverage is “affordable” under the ACA’s employer shared responsibility provisions. A plan will be considered affordable under the ACA if the employee’s contribution level for self-only coverage does not exceed the specified percentage of the employee’s household income. Failure to offer affordable coverage may result in employer shared responsibility penalties, which can be substantial. The IRS recognizes that it is difficult for an employer to determine an employee’s household income, so employers are able to use one of three “safe harbors” to ensure the affordability threshold is met: Rate of Pay, W-2 or Federal Poverty Level (FPL). Employers that do not satisfy the obligations under the Employer Shared Responsibility provision will be subject to IRS penalties. See here for more information on the ACA penalties for 2024.
As open enrollment season quickly approaches for many employers, it’s important to be mindful of this decrease to ensure their health plan is affordable under the ACA.