Effective January 1, 2024
The Internal Revenue Service (IRS) disclosed a decrease in the affordability percentage under the Affordable Care Act (ACA) on August 23, 2023. For the plan years starting after December 31, 2023, within the 2024 calendar year, the new affordability threshold for health coverage will be 8.39%, a dip from the previous rate of 9.12% in 2023. This change affects the Employer Shared Responsibility provision, commonly known as the “play or pay” mandate, which applies to large employers—defined as those with 50 or more full-time employees, including full-time equivalent employees, based on the previous year’s data.
According to the ACA mandate, these employers are obligated to either:
- Provide most of their full-time staff and their children with health insurance that meets the minimum essential and value requirements and is affordable for the employee, considering only the employee-level coverage cost; or
- Face a penalty by making an employer shared responsibility payment to the IRS if any full-time worker opts for a plan in the Health Insurance Marketplace and is granted a premium tax credit, a situation that occurs if the employer fails to offer adequate coverage.
With the newly announced affordability threshold for the plan year 2024, an employee’s share of the premium should not exceed 8.39% of their household income to be considered affordable.
For additional insights into what constitutes affordability and minimum value, stakeholders can consult the IRS’s “Questions and Answers on Employer Shared Responsibility Provisions Under the Affordable Care Act” page.
The specifics of these updates will be outlined in IRS Revenue Procedure 2023-29, which is scheduled for publication in Internal Revenue Bulletin 2023-37 on September 11, 2023.
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