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2022 “Affordability” Percentage

In Revenue Procedure 2021-36, the IRS decreased the affordability percentage from 9.83% to 9.61% for 2022. This percentage determines which applicable large employers may face penalties under §4980H(b) for failure to offer affordable coverage as well as which individuals may qualify for subsidized coverage through a public Exchange.

Background

Under §4980H, applicable large employers (50 or more full-time equivalents (FTEs)) must offer coverage to full-time employees that is affordable to avoid potential §4980H(b) penalties. In addition, individuals enrolling for coverage through a public Exchange will not qualify for subsidized coverage if they are eligible for employer-sponsored group health plan coverage that is affordable.

Coverage is generally considered “affordable” if the employee contribution for employee-only (single) coverage does not exceed a set percentage (9.61% in 2022) of household income. Note – Coverage is considered affordable for dependents as well, regardless of the contribution amount, so long as the employee-only (single) coverage is affordable.

Coverage is also considered “affordable” for purposes of satisfying §4980H(b) requirements if the employee contribution satisfies at least one of three available safe harbors (i.e., federal poverty level (FPL), rate of pay, or Form W-2).

Required Contribution Percentage

Originally, for 2014, the required contribution percentage for determining affordability was set at 9.5%. The percentage is adjusted annually. See applicable percentages for each year in the table below.

2015 2016 2017 2018 2019 2020 2021 2022
Affordability Percentage 9.56% 9.66% 9.69% 9.56% 9.86% 9.78% 9.83% 9.61%

Application

Effective for plan years beginning on or after January 1, 2022, the percentage to be used in affordability calculations is 9.61%. This is true whether the affordability is determined based on household income or using one of the three affordability safe harbors.

The decrease in the affordability percentage (from 9.83% in 2021 to 9.61% in 2022) may require employers to lower employee contributions for the 2022 plan year to meet the affordability requirements under §4980H(b). For more details about affordability requirements and use of an affordability safe harbor, see Benefit Comply’s issue brief on affordability considerations found at
opens in a new windowhttps://www.benefitcomply.com/resources/2021/09/03/affordability-considerations/.

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