Last Updated on March 12, 2026 by MyHRConcierge

The employer mandate under the Affordable Care Act (ACA) requires certain employers to offer health coverage that meets specific affordability and minimum value standards. For employers subject to ACA reporting requirements, understanding how affordability is calculated—and documenting it correctly—is critical to avoiding potential penalties. 

Because affordability is evaluated annually and plays a direct role in ACA compliance and reporting, employers should review their health plan offerings during each open enrollment cycle to ensure employee contributions remain within the allowable thresholds. 

Understanding ACA Affordability 

Under the ACA, an Applicable Large Employer (ALE)- generally an employer with 50 or more full-time or full-time equivalent employees- must offer health coverage that is considered “affordable” to full-time employees and their dependents. If an employer fails to offer affordable coverage and an employee receives a premium tax credit through the Health Insurance Marketplace, the employer may face an employer shared responsibility penalty. 

For coverage to be considered affordable, the employee’s required contribution for the lowest-cost self-only coverage that meets minimum value cannot exceed a specified percentage of the employee’s household income. Because employers typically do not know an employee’s total household income, the Internal Revenue Service (IRS) allows employers to rely on specific affordability safe harbors to make this determination. 

Annual ACA Affordability Percentage 

The IRS adjusts the affordability threshold each year based on inflation and premium growth. The percentage determines the maximum amount of income an employee may be required to contribute toward employer-sponsored health coverage. 

Recent affordability percentages include: 

• 8.39% for 2024 

• 9.02% for 2025 

• 9.96% for 2026 
   

For plan years beginning in 2026, coverage is considered affordable if an employee’s required contribution for self-only coverage does not exceed 9.96% of household income. 

The increase for 2026 represents the highest affordability percentage since the ACA’s implementation, giving employers slightly more flexibility when structuring employee premium contributions. 

ACA Affordability Safe Harbors 

Since employers generally do not have access to an employee’s household income, the IRS allows employers to use one of three safe harbor methods to determine affordability. Employers typically select the method that best aligns with their workforce structure and payroll practices. 

Rate of Pay Safe Harbor 

The Rate of Pay Safe Harbor determines affordability based on an employee’s hourly or monthly rate of pay. 

For hourly employees, affordability is calculated by multiplying the employee’s hourly rate by 130 hours per month and then applying the applicable IRS affordability percentage. If the employee’s share of the premium does not exceed this amount, the coverage is considered affordable. 

For salaried employees, the monthly salary is used as the baseline for determining affordability. 

Form W-2 Safe Harbor 

The Form W-2 Safe Harbor measures affordability based on the employee’s annual wages reported in Box 1 of their Form W-2. 

Under this method, the employee’s total premium contribution for the year cannot exceed the IRS-specified affordability percentage of their W-2 wages from that employer for that year. This approach is commonly used when employee compensation does not vary throughout the year. 

Federal Poverty Level Safe Harbor 

The Federal Poverty Level (FPL) Safe Harbor establishes affordability based on the federal poverty guideline for a single individual. 

Coverage is considered affordable if the employee’s required monthly premium for self-only coverage does not exceed the applicable affordability percentage multiplied by the federal poverty level and divided by twelve months. This method often provides a predictable contribution amount that applies uniformly to all employees. 

Measurement Period Calculations for Variable Hour Employees 

Affordability is only one aspect of ACA compliance. Employers must also determine which employees qualify as full-time under ACA rules. 

For variable hour employees, employers may use a measurement period to track hours worked and determine whether an employee averages at least 30 hours per week (or 130 hours per month). Employees who meet this threshold must be offered coverage during the subsequent stability period. 

Accurate measurement period calculations are essential because failing to offer coverage to eligible full-time employees can trigger employer shared responsibility penalties. Employers should perform these calculations regularly throughout the year to ensure coverage offers are made in a timely manner. 

Verifying Employee Data for ACA Reporting 

Accurate employee information is critical when preparing ACA reporting forms. Employers should ensure that key data points- including employee names, Social Security numbers and mailing addresses- are correct and up to date. 

Employee names reported on ACA forms should match the name on the employee’s Social Security card. Any discrepancies should be corrected promptly to avoid potential penalties related to inaccurate reporting. Maintaining accurate records also supports compliance efforts in the event of an audit or IRS inquiry. 

Tracking Coverage Offers and Enrollment 

Employers must maintain detailed records regarding the coverage offered to each employee. This includes tracking: 

• The months each employee was offered coverage 

• Whether the employee enrolled in or waived coverage 

• Whether the coverage offered met minimum value requirements 

• Whether the coverage met affordability standards 
   

This information is necessary for properly completing ACA reporting forms and demonstrating compliance with employer mandate requirements. 

Preparing ACA Reporting Forms 

ACA reporting forms- primarily Forms 1094-C and 1095-C- require detailed information regarding coverage offers, affordability determinations and employee eligibility. Employers should begin preparing these forms well in advance of filing deadlines to allow sufficient time for review and corrections. 

Many employers rely on ACA reporting services or compliance platforms to help determine the correct coding for Lines 14 and 16 of Form 1095-C. Accurate coding is critical because these fields communicate whether coverage was offered, whether it was affordable, and which safe harbor method was used. 

Final Thoughts 

Employee affordability rates play a central role in ACA compliance. By understanding the annual affordability thresholds, selecting an appropriate safe harbor method and maintaining accurate records, employers can significantly reduce their risk of penalties. 

Regular reviews during open enrollment, ongoing monitoring of employee eligibility, and careful preparation of ACA reporting forms can help ensure organizations remain compliant with evolving ACA requirements while continuing to provide valuable health coverage to their workforce. 

For more information on how to enhance your organization’s compliance efforts, or help with ACA reporting, contact MyHRConcierge at 855-538-6947 ext.108, ccooley@myhrconcierge.com. Or, schedule a convenient consultation below: