Selerix Compliance Corner Update! 

What the updated 10.22% threshold means for employers—and why year-round ACA compliance still matters. 

The headline: For plan years beginning in 2027, the ACA affordability percentage rises to 10.22%—the first time the threshold has exceeded 10%. 

Every year, the IRS releases updated Affordable Care Act (ACA) affordability percentages. The announcement may look like another technical adjustment, but for HR and benefits teams, it can directly affect how employee contributions are structured and how organizations plan for the next plan year. 

For plan years beginning in 2027, the ACA affordability percentage increases to 10.22%. That is up from 9.96% in 2026 and marks the first time the threshold has crossed into double digits. The higher percentage gives Applicable Large Employers (ALEs) additional flexibility when determining the maximum employee contribution that may still be considered affordable under the ACA. 

Not sure whether your organization is considered an ALE? Use the Selerix Applicable Large Employer Calculator to estimate your status based on prior-year workforce data. 

Take the affordability math off your spreadsheet.
Selerix ACA Compliance Software can test affordability using the W-2, rate-of-pay, and Federal Poverty Line safe harbors and connect those calculations to eligibility, 1095-C coding, and reporting.

What Is the ACA Affordability Threshold — and What Changed for 2027?

For employer mandate purposes, affordability generally looks at the employee’s required contribution for the lowest-cost self-only option that provides minimum value.

For plan years beginning in 2027, that contribution is considered affordable under the statutory household-income test when it does not exceed 10.22% of the employee’s household income.

Because employers usually do not know employees’ household income, the IRS provides three employer affordability safe harbors that use information employers can actually access. We’ll walk through each one below.

The 2027 affordability percentage is not the only ACA number that changed. Employer Shared Responsibility Payment amounts also increased:

Year	No Offer Penalty  Section 4980H(a)	Affordability Penalty  Section 4980H(b)	Affordability  Percentage
2027	$3,780	$5,670	10.22%
2026	$3,340	$5,010	9.96%
2025	$2,900	$4,350	9.02%
2024	$2,970	$4,460	8.39%
2023	$2,880	$4,320	9.12%

Last updated for the 2027 plan year.

These penalty amounts are annualized figures; potential Employer Shared Responsibility Payments are calculated on a monthly basis.

For the other annual benefits numbers changing in 2027 — including HSA contribution limits and out-of-pocket maximums — see 2027 HSA and Health Plan Limits: What Employers Need to Know.

The increase to 10.22% gives employers a little more room when setting employee premium contributions. Think of it as a wider lane: there is more room to maneuver, but the rules of the road still apply.

Why This Matters for Applicable Large Employers 

Under the ACA, an Applicable Large Employer generally is an employer that averaged 50 or more full-time equivalent employees during the prior calendar year. ALEs must offer health coverage to full-time employees or may be subject to an ESRP if coverage is not offered—or if the coverage offered is not affordable or does not provide minimum value. 

For 2027, coverage is considered affordable if the employee’s required contribution for self-only coverage under the employer’s lowest-cost minimum value plan does not exceed 10.22% of the employee’s household income. 

Because employers typically do not know an employee’s household income, the IRS allows ALEs to use one or more affordability safe harbors: 

• Form W-2 Safe Harbor 
• Rate of Pay Safe Harbor 
• Federal Poverty Line (FPL) Safe Harbor 

These safe harbors are designed specifically for the employer shared responsibility rules. They give employers predictable ways to demonstrate affordability using information they control.

An employer may use different safe harbors for reasonable categories of employees, as long as the approach is applied uniformly and consistently within each category.

If coverage is not affordable under the applicable test and a full-time employee receives a premium tax credit for Marketplace coverage, the employer may be exposed to a Section 4980H(b) payment.

For a broader refresher on how the employer mandate, eligibility, affordability, and reporting requirements work together, watch ACA Fundamentals Every Employer Should Revisit. 

More Flexibility Does Not Mean Less Compliance 

A higher affordability percentage is helpful, but it does not reduce the employer’s underlying ACA responsibilities. The threshold is only one input in a much larger compliance process. 

Employers still need dependable processes for determining full-time status, tracking employee hours, applying measurement and stability periods where appropriate, calculating affordability, managing coverage offers, preparing Forms 1094-C and 1095-C, and filing required information with the IRS. 

If hours-of-service calculations are part of your eligibility process, our FAQ on Calculating Employee Hours Under the ACA provides a deeper look at the rules.

In other words, the number changed. The mandate did not. 

That is why ACA compliance works best as a year-round operational process—not a filing-season fire drill. The Selerix ACA Compliance Software supports the full compliance lifecycle, including connected data, eligibility tracking, Form 1095-C coding, electronic filing and distribution, risk monitoring, and compliance support. 

The 3 ACA Affordability Safe Harbors, With Worked Examples

The three ACA safe harbors answer the same basic question in different ways: Is the employee’s required contribution for the lowest-cost self-only plan that provides minimum value low enough to be treated as affordable?

Here’s one employee to make the differences easier to see.

Assume an hourly employee:

• Earns $18 per hour
• Works 130 hours per month
• Is offered a calendar-year plan
• Would pay $200 per month for the lowest-cost self-only plan providing minimum value
• Has full-year Form W-2 Box 1 wages of $28,080

How does that $200 contribution perform under each safe harbor?

Form W-2 Safe Harbor

The Form W-2 safe harbor bases affordability on the employee’s Box 1 wages from the employer.

For a full-year offer, the employee’s total required contribution for the year generally must not exceed 10.22% of those Box 1 wages for the 2027 plan year.

For our employee:

$28,080 × 10.22% = $2,869.78

The employee would contribute:

$200 × 12 = $2,400

Because $2,400 is below $2,869.78, the offer would satisfy the W-2 safe harbor based on these assumptions.

One catch: Box 1 wages can be lower than gross pay. Pre-tax elections such as certain retirement or cafeteria-plan deductions can reduce Box 1 wages, so employers using this safe harbor need to account for that when setting contributions.

For example, if our employee’s actual Box 1 wages ended up at $26,000, the maximum annual contribution under this safe harbor would fall to:

$26,000 × 10.22% = $2,657.20

The $2,400 annual employee contribution still works, but the cushion gets smaller.

That year-end dependency makes the W-2 safe harbor useful when taxable wages are relatively predictable, but less predictable for populations with significant fluctuations or pre-tax deductions.

Rate-of-Pay Safe Harbor

The rate-of-pay safe harbor can be more predictable for hourly employees because it does not depend on actual hours worked each month.

For an hourly employee, the basic calculation is:

Hourly rate × 130 hours × affordability percentage

For our $18-per-hour employee:

$18 × 130 = $2,340

Then:

$2,340 × 10.22% = $239.148

So the maximum monthly employee contribution is approximately $239.14 if the employer rounds down conservatively.

Because our employee pays $200 per month, the offer satisfies the rate-of-pay safe harbor.

There is an important wrinkle. The calculation uses the lower of the employee’s hourly rate on the first day of the coverage period or the employee’s lowest hourly rate during the month. If the hourly rate decreases, the affordability calculation needs to reflect that lower rate.

For salaried employees, employers generally use the employee’s monthly salary instead of multiplying an hourly rate by 130. A reduction in monthly salary can affect whether this safe harbor remains available.

The rate-of-pay safe harbor is often attractive for hourly populations because it can establish a contribution ceiling before the year begins rather than relying on year-end W-2 totals.

Federal Poverty Line Safe Harbor

The Federal Poverty Line safe harbor is the simplest of the three because it does not depend on an individual employee’s earnings.

Employers may select poverty guidelines in effect within the six months before the first day of the plan year. That means a calendar-year 2027 plan can use the 2026 mainland single-person poverty guideline of $15,960.

The calculation is:

$15,960 × 10.22% ÷ 12 = $135.926

A conservative monthly contribution ceiling is therefore $135.92.

Our sample employee was being asked to pay $200 per month. That means the same offer that passed the W-2 and rate-of-pay safe harbors would not pass the FPL safe harbor.

That comparison shows why safe-harbor strategy matters:

Safe Harbor	2027 Result for Sample Employee	Does $200/Month Pass?
Form W-2	About $239.14/month equivalent*	Yes
Rate of Pay	About $239.14/month	Yes
Federal Poverty Line	$135.92/month	No

*Based on assumed $28,080 Box 1 wages and a full-year offer.

The FPL safe harbor generally produces the lowest contribution ceiling, but it has one major advantage: simplicity. A single contribution amount can generally be established without calculating affordability employee by employee.

ACA Safe Harbor Codes: Telling the IRS Which One You Used

Affordability testing does not end with the calculation. Employers also need to report the appropriate information on Form 1095-C.

The three ACA safe harbor codes appear on Line 16:

Line 16 Code	ACA Safe Harbor
2F	Form W-2 Safe Harbor
2G	Federal Poverty Line Safe Harbor
2H	Rate-of-Pay Safe Harbor

An important consistency rule applies to Code 2F. If an ALE uses the Form W-2 safe harbor for an employee, it must use that safe harbor for all months of the calendar year for which that employee is offered health coverage. If the employee is offered coverage all year, that means all 12 months.

Also remember that Line 16 codes have precedence rules. For example, Code 2C generally takes precedence when an employee is actually enrolled in employer coverage for the full month.

For the complete Series 1 and Series 2 reference, including when each code should and should not be used, see the ACA Codes Cheat Sheet.

The Minimum Value Standard

Affordability is only half of the Section 4980H(b) equation.

Employer-sponsored coverage must also provide minimum value.

Generally, a plan provides minimum value when it covers at least 60% of the total allowed cost of benefits expected under the plan and provides substantial coverage of inpatient hospital services and physician services.

Minimum value is not the same thing as minimum essential coverage. A plan can satisfy one standard without necessarily satisfying the other.

That distinction matters because an employer cannot protect itself from potential Section 4980H(b) liability simply by making a low-cost plan affordable. If the plan does not provide minimum value and a full-time employee qualifies for a premium tax credit through the Marketplace, the employer may still face an affordability/minimum-value Employer Shared Responsibility Payment.

So when you review 2027 employee contributions, test both sides of the equation:

Is the plan affordable? And does it provide minimum value?

What Happens When Coverage Isn’t Affordable

The federal individual mandate penalty was reduced to $0 beginning in 2019, but the ACA employer mandate remains in effect.

For 2027, the indexed Section 4980H(b) amount is $5,670 annually for each affected full-time employee, calculated monthly, when the applicable conditions are met. That is up from $5,010 for 2026.

This potential payment can arise when an ALE meets the broader offer-of-coverage requirement but a particular full-time employee is not offered affordable coverage that provides minimum value and that employee receives a premium tax credit through the Marketplace.

The IRS continues to enforce the employer mandate through notices such as Letter 226-J, which proposes an Employer Shared Responsibility Payment. If required ACA filings are missing, employers may also encounter Letter 5699.

For more detail, read The IRS Letter You Don’t Want to Open: What Triggers 226-J and How to Avoid It, the ACA Penalty Letter Playbook, or our broader guide to ACA Penalty Letters for Applicable Large Employers.

Received a penalty letter? Selerix can help.

Non-Calendar-Year Plans and Other Edge Cases

The affordability percentage applies based on when the plan year begins, not simply the calendar year shown on the clock.

That distinction matters for non-calendar-year plans.

For example:

• A plan year beginning January 1, 2027 uses the 10.22% affordability percentage.
• A plan year beginning July 1, 2026 continues using the 9.96% percentage for that plan year, even after January 1, 2027.
• When that same plan renews on July 1, 2027, the 10.22% percentage applies.

In other words, employers with non-calendar-year plans should not automatically switch to 10.22% on January 1.

Mid-year changes can also affect the safe-harbor analysis. Changes in pay, employee contribution amounts, employment status, or available plan options may require revisiting the affordability calculation, depending on which safe harbor is being used.

This is another reason to document your methodology before the plan year begins rather than trying to reconstruct it during ACA reporting season.

What Employers Should Do Next

The higher 2027 threshold creates useful flexibility, but employers should use the change as a reason to review the full affordability process rather than simply raising employee contributions.

1. Re-test 2027 contributions before Open Enrollment.
   Run the lowest-cost self-only minimum-value plan through the safe harbor or safe harbors you expect to use before rates are finalized.
2. Confirm and document your safe-harbor strategy.
   Decide whether you will use W-2, rate of pay, FPL, or different safe harbors for reasonable employee categories. Apply the method consistently, and ensure the contribution strategy leaves an appropriate cushion.
3. Confirm your ALE status.
   Workforce changes can move an organization across the 50-full-time-and-FTE threshold. Use the Selerix ALE Calculator and make sure your hours-of-service data is complete.
4. Confirm prior filings were accepted.
   Do not stop at “we transmitted the forms.” Electronic ACA filings generate a Receipt ID and submission status. “Accepted with errors” still means there are issues worth reviewing and correcting.

For a closer look at the full reporting process, review the ACA Year-End Reporting Guide for Employers.

ACA Compliance Is Bigger Than One Percentage 

The 10.22% affordability threshold is meaningful. It creates more flexibility for employers and should be considered as organizations set contribution rates for 2027. But it does not simplify the many other moving parts involved in ACA compliance. 

Eligibility tracking, hours-of-service measurement, affordability determinations, offer documentation,Form 1095-C coding, electronic filing, employee distribution, prior-year corrections, and IRS notices all require consistent attention. The most effective approach connects those responsibilities instead of managing them as separate, once-a-year projects. 

Selerix helps employers manage ACA compliance from eligibility through filing and defense. Explore Selerix ACA Compliance Software to see how technology and experienced compliance support can help reduce administrative burden, improve visibility, and make year-round ACA administration easier to manage. 

Need a clearer path through ACA compliance? 
Talk with a Selerix ACA expert about your workforce, reporting responsibilities, and 2027 readiness. 
Explore ACA Compliance Solutions 

Partner with an ACA expert to ensure these updates do not go missed when reporting season comes. Talk to one of our ACA experts to get started.

Disclaimer: Selerix does not provide legal, regulatory or tax guidance, or advice. If legal advice counsel or representation is needed, the services of a legal professional should be sought. The information in this post is intended to provide a general overview of the topics and services contained herein. Selerix makes no representation or warranty as to the accuracy or completeness of the post and undertakes no obligation to update or revise the post based upon new information or future changes.