Organizations that are considered applicable large employers, because they have 50 or more full-time/full-time equivalent employees, are required to offer affordable health insurance coverage options to all of their eligible workers.
The IRS determines the rate that can be used to determine the affordability of the coverage for each employee, as this rate is historically low, this could have effects on employers in 2023.
Why is the ACA Affordability Rate important?
The main purpose behind ACA reporting is for employers to show the IRS that they have offered the health insurance coverage required to the appropriate employees. This coverage must meet the Minimum Essential Coverage (MEC) requirements and it must be affordable for the employee.
This is where the affordability rate becomes important. To meet the ACA affordability requirements, the amount that an employee is contributing to their health insurance plan should not exceed 9.12% of their household income.
Affordability can be determined using the employee wages reported on Form W-2, the employee’s rate of pay, or the federal poverty line as alternative methods of calculation.
Click here to know more about calculating the ACA Affordability using safe harbors.
What is the ACA Affordability Rate for Tax Year 2023?
For 2023, the updated rate of affordability from the IRS is 9.12%. For reference, the 2022 rate of affordability rate was 9.61%.
This is the lowest the affordability rate has dropped since 2015 when the Affordable Care Act was signed into existence.
How will this impact employers?
This means that they will not be able to increase the amount that their employees are contributing to the plan. In fact, the amount that employees are contributing to their coverage will be reduced. This may lead to employers needing to pay more to offset this.
From a reporting standpoint, employers will need to calculate the ACA affordability rate for each of their employees to ensure that the coverage is still deemed affordable by the IRS. They may even need to look to the affordability safe harbor to meet the IRS requirements.
Does your organization need assistance with 1095 reporting for the upcoming tax year? ACAwise is here to help, with years of experience filing ACA forms with the IRS and the ability to deal with specific ACA scenarios, our team can help you adjust to these changes!
We also offer a free tool to help you determine the affordability of the coverage you are offering!