The Internal Revenue Service (IRS) released Rev Proc. 2026-26 on July 21, 2026, announcing the Affordable Care Act (ACA) affordability percentage threshold for plan years beginning January 1, 2027. This percentage is adjusted annually for inflation and will be set at 10.22% for plan years beginning January 1, 2027.
This change is an increase from the 2026 standard of 9.96%,[1] and the highest this percentage has ever been. As a result, employers may consider increasing their employee contribution amounts to provide potential employer cost-savings for the 2027 plan year while still satisfying ACA affordability rules.
ACA Affordable Offer of Coverage
Under the ACA, employees are generally not eligible for a premium tax credit to buy a qualified health plan through the Health Insurance Marketplace (also known as the Exchange) if their employer-sponsored health coverage is considered affordable, minimum value coverage.
- Affordable: To be considered affordable, an employee’s contribution for self-only coverage under the lowest-cost plan option available cannot exceed 10.22% of the employee’s household income for the 2027 tax year.
- Minimum Value: Minimum value coverage is determined by ensuring that the plan’s share of the total allowed costs of benefits provided to the employee must be at least 60% of actuarial value, and the plan must provide substantial coverage of inpatient hospital and physician services.
Employers exercise significant control over employee contribution rates and must satisfy ACA affordability rules to avoid penalties. Consequently, if a full-time employee of an employer subject to the ACA (an “Applicable Large Employer” or an “ALE”) receives a premium tax credit to purchase a health plan through an Exchange due to an unaffordable offer of coverage, the employer will generally be subject to certain ACA employer shared responsibility penalties. See the section below for the ACA employer shared responsibility (or “pay-or-play”) penalties for 2027.
Applicable Large Employer (ALE)
An ALE is an employer with at least 50 full-time employees, including full-time equivalent employees, on average during the previous calendar year.
Full-time employee under the pay-or pay rules is defined as an employee expected to average 30 or more hours of service per week or 130 or more hours of service a month.
If an ALE offers multiple health plan options, affordability is determined based on the lowest-cost option for self-only coverage. This means that an offer of coverage is still deemed affordable even if an employee chooses to enroll in a higher-cost plan option as long as the lowest-cost option for self-only coverage satisfies the ACA affordability requirement. Moreover, if an ALE offers specific regional plans for employees in different states, affordability is determined based on the lowest-cost option available to the employees in those specific states/regions.
NOTE: Opt-Out Payments & Tobacco Surcharges
Opt-out payments: Employers offering their eligible employees a cash incentive to waive coverage under their group health plan (also known as “opt-out payments” or “cash in lieu of benefits”) should note that certain ACA affordability rules in connection with these arrangements may impact their affordability calculations.
Tobacco surcharges: For wellness program incentives related to tobacco use, the affordability of a plan that charges a higher initial premium for tobacco users will be determined based on the premium charged to non-tobacco users, or tobacco users who complete the related wellness program, such as attending smoking cessation classes.
ACA Affordability Safe Harbors
The ACA affordability requirement hinges on whether the employee’s contribution for self-only coverage meets the required contribution percentage (10.22% for 2027) of the employee’s household income for the taxable year. Since the IRS acknowledges that ALEs are typically not aware of an employee’s household income, it allows ALEs to measure the affordability of their coverage using three different ACA affordability safe harbor methods detailed below:
1. Federal Poverty Line (FPL) – $135.93 per month for plan years beginning on January 1, 2027.
- Annual income is defined as the mainland[2] FPL amount for a single-member household based on HHS Poverty Guidelines for 2026.
- ALEs may use FPL guidelines in effect within six months before the first day of the plan year, providing employers with ample time to calculate employee contributions in advance of the plan’s open enrollment period. Employers with calendar-year health plans generally use the prior year’s FPL since HHS does not typically release the updated FPL for the year until January.
2. Rate of Pay
- Hourly employees:
-
- multiply 130 by employee’s hourly rate,
- then multiply that number by 10.22%
-
- Salaried employees:
-
- multiply the employee’s monthly salary amount by 10.22%
-
3. Form W-2 (Box 1): not to exceed 10.22% of an employee’s Form W-2 Box 1 wages.
- W-2 Box 1 amount is divided by 12 for a monthly calculation, then multiply that number by 10.22%.
As long as an offer of coverage satisfies the ACA safe harbors listed above, the ACA employer shared responsibility will generally be met, avoiding penalties.
ALEs may use different ACA safe harbors for different categories of employees as long as the safe harbor is applied uniformly and consistently for all employees within that specific category. The ACA regulations provide the following examples of permissible employee categories for ACA safe harbor differentiation purposes[3]:
- specified job categories,
- nature of compensation (e.g., salaried vs. hourly),
- geographic location, and
- similar bona fide business criteria.
Non-Calendar Year Plans
The ACA adjusted affordability percentage is applied on a plan year basis. This means that non-calendar year plans with plan years starting before January 1, 2027 will continue to base affordability calculations for employee contributions on the 2026 affordability standard of 9.96% until their new plan year begins.
ACA Employer Shared Responsibility Penalties
The table below captures the employer shared responsibility penalties under the ACA for 2027[4] and 2026.
| ACA Pay or Play Penalties | 2027 | 2026 | Notes |
| “A” Penalties §4980H(a) “sledgehammer” penalty | $3,780 ($315.00/month) | $3,340 ($278.33/month) | Penalty for failing to offer minimum essential coverage to at least 95% of full-time employees (and their children up to age 26) for any month during the year and at least one employee enrolls in Exchange coverage with a premium tax credit.Based on the total number of full-time employees employed that month minus the first 30.Calculated on a group level. |
| “B” Penalties §4980H(b) “tack hammer” penalty | $5,670 ($472.50/month) | $5,010 ($417.50/month) | Penalty for failing to offer affordable, minimum value group health plan coverage to a full-time employee who enrolls in Exchange coverage with a premium tax credit.Calculated on an individual employee level.Overall penalty is based on how many employees receive premium tax credits. |
ACA Affordability Percentages – History
The table below provides a historical perspective of the ACA affordability percentages since 2014.
| Year | Affordability Percentage |
| 2014 | 9.50% |
| 2015 | 9.56% |
| 2016 | 9.66% |
| 2017 | 9.69% |
| 2018 | 9.56% |
| 2019 | 9.86% |
| 2020 | 9.78% |
| 2021 | 9.83% |
| 2022 | 9.61% |
| 2023 | 9.12% |
| 2024 | 8.39% |
| 2025 | 9.02% |
| 2026 | 9.96% |
| 2027 | 10.22% |
Employer Next Steps
Now that the IRS has released the ACA affordability percentage threshold for plan years beginning January 1, 2027, your Gehring Group consultant team will support all aspects of ACA affordability calculations for your group health plans beginning on or after January 1, 2027.
In the meantime, contact your Gehring Group consultant team with any questions.
[1] Notably, the ACA affordability percentage rate for 2027 and 2026 was calculated using a different methodology than was used in 2025 and a number of years prior to 2025.
[2] Mainland means the 48 contiguous states and the District of Columbia. For Alaska, the FPL amount is $169.91 per month, and for Hawaii, the FPL amount is $156.37 per month for plan years beginning on January 1, 2027.
[3] Treas. Reg. § 54.4980H-5(e)(2)(i).
[4] IRS Revenue Procedure 2026-22.