ACA affordability
ACA affordability is the test of whether an employee’s share of the lowest-cost self-only coverage you offer stays within a set share of income.
- LAW
- 26 U.S.C. §4980H
- BOUNDARY
- 9.96% of income, plan years beginning 2026
- FORMULA
- Lowest self-only share at or under a safe harbor
- WATCH FOR
- Leaving part-time hours out of the 50
An applicable large employer can owe a payment under Section 4980H when a full-time employee gets a premium tax credit because your coverage is unaffordable or below minimum value. For plan years beginning in 2026, coverage is affordable when the employee’s required contribution for the lowest-cost self-only plan that provides minimum value is no more than 9.96% of household income. You cannot see household income, so three safe harbors let you test against W-2Form W-2. Form W-2 is the annual wage and tax statement you give employees and file with the Social Security Administration, reporting wages paid and taxes withheld.Click to open the term wages, the rate of pay, or the federal poverty line instead.
Who does the affordability test apply to?
Only applicable large employers face the payment. You are one for a calendar year if you averaged at least 50 full-time employees, counting full-time equivalentsFull-time equivalent (FTE). Full-time equivalent (FTE) is a measure that converts employees’ hours into a number of full-time employees, so several part-time employees can count as one.Click to open the term, in the prior calendar year, unless the seasonal worker exception applies. Part-time employees count through their hours, so leaving them out of the 50 is a costly miscount.
| COUNT | RULE |
|---|---|
| Full-time employee | At least 30 hours of service a week; 130 hours in a month counts as the equivalent |
| Full-time equivalents | All other employees’ hours for the month, no more than 120 each, divided by 120 |
| Applicable large employer | Full-time employees plus equivalents average 50 or more over the prior year, rounded down |
How do the three safe harbors work?
An affordability safe harbor turns the 9.96% test into a monthly limit on the employee’s share of the lowest-cost self-only plan that provides minimum value. Meeting any one of them makes the coverage affordable for that employee for Section 4980H(b). You can use them only if you offer that coverage to your full-time employees and their dependents.
| SAFE HARBOR | MONTHLY LIMIT ON THE EMPLOYEE’S SHARE | EXAMPLE (2026) |
|---|---|---|
| Form W-2 wages | 9.96% of the year’s Box 1 wages, divided by 12 | $36,000 in Box 1 (2026): $298.80 |
| Rate of pay | 9.96% of 130 hours at the hourly rate (the lower of the plan year’s first-day rate and the month’s lowest), or of the monthly salary | $17.50 an hour: $226.59 |
| Federal poverty line | 9.96% of the poverty line for one person in your employee’s state, divided by 12 | $15,650 (2025 guideline): $129.89 |
What does unaffordable coverage cost?
There are two payments, and you owe at most one. Either applies only for a month in which at least one full-time employee gets a premium tax credit. Both are monthly; the amounts below are a full year’s.
| PAYMENT | WHEN IT APPLIES | 2026 AMOUNT |
|---|---|---|
| 4980H(a) | More than 5% of full-time employees, or more than five if that is greater, get no offer of coverage for themselves and their dependents | $3,340 a year for each full-time employee after the first 30 |
| 4980H(b) | You offer coverage, but it is unaffordable or below minimum value for an employee who gets the credit | $5,010 a year for each such employee, capped at the 4980H(a) amount |
Work it out: one plan year
Enter last year’s full-time employees and part-time hours for an average month, then the employee’s required contribution, wages, and rate of pay. The card counts you toward 50, tests the contribution against each safe harbor, and shows the payment, if any, taking this year’s full-time employees to be the same as last year’s.
Plan year 2026: 42 full-time employees, part-time hours, and one premium
Count 52: an applicable large employer
- Form W-2 wages$298.80 meets
- Rate of pay$226.59 fails
- Federal poverty line$129.89 fails
Federal employer shared responsibility for a plan year beginning January 1, 2026: whether you count as an applicable large employer, from one month of full-time employees and part-time hours standing in for last year’s average, the three affordability safe harbors at 9.96% (2026) for one employee’s lowest-cost self-only premium, with the $15,650 poverty line (2025 guideline), and the 4980H(a) and (b) amounts of $3,340 and $5,010 (2026) for a full year. It leaves out minimum value, related companies counted together, the seasonal worker exception, new employers, look-back measurement, partial years, and the higher Alaska and Hawaii poverty lines. Other cases and state law can change the result.
Frequently asked
- 26 U.S. Code § 4980H - Shared responsibility for employers regarding health coverage
- 26 CFR § 54.4980H-5 - Assessable payments under section 4980H(b).
- Rev. Proc. 2025-25
- Internal Revenue Bulletin: 2025-33
General information, not legal or tax advice. Apply current federal and state rules with qualified guidance.