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The federal Affordable Care Act (ACA), through Internal Revenue Service (IRS) guidelines, has adjusted its affordability percentages downward in 2022, meaning that employers may need to change some of their employee contribution levels.

On August 20, 2021, the IRS issued Revenue Procedure 2021-36 to index the contribution percentages in 2022 for determining affordability of an employer’s plan under the ACA.

For plan years beginning in 2022, employer-sponsored coverage will be considered affordable if the employee’s required contributions for self-only coverage does not exceed the following:

• 9.61% of the employee’s household income for the year for purposes of both the pay-or-play rules and premium tax credit eligibility; and
• 8.09% of the employee’s household income for the year for purposes of an individual mandate exemption (adjusted under separate guidance). Although this penalty was reduced to zero in 2019, some individuals may need to claim an exemption for other purposes.

The updated affordability percentages are effective for taxable years and plan years beginning on Jan. 1, 2022.

This is a significant decrease from the affordability contribution percentages for 2021, which had been set at 9.83% and 8.27%. As a result, some employers may have to lower their employee contributions for 2022 to meet the adjusted percentage.

Under the ACA, the affordability of an employer’s plan may be assessed in the following three contexts:

• The employer shared responsibility penalty for applicable large employers (also known as the pay-or-play rules, or employer mandate).
• An exemption from the individual mandate tax penalty for individuals who fail to obtain health coverage.
• The premium tax credit for low-income individuals to purchase health coverage through an Exchange.

Although all of these provisions involved an affordability determination, the test for determining a plan’s affordability varies for each provision.

Understand where your organization falls within these ACA guidelines. Contact the Team at Evergreen Insurance for more information.

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Evergreen Insurance provides these updates for information only, and does not provide legal advice. To make decisions regarding insurance matters, please consult directly with a licensed insurance professional or firm.