Affordability Safe Harbors under the ACA
The Affordable Care Act (ACA) includes provisions requiring employers to offer affordable health insurance coverage to their employees to avoid potential penalties. To determine affordability, the ACA has established three safe harbor methods employers can use:
- Form W-2 Safe Harbor (Code 2F): This safe harbor allows employers to determine affordability based on the employee’s Form W-2 wages. If the employee’s required contribution for employee-only coverage does not exceed 9.5% of their W-2 wages for the year, the coverage is considered affordable. This safe harbor must be used for all months of the calendar year in which the employee is offered coverage.
- Federal Poverty Line Safe Harbor (Code 2G): Under this safe harbor, coverage is considered affordable if the employee’s required contribution for employee-only coverage doesn’t exceed 9.5% of the federal poverty line for a single individual for the applicable calendar month.
- Rate of Pay Safe Harbor (Code 2H): This safe harbor bases affordability on the employee’s hourly rate of pay. If the employee’s required contribution for employee-only coverage does not exceed 9.5% of one-twelfth of the employee’s hourly rate of pay multiplied by 130 hours, the coverage is considered affordable.
Employers can choose any of these safe harbors to determine affordability for their employees. These safe harbors provide a streamlined way for employers to demonstrate compliance with the ACA’s affordability requirements without engaging in complex calculations.
It is important to note that these safe harbors apply specifically to the affordability of employee-only coverage. The cost of coverage for spouses and dependents is not considered when determining affordability under these safe harbors.
Contact HIA to discuss your contribution strategy and to run our own in-house ACA Safe Harbor Calculator.