By: HUB’s EB Compliance Team
In Revenue Procedure 2025-25, the IRS announced that the affordability percentage for the 2026 calendar year will increase to 9.96% (up from 9.02% which is the rate for the 2025 calendar year).
Background
As a reminder, under the Affordable Care Act’s employer mandate, an applicable large employer is generally required to offer at least one health plan that provides affordable, minimum value coverage to its full-time employees (and minimum essential coverage to their dependents) or pay a penalty. For this purpose, “affordable” means the premium for self-only coverage cannot be greater than a specified percentage of the employee’s household income. Based on this recent guidance, that percentage will be 9.96% for the 2026 calendar year.
Takeaways
After three consecutive years of lower ACA affordability percentages, 2026 will see a return to higher percentages that were common prior to 2023. In fact, 9.96% will be the highest percentage ever. Employers will appreciate this increase as it allows them to pass along a greater portion of their total premium to employees.
To illustrate the increase, in 2025 an employer using the hourly rate of pay safe harbor to determine affordability can charge an employee earning $12 per hour up to $140.71 ($12 X 130 = 1560 X 9.02%) per month for employee-only coverage. However, in 2026, that same employer will be able to charge an employee earning $12 per hour $155.37 ($12 X 130 = 1560 X 9.96%) per month for employee-only coverage, and still use that safe harbor.
Employers with non-calendar year plans will still have to use the affordability percentage for 2025 until the start of their 2026 plan year. Alternatively, they may adjust employee contributions effective January 1, 2026, using the updated affordability percentage. Employers considering this should understand that changes to employee contributions mid-plan year require notice and may allow plan participants to change their elections under the employer’s cafeteria plan.
As HUB has written about previously, employers will sometimes use the Federal Poverty Level (FPL) safe harbor to determine affordability. While the 2026 FPL won’t be available until sometime in early 2026, employers are allowed to use the FPL in effect at least six months before the beginning of their plan year. This means employers can use the 2025 FPL number as a benchmark for determining affordability for 2026 now that they know what the affordability percentage is for 2026.
Finally, employers need to remember the old “family glitch” was removed starting in 2023. This rule previously prohibited family members of the employee from being eligible for subsidies when the employee was offered affordable, minimum value medical coverage. The removal of the family glitch did not carry new penalty exposure for employers, but it did open the door to subsidy eligibility for family members when the employee’s offer of family coverage is not affordable based on household income. The increase in the affordability percentage for 2026 may lead to some family members who were eligible for subsidies in 2025 no longer being eligible in 2026. This is especially likely given the expiration of the enhanced ACA subsidies under the Inflation Reduction Act at the end of 2025.
If you have any questions, please contact your HUB Advisor. View more compliance articles in our Compliance Directory.
NOTICE OF DISCLAIMER
Neither Hub International Limited nor any of its affiliated companies is a law or accounting firm, and therefore they cannot provide legal or tax advice. The information herein is provided for general information only and is not intended to constitute legal or tax advice as to an organization’s or individual's specific circumstances. It is based on Hub International's understanding of the law as it exists on the date of this publication. Subsequent developments may result in this information becoming outdated or incorrect and Hub International does not have an obligation to update this information. You should consult an attorney, accountant, or other legal or tax professional regarding the application of the general information provided here to your organization’s specific situation in light of your or your organization’s particular needs.